CORPORATE INVESTMENTS & NRI's

What is the status of investment in corporate deposits by NRI's ?

Corporate deposits by NRI's have to be made for minimum period of 3 years and a minimum amount of US$10,000 has to be invested. These deposits carry an interest of 14% and are repatriable depending on the depositee company's offer. Interest on corporate deposits are taxed at 20% and this amount is deducted at source.

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What is the status of investment in units by NRI's ?

NRI's investing in units have to invest a minimum amount of US$1,000 for a minimum period of 36 months. Principal and returns of units are repatriable if applied out of the initial quota reserved for NRI's. They are not repatriable if applied out of the quota allottable to Indian public. Returns from UTI's US64 scheme are totally exempt from tax in the hands of NRI's. In case of other units, capital gains are taxed @ 20% in case of long term capital gains.

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What is the status of investment in IPO's by NRI's ?

If an NRI invests in Initial Public Offerings (IPO's) through the NRI quota, both the principal as well as the returns are repatriable to the country of the NRI's choice. For issuing shares through initial quota, the concerned company has to apply to the RBI for prior permission. Long term capital gains are taxed @ 20%.

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What is the status of investment in secondary markets by NRI's ?

Principal and returns on investment in secondary markets are repatriable if the prior permission of the RBI is obtained for such repatriation. Once such permission is obtained, the NRI can continue to invest in the secondary market on a repatriation basis. Rates of taxes on capital gains are the same as the rates on IPO's. However, it needs to be noted that in case of secondary market purchases, RBI provides a blanket permission to the authorized dealer (bank) whereas in case of secondary market sales RBI permission has to be sought on a case-by-case basis for each transaction. It needs to be emphasised that direct investments in the primary and secondary markets on a non-repatriation basis does not require any prior approval from the RBI.

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Are there any industry exposure restrictions for NRI portfolio investments ?

Pursuant to a circular issued by the RBI dated May 19, 1995, the entire manufacturing and service sector has been thrown open to NRI investment. NRI's, OCB'S and FII's have now been permitted to invest upto 24% on a repatriable basis in companies engaged in finance, hire-purchase, leasing, trading and other services. Currently, the only restriction on NRI investments is in Agricultural Land, Plantations and Farm Houses.

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What is the basis for levying taxes on capital gains ?

Capital gains tax is levied on the dollar value of capital gains. Levies on returns from non-repatriable investments will be after discounting for inflation.

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What is the procedure for NRI's to apply for new issues of companies ?

Application to IPO's by NRI's have to be made in the prescribed blue colored form in English. Applications should be made for a minimum of 500 shares and in multiples of 100 thereof. Applications should be made in the name of individuals(not in the names of minors, foreign nationals, partnership firms, institutions or their nominees) of Indian nationality/origin, overseas companies, partnership firms, trusts, societies and other corporate bodies, owned atleast to the extent of 60% by non-resident individuals of Indian nationality/origin.

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How should payment for IPO applications be made by NRI's ?

Payment can be made in any one of the following ways :

Cheques drawn in Indian rupees on NRE accounts maintained with Indian banks.
Bank drafts drawn out of NRE or FCNR accounts in Indian banks.
Indian rupee drafts purchased from abroad.
Stockinvest purchased out of NRE or FCNR accounts.

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What are the tax rates applicable to NRI's on income from such shares ?

Under Section 115E of the Income Tax Act, any Indian citizen or any person of Indian origin who is not a resident, who has acquired the equity shares of the company in convertible foreign exchange, and whose income consists of only income by way of long term gains and dividends from the shares of such company shall be charged to income tax at a flat rate of 20%.

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How are long term gains defined for NRI's ?

Definition of long term gains for NRI's is same as for residents. Gains arising from disposal of shares, debentures or units held for a period of at least 12 months are classified as long term capital gains under the Income Tax Act 1961.

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What are the conditions for NRI's to avail of exemptions from long term capital gains ?

Under Section 115F of the Income Tax Act 1961, long term capital gains referred to in the previous point, are exempt proportionately provided the net consideration (net of expenses) is entirely or partly invested in specified assets within a period of six months from the date of such transfer. However, the amount so exempted becomes again chargeable to tax if the new asset is transferred or converted within a period of three years from the date of its acquisition.

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What are the equity and debt investment opportunities available to NRI's?

Non Resident Indians can also invest in shares, corporate debentures, government securities as well as units of Unit Trust of India and other mutual funds. NRI's however cannot invest in bearer instruments like Kisan Vikas Patra or Indira Vikas Patra. Government securities and units can be freely transferred provided such deals are effected through authorised dealers. Proceeds from sale or maturity of government securities and units can be repatriated abroad only if such investments were purchased out of NRE or FCNR accounts.

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Are funds invested by NRI's in corporate shares and debentures repatriable?

Funds can be invested in India by NRI's with or without repatriation benefits. In case of investment on a non-repatriation basis, the RBI has granted a blanket permission to NRI's and only the concerned company/firm is required to file a declaration to that effect with the Reserve Bank of India within 90 days of the invesment.

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What is the 40% scheme and the 100% scheme for repatriation of NRI investments?

Under the 40% scheme companies engaged in the following 6 sectors are allowed to issue shares/debentures to NRI's with repatriation to the extent of 40% of the new issue without any limit to the amount repatriable as interest or dividend: (i) Industrial and manufacturing units (ii) Hotels with 3,4,5 star categories (iii) Hospitals and diagnostic centres (iv) Shipping companies (v) Development of computer software (vi) Oil exploration services Under the 100% scheme NRI's are permitted to invest in high priority industries listed in Annexure III to the Statement on Industrial Policy dated July 24, 1991 of the Government of India upto 100% of the issue. There is no restriction on the repatriation of interest and dividend except in the case of consumer goods industries where the outflow on account of dividend or interest has to be balanced by export earnings.

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Can an NRI undertake revival of a sick industrial unit?

NRI's are permitted to undertake revival of sick industrial units by making bulk investments in them to the extent of 100% of equity capital. Application for permission has to be submitted by the concerned company to the Central Office of the RBI in the prescribed form. Repatriation of capital is allowed after a minimum lock-in of five years on a case-by-case basis.

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Can NRI's buy shares and debentures in the secondary markets?

NRI's are permitted to invest in shares, debentures and units through stock exchanges in India. The application has to be submitted to the RBI through one selected designated branch of a bank in the prescribed format. Such approval is valid for a period of five years after which it can be renewed. The maximum ceiling for NRI investment is 24% of the paid-up capital for the entire NRI community and 1% of the paid-up capital for an individual NRI or OCB.

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What is the procedure for issue of rights and bonus shares to NRI's?

While rights and bonus entitlement to NRI's on a non-repatriation basis will be covered by general permission, the permission of Reserve Bank of India has to be sought for issue of rights and bonus shares on a repatriation basis. In case of NRI's planning to renounce their rights an application has to be made to the RBI accompanied with a letter detailing the folio numbers of the shares held and the manner in which the rights are sold.

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