Foreign Exchange Management Act (FEMA)

PRESENTED BY: MARKETING GROUP 3

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 The Foreign Exchange Management Act (FEMA) is a 1999

Indian law "to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India".
It was passed in the winter session of Parliament in 1999, replacing the

Foreign Exchange Regulation Act (FERA).

It enabled a new foreign exchange management regime consistent with

the emerging framework of the World Trade Organization (WTO).

It is another matter that the enactment of FEMA also brought with it

the Prevention of Money Laundering Act of 2002, which came into effect from 1 July 2005.

OBJECTIVES
To promote foreign payments and trade in the country. To unite and revise all the laws that relate to foreign exchange To encourage the orderly maintenance and development of the foreign exchange market in India.

SWITCH FROM FERA TO FEMA ????????????? FERA, in place since 1974, did not succeed in restricting activities such as the expansion of transnational corporations (TNCs). The concessions made to FERA in 1991-1993 showed that FERA was on the verge of becoming redundant.

After the amendment of FERA in 1993, it was decided that the act would become the FEMA. This was done in order to relax the controls on foreign exchange in India, as a result of economic liberalization.
FEMA served to make transactions for external trade (exports and imports) easier transactions involving current account for external trade no longer required RBIs permission. The deals in Foreign Exchange were to be managed instead of regulated. The switch to FEMA shows the change on the part of the government in terms of foreign capital

FEW DEFINATIONS
Person resident in India As per section 2(v) of FEMA, Person resident in India means (i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include (A) a person who has gone out of India or who stays outside India, in either case (a)for or on taking up employment outside India, or (b) for carrying on outside India a business or vocation outside India, Or

(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

(B) a person who has come to or stays in India, in either case, otherwise than (a)for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period; To be treated as a person resident in India under FEMA, a person has not only to satisfy the condition of the period of stay (being more than 182 days during the preceding financial year) but has to also comply with the condition of the purpose/intention of stay

This provision equally applies to foreign citizen as well.

(ii) any person or body corporate registered or incorporated in India,

(iii) an office, branch or agency in India owned or controlled by a person resident outside India,
(iv) an office, branch or agency outside India owned or controlled by a person resident in India. As per section 2(w) of FEMA, Person resident outside India means a person who is not resident in India.

Definition of NRI: For the purposes of (i) FEM (Deposit) Regulations, (ii) FEM (Investment in Firm or Proprietary Concern in India) Regulations, (iii) FEM (Transfer or Issue of Security by a Person Resident Outside India) Regulations, and (iv) FEM (Borrowing and Lending In Rupees) Regulations: Non-resident Indian (NRI) means a person resident outside India who is a citizen of India or is a person of Indian origin. For the purposes of FEM (Remittance of Assets) Regulations: Non-resident Indian (NRI) means a person resident outside India who is a citizen of India.

P.I.O
For the purposes of (i) FEM (Deposit) Regulations, (ii) FEM (Borrowing and Lending In Rupees) Regulations, and (iii) FEM (Remittance of Assets) Regulations Person of Indian Origin means a citizen of any country other than Bangladesh or Pakistan, if (a) he at any time held Indian passport; or (b) he or either of his parents or any of his grand-parents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or (c) the person is a spouse of an Indian citizen or a person referred to in sub-clause (a) or (b).

FEM (Investment in Firm or Proprietary Concern in India) Regulations

Person of Indian Origin means a citizen of any country other than Bangladesh or Pakistan or Sri Lanka, if (a) he at any time held Indian passport; or (b) he or either of his parents or any of his grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or (c) the person is a spouse of an Indian citizen or a person referred to in sub-clause (a) or (b).

