Need Help > Investment > Direct Investment with Repatriation benefits


Q.1 What are the schemes available to NRIs for direct investments in India with repatriation benefits?

Ans. NRIs can make investments in new issues of shares/convertible debentures of Indian companies under direct investment schemes such as 24% scheme/51% scheme/100% scheme. They can also invest in the schemes of domestic Mutual Funds floated by public/private sector institutions/companies. Non-resident investors are not required to apply for permission to invest. The company concerned will have to file a declaration in Form ISD together with the required documents to Reserve Bank within 30 days from the date of issue.

Q.2 What is 24% Scheme?

Ans. Under the 24% Scheme, Indian companies engaged or proposing to engage in any activity including finance, hire purchase, leasing, trading or other services, establishment of schools/colleges, etc. (except agricultural/plantation activities) are allowed to issue shares/debentures to NRIs with repatriation benefits to the extent of 24% of the new issue.

Q.3 What is 51% Scheme?

Ans. Under the 51% Scheme, NRIs/OCBs are permitted to subscribe to new issues of equity/preference shares and convertible debentures of any new or existing company on repatriation basis provided a) The issue of equity/preference shares and convertible debentures to NRIs/OCBs with repatriation benefits does not exceed 51 per cent of the face value of each new issue of the company. b) The shares of the company are not listed on any stock exchange, and c) The company is engaged in manufacturing activity not being an activity specified in Annexure III to the Statement of Industrial Policy 1991 of Government of India amended from time to time. Investment under this scheme can be made for setting up new manufacturing projects or for expansion/diversification of their existing manufacturing activities.

Q.4 Is remittance of interest/dividend to NRI investors freely allowed under the 24%/51% Scheme?

Ans. Yes. There is no ceiling or restriction on the amount of remittable dividend. Remittance of interest/dividend to NRI investors will be allowed by authorised dealers under the powers delegated to them.

Q.5 What are the specified industries under the 100% Scheme?

Ans. Under 100% Scheme, NRIs are permitted to invest in high priority industries listed in Annexure III to the Statement on Industrial Policy dated 24th July 1991 of the Government of India up to 100% of the new issue.

Q.6 Is dividend/interest earned in respect of investments made under the 100% Scheme freely remittable to the NRIs abroad?

Ans. Dividend/interest can be remitted freely except in the case of consumer goods industries where the outflow on account of dividend is required to be balanced by export earnings of the company either in the year of declaration of dividend or in the years prior to the declaration of dividend. This requirement is enforced for a period of seven years from the commencement of commercial production.

Q.7 How does an NRI obtain permission of Reserve Bank for investment under the 24% or 51% or 100% Scheme?

Ans. The NRI investor need not apply to Reserve Bank. Indian companies have been permitted to issue shares/convertible debentures to NRIs/OCBs. They have to file declaration in Form ISD together with the required documents to Reserve Bank within 30 days from the date of issue.

Q.8 Besides the 24%, 51% and 100% Schemes is there any other scheme for investment by NRIs in the equity of Indian companies?

Ans. Yes. NRIs are permitted to undertake revival of sick industrial units by making bulk investment in them to the extent of 100 per cent either by way of purchase of existing equity shares or in the form of subscription to new equity issues.

Q.9 Is the capital brought into India for revival of a sick industrial unit allowed to be repatriated?

Ans. Yes.

Q.10 How can an NRI obtain permission of Reserve Bank for investment in a sick industrial unit?

Ans. Application for necessary permission should be made by the Indian company to the Central Office of Reserve Bank in Mumbai in form RSU.

Q.11 Under the existing Industrial Policy, investment by foreign collaborators upto 50%/51%/74% of the equity is allowed by Reserve Bank on repatriation basis in certain high priority industries. Can NRIs take up the balance 50%/49%/26% equity in such cases on repatriation basis?

Ans. Yes.

Q.12 Can NRIs make investments in companies engaged in real estate development in India?

