Authorities : Income Tax
As per act 116, there shall be the following classes of income-tax authorities:

(a) the Central Board of Direct Taxes (CBDT) established under the Central Boards of Revenue Act, 1963

(b) DG or Directors-General of Income-tax or Chief Commissioners of Income-tax

(c) Income tax directors or Commissioners of Income-tax or Commissioners of Income-tax (Appeals)

(cc) Additional Directors of Income-tax or Additional Commissioners of Income-tax or Additional Commissioners of Income-tax (Appeals),

(cca) Joint Directors or Joint Commissioners of Income-tax.

(d) Deputy Directors of Income-tax or Deputy Commissioners of Income-tax or Deputy Commissioners of Income-tax (Appeals),

(e) Assistant Directors of Income-tax or Assistant Commissioners of Income-tax,

(f) Income-tax Officers

(g) Tax Recovery Officers

(h) Inspectors of Income-tax



Powers of the authorities
The IT authorities, as per IT act, are entrusted with the various powers which are vested in a Court of Law under the Code of Civil Procedure(CPC) while trying a suit in respect of any case. The powers granted to the tax authorities under the code would be in respect of :

• Discovery and inspection
• Enforcing the attendance, including any officer of a bank and examining him on oath. That is the authorities can compel involved person or authority to attend the proceeding and also can examine them.
• Compelling the production of books of account and the documents
• Collection certain information [section 133B-inserted by the finance act, 1986]
  Issuing commissions and summons
• The person filing return or is in correspondence with the authorities are required to quote permanent account number (PAN).The PAN Number is also required in all challans for the payment of any sum, in all documents prescribed by the board in the interest of revenue.
  

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Taxation System of India
The tax structure of India is well developed with clearly demarcated authority between Central and State Governments and local bodies. The taxes levied by the central government include Income Tax (except tax on agricultural income, which the State Governments can levy), customs duties, central excise and service tax.
The state government on the other hand can levy Value Added Tax (VAT), stamp duty, State Excise, land revenue and tax on professions. Local bodies are authorized to levy tax on properties, octroi and for utilities like water supply, drainage etc.

In the last one and a half decade, the Government of India has carried out various reforms in the taxation system. The tax rates have been rationalized and tax laws have been simplified resulting in better compliance, ease of tax payment and better enforcement. The process of rationalization of tax administration is ongoing in India. Since April 01, 2005, most of the State Governments in India have replaced sales tax with VAT.

Taxes Levied by Central Government
Some of the Taxes Levied by the central government are:

Direct Taxes

• Tax on Corporate Income
• Capital Gains Tax
• Personal Income Tax
• Tax Incentives
• Double Taxation Avoidance Treaty
  

Indirect Taxes

• Excise Duty
• Customs Duty
• Service Tax
• Securities Transaction Tax
  

Taxes Levied by State Government

• Sales Tax/VAT
• Stamp duty
• Property/building tax levied by local bodies
• Taxes on Agriculture income (on income from plantations)
• Luxury tax levied by certain State Government on specified goods
  

Municipal/Local Taxes
Octori/entry tax

Extra Resources

www.indianembassy.org/

finmin.nic.in/topics/taxation/index.html - 37k

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Power sector

Power sector presents immense investment opportunities. India is among the top five power generation countries. The power generation capacity of India is presently 122 GW; 590 billion units. Over the last four years CAGR is 4.6%. However, despite that per capita power consumption is still very low in India. It is just 606 units, which is less than half of China. India has third largest transfer and distribution network in the world which is around 5.7 million circuit km.