FEM (Acquisition and Transfer of Immovable Property In India) Regulations 2(c) Person of Indian origin means an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who (i) at any time, held Indian passport; or (ii) who or either of whose father or mother or whose grandfather or grandmother was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955). Spouse of an Indian citizen or a person referred to in sub-clause (i) or (ii) is excluded

Accordingly, for the purposes of FEM (Investment in Firm or Proprietary Concern in India) Regulations, Sri Lanka is also excluded from the definition of PIO. For the purposes of FEM (Acquisition and Transfer of Immovable Property In India) Regulations, individuals being citizens of Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan are also excluded from the definition of PIO

FACILITIES AVAILABLE TO NRI & PIO

Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) are allowed to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India. The ceiling for overall investment for FIIs is 24 per cent of the paid up capital of the Indian company and 10 per centfor NRIs/PIOs. The limit is 20 per cent of the paid up capital in the case of public sector banks, including the State Bank of India The ceiling of 24 per cent for FII investment can be raised up to sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect. And the ceiling of 10 per cent for NRIs/PIOs can be raised to 24 per cent subject to the approval of the general body of the company passing a resolution to that effect

THE EQUITY SHARES AND CONVERTIBLE DEBENTURES OF THE COMPANIES WITHIN THE PRESCRIBED CEILINGS ARE AVAILABLE FOR PURCHASE UNDER PIS SUBJECT TO: the total

purchase of all NRIs/PIOs both, on repatriation and non-repatriation basis, being within an overall ceiling limit of (a) 24 per cent of the company's total paid up equity capital and (b) 24 per cent of the total paid up value of each series of convertible debenture; and the investment made on repatriation basis by any single NRI/PIO in the equity shares and convertible debentures not exceeding five per cent of the paid up equity capital of the company or five per cent of the total paid up value of each series of convertible debentures issued by the company.

MONITORING FOREIGN INVESTMENTS The Reserve Bank of India monitors the ceilings on FII/NRI/PIO investments in Indian companies on a daily basis. For effective monitoring of foreign investment ceiling limits, the Reserve Bank has fixed cut-off points that are two percentage points lower than the actual ceilings. The cut-off point, for instance, is fixed at 8 per cent for companies in which NRIs/ PIOs can invest up to 10 per cent of the company's paid up capital. The cut-off limit for companies with 24 per cent ceiling is 22 per cent and for companies with 30 per cent ceiling, is 28 per cent and so on. Similarly, the cut-off limit for public sector banks (including State Bank of India) is 18 per cent.

Once the aggregate net purchases of equity shares of the company by FIIs/NRIs/PIOs reach the cut-off point, which is 2% below the overall limit, the Reserve Bank cautions all designated bank branches so as not to purchase any more equity shares of the respective company on behalf of FIIs/NRIs/PIOs without prior approval of the Reserve Bank. The link offices are then required to intimate the Reserve Bank about the total number and value of equity shares/convertible debentures of the company they propose to buy on behalf of FIIs/NRIs/PIOs. On receipt of such proposals, the Reserve Bank gives clearances on a first-come-first served basis till such investments in companies reach 10 / 24 / 30 / 40/ 49 per cent limit or the sectoral caps/statutory ceilings as applicable. On reaching the aggregate ceiling limit, the Reserve Bank advises all designated bank branches to stop purchases on behalf of their FIIs/NRIs/PIOs clients. The Reserve Bank also informs the general public about the `caution and the `stop purchase in these companies through a press release.

Change of residential status from resident outside India to resident in India

As per section 6(4) of FEMA, a person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.

CHANGE OF RESIDENTIAL STATUS FROM RESIDENT IN INDIA TO RESIDENT OUTSIDE INDIA

As per section 6(5) of FEMA, a person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India. Any fresh investments in shares or expansion of the activities of the companies in which investment is made would be subject to the prevailing sectoral FDI cap and conditionality's. Further, sale proceeds of the assets would have to be deposited in the NRO Account and disposal thereof would be as per the applicable guidelines

CAPITAL ACCOUNT TRANSACTIONS & CURRENT ACCOUNT TRANSACTIONS

Under Foreign Exchange Management Act, 1999 (FEMA), all transactions involving foreign exchange have been classified either as capital or current account transactions. Foreign exchange means foreign currency and includes, (i) deposits, credits and balances payable in any foreign currency, (ii) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency, and (iii) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency.

