Dubai: The clarification issued by India’s Department for Promotion of Industry and Internal Trade (DPIIT) that investments by NRIs on a non-repatriation basis are deemed to be domestic investment at par with the investments made by residents brings more clarity to the legal treatment of these businesses.
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 under Foreign Exchange Management Act (FEMA).
NRI investments that are repatriable are treated foreign direct investment (FDI) while non-repatriable investments are considered domestic investment. However, existing guidelines clearly lay down that 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 by non-resident Indians (NRIs) on a non-repatriation basis in an Indian company will be treated as domestic investment for the purpose of calculating indirect overseas inflows, a DPIIT press note said late on Friday.
DPIIT said that the government has reviewed the FDI (foreign direct investment) policy in relation to investments made by an Indian company owned and controlled by non-resident Indians (NRIs) on a non-repatriation basis.
In order to provide a clarity on downstream investments made by NRIs, a clause has been added in the FDI policy.
The clause was added in the guidelines for calculation of direct and indirect foreign investments.
It said that "investments by non-resident Indians (NRIs) on a non-repatriation basis" as stipulated under a schedule of Foreign Exchange Management (non-debt instruments) Rules 2019 "are deemed to be domestic investments at par with the investments made by residents".
"Accordingly, an investment made by an Indian entity which is owned and controlled by NRIs on a non-repatriation basis shall not be considered for calculation of indirect foreign investments," it added.
It said that this decision will take effect from the date of FEMA notification.
Commenting on the decision, Rajesh Gandhi, Partner, Deloitte India, said that the press note provides a useful clarification that NRI investment on non-repatriation basis in an Indian entity will not be considered as FDI for the purpose of calculating indirect foreign investment by such Indian entity.
"This is in line with the existing policy that NRI investment on non-repatriation basis is treated on par with rupee investment," he said.
- With inputs from Babu Das Augustine, Banking Editor