Power in India generated through various technologies. Power generated through coal is 57% , followed by 25% from hydel power, 10% gas based, 3% from nuclear energy and 5% from renewable sources

Power Production and Distribution Organization
State Electricity Boards and Public sector companies hold the major share in power generation and distribution in India. However in the recent years the share of private sector in Generation and Distribution has been increasing. The licence for distribution in many cities are already with the private sector. Many major power generation projects have been planned in the private sector




Major Players for Transmission, Generation and Distribution of Power

Government Policy
Government of India has come out with various policies to boost foreign investment in the power sector. Some of the major features of the policies of the government are:

• Government has permitted 100% FDI for power Generation, Transmission & Distribution
• In order to involve private players in power generation and distribution, government has passed Electricity Act 2003 and National Electricity Policy 2005
• To boost investment government has also announced sops and tax benefits tto the private players. The incentives include Income tax holiday for a block of 10 years in the first 15 years of operation and also wavering of capital goods import duties on mega power projects that is any project involving the generation capacity above 1,000 MW
• To look into the matters pertaining to power generation and distribution, Independent Regulatory authority has been appointed. Central Electricity Regulatory Commission looks a after central PSUs and inter-state issues. Each State has its own Electricity Regulatory Commission.
  
  

Overview

Due to rapid industrialization and growth of population, India requires huge amount of power. By 2012, India requires an additional power generation capacity of100, 000 MW. Moreover in India power generation through hydel power is still not tapped completely. According to report, over 150,000 MW of Hydel Power is yet to be tapped in India The supply of power is less than the demand. The situation is that there is all India average energy shortfalls of 7% and peak demand shortfall of 12%. Government initiatives regarding more tax benefits to the investors are likely to foster growth in all segments. Government has also decided to unbundled the vertically integrated SEBs. Government has also set to privatize the distribution circles whereas the regulatory authorities have come out with tariff reforms to boost investment.

Investment Opportunity Areas

Both domestic and the foreign investors can invest in the following areas for power generation:

• Investment can be done in the Coal based plants at pithead or coastal locations (imported coal)
• Power generation through natural Gas/CNG based turbines at load centres or near gas terminals
• Hydel power presents huge investment opportunity. As per government report nearly 150,000 MW is still untapped.
• Renovation, modernization, upgrading of old thermal and hydro power plants is another area where private and foreign players can invest
• Power transmission too presents huge opportunity for investment. Nearly 60,000 circuit km of transmission network expected by 2012
• Thirteen states in India have corporatised their State Electricity Boards. This provides opportunities to the investors to invest in the power distribution sector through bidding for the privatization of distribution in thirteen states that have unbundled/corporatised
• Total investment opportunity of about US$ 200 billion upto 2012
  

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Investment Opportunities in Ports

Port is an integral part of an infrastructure. Government is trying hard to develop world class ports by ensuring both private and public participation. Government of India is planning to invest billions of dollars in this sector to built new ports and enhance the capacity of the existing ones.


Facts and Figure

• As compared to 2003 -04, Indian ports had handle cargo of 510 million tonnes in 2004-05, 10.8% increase over the previous year.
• Out of total port traffic, 80% by volume is dry and liquid bulk whereas remaining 20% is general cargo, including containers
• Containerized cargo is growing at a faster rate. Over the last five years, it has grown at a rate of 15% p.a.
• India has long coastline of 7517 km catering 12 Major Ports and 185 Minor Ports.
• Out of total traffic, major ports handle 75% of the total traffic. Over last 3 years, cargo handled by Major Ports has increased by 9.5% p.a.
• 11 ports of the 12 major ports, run by the Port Trusts whereas, the port at Ennore is a corporation under the Central Government. The cargo handled by these ports in 2004-05 was 383 million tonnes
• For modernization of Indian ports two major projects of the Government are underway:

1. Project “Sethusamundram”: The project involves the dredging of the Palk Strait, in Southern India for facilitating maritime trade through it
2. Project “Sagarmala”: This is a $22 billion project to modernize the Major and Minor Ports
   Structure

• Initially it was the Government of India that take care of everything about ports. However as a major policy shift, government is now involving private players in this venture.
• Government has also invited International port operators to submit competitive bid for BOT terminals on a revenue share basis
• Many foreign players have invested in port development and operations, on BOT basis. Some of the major foreign players are Maersk (JNPT, Mumbai) and P & O Ports (JNPT, Mumbai and Chennai), Dubai Ports International (Cochin and Vishakhapatnam) and PSA Singapore (Tuticorin)
• Domestic and international private investors are developing the minor ports. Some of the players are: Pipavav Port by Maersk, Mundra Port by Adani Group (with a terminal operated by P & O)
  

Government Policy
Government has announced following policy regarding port development and for ensuring participation.