As per Section 2(j) of FEMA, Current Account Transaction means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing such transaction includes,

(i) Payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business, (ii) Payments due as interest on loans and as net income from investments,
(iii) Remittances for living expenses of parents, spouse and children residing abroad, and (iv) Expenses in connection with foreign travel, education and medical care of parents, spouse and children

Current Account Transactions Few Examples

Payment for imports of goods Remittance of interest on investment made and funds borrowed from abroad after tax deductions Remittance of Dividend if the investment was allowed without any condition Booking with Airlines/Shipping Salary/remuneration to Foreign Directors subject to restrictions in any other law

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Restrictions on Current Account Transactions

The following requires prior approval of RBI:
Gifts and Donations above USD 5000 Corporate Donation above 1 % of Foreign Exchange Earning during 3

previous years or USD 5 million, whichever is less

Commission to Agents abroad for sale of residential/commercial plots

in India above 5 % of Inward Remittance or USD 25000 , whichever is higher

Consultancy Charges paid abroad for more than USD 1 million Reimbursement of Pre-incorporation expenses above 5% of FDI or

USD 1 lac whichever is higher

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Prohibited Current Account Transactions

Drawal of exchange for travel to or with residents of Nepal/Bhutan
Commission on export to Joint Venture (JV) / Wholly Owned

Subsidiary(WOS) Abroad,

Commission on Rupee Trade Call back Charges Remittance out of Lottery, racing etc. Bogus Prizes / Fictitious Schemes etc.

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Import of Goods & Services

Import of Goods and Services is also a Current Account Transaction and is freely permitted however few procedures are required to be followed as
Obtaining of Import License if required Opening of Letter of Credit CA Certificate for deduction of TDS for payment made outside Gold may be imported by nominated agencies/banks on consignment

basis

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Export of Goods & Services

Exporter should make proper Declaration in prescribed

forms to Authorised Dealers

Declaration is not required in case Trade Samples, Baggage,

Gifts less than 5 lacs etc.

Export of Goods on following requires prior approval
Lease/hire
Counter Trade Export on Elongated Credit Terms

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As per Section 2(e) of FEMA, Capital Account Transaction means a transaction which alters the assets or liabilities, including contingent liabilities. i.e.
(a) Transfer or issue of any foreign security by a person resident in India or outside in India; (b) Transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India;

(c) Any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India;
d) Deposits between persons resident in India and persons resident outside India;

(e) Export, import or holding of currency or currency notes; (f) Transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India; (g) Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred : (i) by a person resident in India and owed to a person resident outside India; or (ii) by a person resident outside India.

Transfer As per Section 2(ze) of FEMA, transfer includes sale, purchase, exchange, mortgage, gift, loan or any other form of transfer of right.

Master Circulars
Master Circulars are consolidated instructions covering Act, Regulations, Rules, Circulars and Notifications, and are issued on July 01 every year with sunset clause of one year. Any changes affected during the year are consolidated in next Master Circular. As at present, Reserve bank has issued following Master Circulars (indicative list): Foreign Investment in India,

Direct Investment by Residents in Joint Venture (JV) / Wholly Owned Subsidiary(WOS) Abroad,
External Commercial Borrowings and Trade Credits,

 Export of Goods and Services, Import of Goods and Services Establishment of Liaison - Branch - Project Offices in India by Foreign Entities Opening of Branch-Subsidiary-Joint Venture-Representative office. Miscellaneous Remittances from India Facilities for Residents, Remittance Facilities for Non-Resident Indians - Persons of Indian Origin Foreign Nationals, Non-Resident Ordinary Rupee (NRO) Account, and Compounding of Contraventions under FEMA, 199

