NRI Investments

NRI Investments

Subject: Economy

Section: External Sector 

Investment made by an Indian entity that is owned and controlled by an NRI on a non-repatriation basis won’t be considered for the calculation of indirect foreign investment, the department for the promotion of industry and internal trade said in a notification. Hitherto, non-repatriable NRI investments in Indian companies have not been counted as FDI but downstream investments by such firms retained the FDI tag.

Details:

NRI investments that are repatriable are considered FDI while non-repatriable investments are considered domestic investment.

Investments by NRIs on a non-repatriation basis as stipulated under Schedule IV of Foreign Exchange Management (non-debt instruments) Rules 2019 are deemed to be domestic investment at par with the investments made by residents.

Accordingly, an investment made by an Indian entity which is owned and controlled by NRI(s) on a repatriation basis shall not be considered for calculation of Indian foreign investment. An Indian company is one that is both “owned” and “controlled” by resident Indians and violating any one condition makes the company foreign-owned.

Investment on repatriation basis means the sale or maturity proceeds of an investment, net of taxes, are eligible to be transferred out of India. In case of non-repatriation investments, this cannot be transferred out of the country.

Concept:

NRIs have many investment options in India :

• Non-Resident External (NRE) scheme–
  • NRE account is a rupee account, offering complete security
  • These accounts can be in the form of savings, current, recurring, or fixed deposits.
  • The currency risk is on the depositor.
  • It is  financed from abroad income through inward remittances
  • Money can be fully repatriated (sent back) abroad without restrictions,
  • Given the attractive post-tax return, NRE temporary deposits are very popular with non-residents.

• Non-Resident Ordinary (NRO) scheme–
  • The NRO account is also a rupee account,
  • This account allows NRIs to receive funds in either Indian or foreign currency. However, only Indian currency can be withdrawn as NRO Accounts are kept in Indian currency
  • It is generally financed by income earned in India or from Indian assets
  • There are restrictions on repatriation i.e. remittances outside India are allowed only up to $1 million under the automatic route, while higher remittances require RBI approval.
  • Unlike the NRE account, interest accrued on NRO account are taxable, this is not preferred by most NRIs.

• FCNR (foreign currency) scheme. 
  • These accept any permitted foreign currency.
  • FCNR Accounts are Term Deposit Accounts and not Saving Accounts.
  • The currency risk (change in price of one currency in relation to another) is borne by the bank.
  • They are fully repatriable (ability to move money abroad).

NRI investments on a repatriation basis in Indian companies are considered as FDIs, and are subject to regulations and caps.