Ans. Yes. Investment upto 100% in the new issue of equity shares/convertible debentures of Indian companies engaged in the following areas is allowed - i) Development of serviced plots and construction of built up residential premises; ii) Real estate covering construction of residential and commercial premises (including business centres and offices; iii) Development of township; iv) City and region level urban infrastructure facilities including roads and bridges; v) Manufacture of building material; vi) Financing of housing development.

Q.13 What is the procedure for obtaining Reserve Bank permission in this regard?

Ans. Application for the purpose should be made by the concerned Indian company to the Central Office of Reserve Bank in Mumbai [in Form ISD(R)]

Q.14 Will repatriation of the original investment and/or dividend income be freely permitted?

Ans. Yes. Repatriation of original investment will be permitted after a lock-in period of three years from the date of issue of the equity shares/convertible debentures. In addition, OCBs will be permitted to repatriate net profit (upto 16 per cent) arising from the sale of such investment after the lock-in-period of three years. (This facility is, however, not available to individual NRIs.) Annual dividend/interest on equity shares/debentures can, however, be freely remitted subject to payment of tax.

Q.15 Are investments in Air Taxi operations permitted to be made by NRIs/OCBs?

Ans. Yes. Investments upto 100% equity participation for carrying on Air Taxi operations are permitted in terms of the guidelines issued by the Director General of Civil Aviation for Air Taxi operations. Reserve Bank has granted general permission to Indian companies engaged in Air-Taxi operations to issue shares subject to certain conditions. The concerned company should file a declaration in form ISD(R) within 30 days from date of issue to Reserve Bank.

Q.16 Can NRIs invest in non-convertible debentures on repatriation basis?

Ans. Yes. Application for necessary permission should be made to Reserve Bank (Central Office) by the concerned Indian company in form ISD(R).

Q.17 What is the procedure to be followed for making investment in the schemes of domestic Mutual Funds with repatriation benefits?

Ans. Reserve Bank has granted general permission to domestic mutual funds to issue units/similar instruments to NRIs/OCBs on both repatriation basis and non-repatriation basis.

Q.18 Can NRIs invest in 100% Export Oriented Units on repatriation basis?

Ans. Yes. NRIs will be permitted to invest up to 100% in 100% Export Oriented Units subject to obtaining approval from the Government of India, Ministry of Industries (SIA) for setting up the EOU.

Q.19 Can NRIs acquire shares disinvested by Government of India in Public Sector Enterprises (PSEs) by inviting sealed tenders?

Ans. Yes. Reserve Bank has granted general permission to NRIs to acquire shares of PSEs on their bids being successful provided the holding of a single NRI investor does not exceed one per cent of the paid up capital of the PSE concerned, the purchase consideration/bid money is paid by way of remittance from abroad or by debit to his NRE/FCNR accounts.

Q.20 What is the procedure for issue of rights entitlement to NRIs?

Ans. The concerned company should approach Reserve Bank for issue of rights entitlement to NRIs in the prescribed form if on repatriation basis. However, rights entitlement on non-repatriation basis would be covered by the general permission. (Please see answer to Question No.2 & 3 )

Q.21 What is the procedure required to be followed by NRIs for renunciation of rights entitlement?

Ans. NRIs can make an application to Reserve Bank by a letter detailing therein the folio number of the shares held and the manner in which the rights are being sold.

Q.22 What is the procedure for issue of bonus shares?

Ans. The concerned Indian company should approach Reserve Bank for issue of bonus shares to NRIs if the original investment is on repatriation basis. Issue of bonus shares in respect of investment on non-repatriation basis is covered by general permission.

Q.23 Can NRIs obtain loans abroad against the collateral of shares/debentures of Indian companies?

Ans. Yes. Authorised dealer have been permitted to grant loans/overdrafts abroad to NRIs through their overseas branches and correspondents against collateral of the shares/debentures of Indian companies held by them, provided the concerned shares/debentures were acquired on repatriation basis.

Q.24 Can sale proceeds of the shares/debentures be remitted abroad for liquidation of outstandings against such loans/overdrafts?

Ans. Yes, subject to payment of Income tax, Capital Gains tax etc. payable, if any.

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