Facilities available to NRI & PIO

Bank Accounts: NRE A/C, FCNR A/C, NRO A/C
Repatriation Limit: upto USD 1 million per year from NRO

Account
Housing Loans: can obtain Housing Loans for purchasing

property in India

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Acquisition of Immovable Property by NRI & PIO in India

Permitted to purchase Residential and Commercial Property without

RBIS Permission

No Limitation on the Number / size of the Property Purchase of Agricultural Land/ Plantation Property/ Farm Houses

requires RBI Permission

PIO should not be a citizen of Pakistan , Bangladesh , Sri Lanka ,

Afghanistan , China , Iran , Nepal , Bhutan

Citizen of above Countries not permitted to acquire Immovable

Property except by way of Lease for less than five years without permission of RBI

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Acquisition by NRI & PIO in India Contd.

Payment can be made by NRI / PIO out of
Funds remitted to India through normal banking channel or Funds held in NRE / FCNR / NRO account maintained in India

No payment can be made either by traveler's cheque or by foreign currency notes and also no payment can be made outside India.
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Types of AccountsNRE (Non Resident External)

Its a Rupee Account Amount Principal as well Interest is freely repatriable Transfer from/to FCNR A/c permitted Any form of Account is maintainable Term Deposit permitted minimum for one and maximum for three years Nomination/ Joint Holding can be done in name of /with non resident Disadvantages: If Rupee depreciates savings of person counted in USD depreciates
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Types of AccountsNRO (Non Resident Ordinary)

Its a Rupee Account Current incomes in the account is freely repatriable Principal amount is repatriable upto USD 1 million Dollar

subject to applicable taxes Any form of Account is maintainable Term Deposit permitted minimum for one and maximum for three years Nomination/ Joint Holding can be done in name of /with resident also Disadvantages: If Rupee depreciates savings of person counted in USD depreciates

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Foreign Currency Non Resident Account

Maintained in Foreign Exchange
No loss or gain due to fluctuations Both Principal & Interest are repatriable

NRI can open this account

Residents of Pakistan and Bangladesh requires prior RBI approval Joint Account only with NRI is permissible Can be opened with funds remitted from outside India through normal Banking Channels and those are of repatriable nature

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Foreign Currency Non Resident Account

Maintained in Foreign Exchange
No loss or gain due to fluctuations Both Principal & Interest are repatriable

NRI can open this account

Residents of Pakistan and Bangladesh requires prior RBI approval Joint Account only with NRI is permissible Can be opened with funds remitted from outside India through normal Banking Channels and those are of repatriable nature

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FOREIGN EXCHANGE
FEMA prohibits: Dealing in or transfer of Foreign Exchange or Foreign Security to any person other than Authorised Person
Make any payment otherwise through an authorized person to or for

the credit of any person resident outside India in any manner

receive otherwise through an authorized person, any payment by order

or on behalf of any person resident outside India in any manner.

enter into any financial transaction in India as consideration for or in

association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person

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Exemptions
possession of foreign currency or foreign coins by any

person up to such limit as the Reserve Bank may specify

foreign currency account held or operated by such person

or class of persons and the limit up to which the Reserve Bank may specify July, 1947

foreign exchange acquired or received before the 8th day of

foreign exchange held by a person resident in India up to

such limit as the Reserve Bank may specify, if such foreign exchange was acquired by way of gift or inheritance from a person referred above

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Exemptions Contd.
foreign exchange acquired from employment, business,

trade, vocation, services, honorarium, gifts, inheritance or any other legitimate means up to such limit as the Reserve Bank may specify
such other receipts in foreign exchange as the Reserve Bank

may specify

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Repatriation
Repatriate to India" means bringing into India the realized foreign exchange and the selling of such foreign exchange to an authorized

person in India in exchange for rupees, or

the holding of realized amount in an account with an

authorized person in India to the extent notified by the Reserve Bank, debt or liability denominated in foreign exchange