• 100% FDI has been allowed under the automatic route for port development projects
  As tax benefits government has also allowed 100% income tax exemption for a period of 10 years
• The ceiling for tariffs charged by Major ports/port operators is regulated by Tariff Authority of Major Ports (TAMP). This is however not applicable to minor ports.
• Government has also formulated a comprehensive National Maritime Development Policy for facilitating private investment, improve service quality and promote competitiveness
  

Investment Opportunity and Potential

1. There is a huge investment potential in the Indian ports sector. It is projected that cargo handling at all the ports will grow at 7.7% p.a. till 2013-14. Minor ports will however grow by much higher rate of 8.5% as compared to 7.4% for the Major ports
2. According to Government reports, by 2013-14 port traffic will increased by 960 million tonnes Containerized cargo, it is expected would grow at 17.3% over the next 9 years
3. New Foreign Trade Policy of India envisage to double India’s share in global exports in next five years to $150 billion
4. 95% of trade by volume and 70% by value will be through the maritime route
5. There is need to address requirement of merchandise trade that is expected to grow over 13% p.a
6. Under National Maritime Development Program (NMDP) to boost infrastructure at these ports in the next nine years the total investment needed is $13.5 billion
7. NMDP has identified nearly 219 projects for the development of Major ports
8. Private players have envisaged to invest 64% of the proposed investment in Major ports

Government is also planning to enhance an additional port handling capacity of 530 MMTA in Major Ports through:

• Port development Projects (construction of jetties, berths etc.)
• Up-gradation of port equipment
• Deepening of channels to improve draft
• Projects improving port connectivity
• For minor port improvement total investment needed is $4.5 billion

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Investment Opportunity in Civil Aviation

Civil aviation sector is one of the fastest growing sectors in India. Government is planning to upgrade and starting new ones. Government in its major policy has decided to invest billions of dollars to improve the civil aviation services and upgrade the airports to the international level.

Facts and Figure

• Out of 125 airports India has 11 international airports
• As per government report in the year 2004-05, nearly 60 million passengers and 1.3 million tonnes of cargo were handled by the airports.
• In 2004-05, Passenger traffic grew at over 22% over 2003-04 whereas, Cargo grew at 21.6% over the previous year
  
  

Airport Controlling Authority and Structure

• Airports Authority of India (AAI) owns and operates all the 125 airports in India.
• The Government is planning to attract private investment in aviation infrastructure
• Government has decided to privatize the Delhi and Mumbai airports. Bidders have submitted final bids. Total expected investment in these two airports is about $3.5 billion
• In Bangalore and Hyderabad new international airports are being built by private consortia with a total investment of about $600 million
• Private investment is also to be made in 25 other city airports
• Indian Airlines and Air India are the domestic and the Government owned international flag carriers respectively.
• The private airlines of India such as Jet, Sahara, Kingfisher, and Deccan - account for around 60% of the domestic passenger traffic.
  

Government’s Policy

• For existing airports, 100% FDI is permissible. For FDI beyond 74%,
• FIPB approval is required
• For Greenfield airports, 100% FDI under automatic route is permissible
  49% FDI is allowed in domestic airlines under the automatic route, but not by foreign airline companies
• 100% equity ownership by Non Resident Indians (NRIs) is allowed
• For airport privatization AAI Act has been amended to provide legal framework
  Government has also decided to give 100% tax exemption for airport projects for a period of 10 years
• Government’s ‘Open Sky’ Policy and rapid growth of air traffic have resulted in the entry of several new privately owned airlines and increased frequency/flights for international airlines.
  