It includes use of the realized amount for discharge of a

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Manner of Repatriation
It can be done in the following manner:
Sell it to Authorised Person in India in exchange for Rupees

Retain in an account with an authorised dealer

Use it for discharge of a debt or liability denominated in

foreign exchange in the manner specified by RBI

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Surrender
Any Foreign Exchange earned by a person other than

person resident in India not used for permissible purposes should be surrendered within 60 days of such acquisition / purchase exchange is in currency and coins and 180 days if it is in travelers cheque or if the same is acquired by person resident in India

However if acquired for Foreign Travel within 90 days if the

These provisions are not applicable to Foreign Currencies of Nepal and Bhutan
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Manner of receipt in Foreign Exchange

Payment for Export can be received :
in form of Draft, cheque, foreign currency notes/travelers

cheque etc. provided the foreign currency so received is surrendered within the specified time period

by debit to FCNR /NRE Account In rupees from the credit card servicing bank in India

where payment is made via credit card

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Manner of receipt in Foreign Exchange Contd.

From a rupee account held in the name of exchange house with an

authorised dealer if the amount does not exceed Rs 2 lacs

In the form of precious metals

Payment can be received in cash from Foreign Travelers in India if the

same foreign exchange is duly surrendered

RBI also permits offsetting of export proceeds against import payables

etc. after obtaining prescribed certificate from CA/Cost Accountant in this regard

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Manner of payment in Foreign Exchange

Payment shall be made in a currency appropriate to the

country of shipment of goods

Drawal of Foreign Currency means drawal from an

authorised person and includes opening of letter of credit, use of international credit card etc. which has an effect of creating foreign exchange liability

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TRANSFER OR ISSUE OF ANY FOREIGN SECURITY BY A PERSON RESIDENT IN INDIA.

FEM (Transfer or Issue of any Foreign Security)

Regulations, 2004. Overseas investment in JV/WOS

By way of contribution to MOA of foreign entity, By purchase of existing shares,

Portfolio Investment Investment by Indian Residents.

JV/WOS Abroad
Master Circular dated 1.7.2010

Indian Party may make direct investment in JV/WOS

Automatic Route Approval Route

Indian Party

Company incorporated in India Registered partnership firm Registered trust or society which has set up hospital in India for hospital Any other entity as notified by RBI More than one of the above shall together constitute the Indian Party

PORTFOLIO INVESTMENT
By listed Indian companies in equity, rated

bonds/fixed income securities of companies listed in foreign stock exchanges (not exceeding 50% of its net worth of last audited Balance sheet). By Indian parties in equity or rated bonds of companies having at least 10% shares in any listed company in India.

Acquisition of foreign security by a person resident in India

General Permission
Approval Route Liberalised Remittance Scheme

Direct and Indirect Foreign Investment in Indian Companies

Investment in Indian companies can be made both by nonresident as well as resident Indian entities. Any nonresident investment in an Indian company is direct foreign investment. Investment by resident Indian entities could again comprise of both resident and non-resident investment. Thus, such an Indian company would have indirect foreign investment if the Indian investing company has foreign investment in it.

What does an FDI mean?

FDI means investment by non-resident entity/person resident outside India in the capital of the Indian company under Schedule 1 of FEMA .

Who frames the FDI Policy?

The Department of Industrial Policy and Promotion, Ministry of Commerce & Industry, Government of India (DIPP) issues Circular on Consolidated FDI Policy (FDI Circular), which was last updated on April 10, 2012

What are the Entry Routes for Investment?

Investments can be made by non-residents in the equity shares/fully, compulsorily and mandatorily convertible debentures/ fully, compulsorily and mandatorily convertible preference shares of an Indian company, through the Automatic Route and the Government Route. Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment. Under the Government Route, prior approval of the Government of India is required.

Who can invest in India?

Person Resident outside India except of Pakistan Entity incorporated outside except Pakistan &

Bangladesh Person Resident of Bangladesh & entities incorporated there can make investment in India in form of shares and conv. Debentures with prior approval of RBI

An FII may invest in the capital of an Indian Company under the Portfolio Investment Scheme which limits the individual holding of an FII to 10% of the capital of the company and the aggregate limit for FII investment to 24% of the capital of the company. This aggregate limit of 24% can be increased to the sectoral cap/statutory ceiling, as applicable, by the Indian Company concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body and subject to prior intimation to RBI. The aggregate FII investment, in the FDI and Portfolio Investment Scheme, should be within the above caps.

Circular 1 of 2012- Consolidated FDI Policy

Sector/Activity: (% of FDI Cap/Equity - Entry Route) Agriculture & Animal Husbandry: (100% - Automatic)

a) Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushrooms, under controlled conditions, as defined. b) Development and production of Seeds and planting material; c) Animal Husbandry(including of breeding of dogs), Pisciculture, Aquaculture under controlled conditions, as defined; and d) Services related to agro and allied sectors. FDI is not allowed in any other agricultural sector/activity

 Tea Plantation: (100% - Government)

Tea sector including tea plantations. FDI is not allowed in any other plantation sector/activity Mining: (100% - Automatic) Petroleum & Natural Gas Sector: (100% Automatic) Insurance: (26% - Automatic)

 Manufacturing: (100% - Automatic)

Manufacture of items reserved for production in Micro

and Small Enterprises (MSEs as defined under Micro, Small And Medium Enterprises Development Act, 2006) Defence: (26% - Government) Pharmaceuticals: Greenfield: 100% - Automatic Existing companies: 100% - Government

 Private Security Agencies: (49% - Government) Cash & Carry trading Wholesale Trading/ Wholesale

Trading (including sourcing from MSEs): (100% Automatic) E-commerce activities; (100% - Automatic) Single Brand product trading: (51% to 100% Government) Banking Private sector: (74 % including investment by FIIs - Automatic up to 49%; Government route beyond 49% and up to 74%) Banking- Public Sector subject to Banking Companies (Acquisition & Transfer of Undertakings) Acts 1970/80. This ceiling (20%) is also applicable to the State Bank of India and its associate Banks: (20% -FDI and Portfolio Investment Government)

Prohibited Sectors FDI is prohibited in: (a) Retail Trading (except single brand product retailing) (b) Lottery Business including Government /private lottery, online lotteries, etc. (c) Gambling and Betting including casinos etc. (d) Chit funds (e) Nidhi company (f) Trading in Transferable Development Rights (TDRs) (g) Real Estate Business or Construction of Farm Houses (h) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes (i) Activities / sectors not open to private sector investment e.g. Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems).

Consolidated FDI Policy

Effective 1.4.2011. Circular no 1 of 2011 dated 31.3.2011. Issued by Ministry of Commerce and Industry, Department of Industrial Policy and Promotion. Consolidates into one all the prior policies/regulations on FDI issued by RBI and DIPP. Changes notified by RBI from time to time would have to be complied with, in case of interpretation, the relevant FEMA notification shall prevail. Issued with sunset clause of six months.

Press Notes by MOC&I

Pricing norms for issue of shares to person resident

outside India. Pricing guidelines for transfer of shares Calculation of total foreign investment Downstream investment by Indian co. owned and controlled by non-residents

FDI Policy coverage

Portfolio Investment by NRIs and PIOs. Portfolio Investment by FIIs. Operating through an Indian company. Investment in capital of partnership or proprietary concerns in India. Acquisition of immovable property in India. Sectors prohibited for FDI. Sector specific policy for FDI
FDI cap Entry Route

Guidelines through Press notes.

Prohibition on investment in India

Retail trading (except single brand product retailing) Atomic energy Lottery (all types), gambling, betting Business of Chit fund and Nidhi company Real estate business or construction of farm houses Sectors not opened for private sector investment. Trading in Transferable Development Rights.

Sectoral caps
Agriculture
Agriculture and animal husbandry, -Tea plantation

Industry
Mining,

-Coal and lignite -Alcohol distillation and brewing -Coffee and rubber processing -Drug and pharmaceutical -Power

Manufacturing
Items reserved for MSEs,

Cigars and cigarette

Defence industry, Industrial explosives,

Service Sector
Advertising and films,
Banking, Commodity exchange, NBFCs, Print media,

-Civil aviation -Broadcasting - Insurance - Petroleum and natural gas - Telecommunication

Portfolio Investment by FIIs

A SEBI registered FII Through authorised dealer bank Special Non-resident Rupee Account Sub-account holding not to exceed 10% of the total paid up capital Total holding of all FIIs put together not to exceed 24%( can be increased by Co. subject to sectoral limits) Allocation of investment in equity and debt in the ratio of 70:30 Shall not engage in short selling.

Portfolio Investment by NRIs

On repatriation basis
Payment for purchases to be made through normal

banking channel Remittance from abroad/ NRE/FCNR accounts Through broker only

On non-repatriation basis
Payment for purchases through normal banking channel Remittance from abroad/ NRE/FCNR/NRO accounts Through broker` only

OPERATING THROUGH AN INDIAN COMPANY

Mode of operations

Joint venture with local partner Wholly owned subsidiary company

 FEM (Acquisition and Transfer of Immovable Property in India)

Acquisition or Transfer of Immovable Property in India

Regulations, 2000. Indian citizen/ PIO resident outside India may acquire any immovable property other than agricultural/plantation/farm house even after taking loan in India. (PIO to to bring in funds from outside India). Citizens of Bangladesh, Sri Lanka, Afghanistan, China, Nepal, Iran and Bhutan can not acquire without prior approval of RBI. Foreign national can acquire property by way of inheritance from resident Indian. Branch of foreign company can acquire for business purposes only.
A declaration in Form IPI to be filed with RBI within 90 days.

Investment in Firm and proprietory concern in India

FEM (Investment in Firm or Proprietory Concern in

India) Regulations, 2000 No investment or repatriation basis without approval from RBI by non-residents (other than NRI/PIO) NRI/PIO investment on repatriation basis with prior approval of RBI.

Borrowing or Lending in Rupee

FEM (Borrowing and Lending in Rupees) Regulations, 2000. A resident in India may borrow in Rupee on nonrepatriation basis from a NRI/PIO subject to certain conditions. A company may borrow in Rupee on repatriation or non-repatriation basis from a NRI/PIO by way of NCDs subject to certain conditions. Restriction on use of borrowed funds for agricultural/ plantation/ real estate business.

GUARANTEES
FEM (Guarantees) Regulations, 2000.
Guarantees which may be given by an authorised

dealer.
Guarantees which may be given by persons other than

an authorised dealer.

Forex derivative contracts

FEM ( Foreign Exchange Derivative Contracts) Regulations, 2000. Permission to a person resident in India to enter into a forex derivative contract-Schedule I. Permission to a person resident outside India to enter into a forex derivative contracts- Schedule II. Permission to a person resident in India to enter into a currency futures Commodity hedge.

Foreign currency and foreign currency accounts

FEM (Deposit) Regulations, 2000
Accounts in India in Rupees as well as foreign currency by persons resident outside India
NRE Account NRO Account

Foreign national resident in India can open a normal resident account in Rupee Account by branch/project office of person resident outside India with RBI permission.

Remittance Facilities to Non-Residents

Remittance of current income
Repatriation of sale proceeds of residential property

purchased by NRI/PIO out of foreign exchange

Master Circulars by RBI

Direct Investment by Residents in JV/WOS abroad

Foreign Investment in India

NRO Account Remittance facilities for Non-resident Indians/ Person of

Indian Origin/Foreign nationals Miscellaneous remittances from India- facilities for residents ECB and Trade Credits