Investment Opportunity and Business Potential

• Civil aviation sector has huge business and investment potential. Government of India also has decided to develop airport infrastructure. Both the domestic and thee international air travel is increasing year after year.
• It is projected that in the next five years, the passenger traffic would grow at a CAGR of over 15%.
• It has also been projected that by 2010 total number of passengers would cross 100 million p.a. Cargo traffic will also do better. It would grow at over 20% p.a. over the next five years and cross 3.3 million tonnes by 2010
• Government is planning major investments in new airports and upgrade existing airports
• Rapid economic growth would enable a continued boom in domestic passenger traffic and international outbound traffic
• Due to increasing trade and investment actrivity in India and the growth of India as a hot tourist spot, will also help in the growth of International inbound traffic
• There is a high demand for investments in aviation infrastructure Government is trying hard to increase participation by private industry
  

Investment opportunities Area

• Investment opportunities lie in following areas:
• Upgradation and Modernization Metro airports – induction of partners for Chennai, Kolkata expected subsequently
• Opportunities also lie in the development of Greenfield airport projects planned in resort destinations and emerging metros such as Goa, Pune, Navi Mumbai, Ludhiana, etc.
• Over $15 billion to be invested for airport development over the next 5 years

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Facts about Telecom sector

• India’s telecom service market is fifth largest in the world. It fetched $17.8 billion revenues in the financial year 2005




• The telecom industry grew by 36% in FY 2005 over FY 2004.




• According to available data, there are 119 million subscribers in India. Out of this 119 million, 48 million have fixed lines and 71 million wireless .




• In the last five years, the telecom market has grown at about 25% p.a. Subscriber base in wireless segment grew at 85% p.a whereas fixed line segment grew at about 10% p.a.
  

Organization and Structure
In India public and private sector companies are participating in this sector . The market share of private sector is increasing every year. The share of public sector in the market is 60% which is down from over 90% in 2000 whereas; Private companies have added subscribers at a CAGR of 192% since 2000. Mobile operators in India have deployed both CDMA (16 million users) and GSM (55 million users) wireless networks. Of all the revenues, value added service constitute 10% as compared to 2% in 2001.

Major players and presence in value chain

Click To See Enlarge Picture

Government Policy
Government in order to boost investment in the telecom sector has carried out various reforms. Government policies regarding telecom sector are as follows:

• Government of India has allowed 74% to 100% FDI for various telecom services




• Foreign investors require receiving approval from FIPB route if investment exceeds 49% in all telecom services




• For manufacturing telecom equipment 100% FDI is permitted

Government has announced telecom policy whose aim is to encourage private and foreign investment. Some of the important highlights of the policy are:

• Government has appointed an independent regulatory authority for teleecom sector – the Telecom Regulatory Authority of India (TRAI)




• Government has also carved revenue-share model for licences issued for telecom services in India. For providing telecom services on a pan-India basis, unified access licences are available




• Government has also planned to open National Long Distance (NLD), International Long Distance (ILD) and other value added services.

Opportunities and Potential
Telecom sector presents huge opportunities both to the domestic and the foreign investors. In the next five years, it is estimated that telecom sector would grow by 150% . The investors can capitalize on this as India needs large investments in network infrastructure.

It is estimated that India would be fastest telecom markets in the world. By 2009-2010, there will be 250 million subscribers in India. Nearly 3 million new users are added every month – mostly in wireless.
There are many other reasons that make India as a beneficial destination for foreign investors and domestic investors.

• High growth due to favorable demographics and socio economic factor




• Change of life style




• Affordability is increasing, tariffs are low and there are easy payment plans and handset financing




• Coverage and availability of mobile services are increasing




• There is investment opportunities of $22 billion.
  

Areas of Investment
Investment opportunities are in various areas such as:

• Telecom Devices and Software for Internet, Broadband and Direct To Home Services. Set Top boxes, Gateway exchange, Modem, Mobile handsets and consumer premise equipments, Gaming devices, EPABX, Telecom Software




• Telecom Services for voice and data via a range of technologies




• Applications and Content development ranging from gaming to education
  

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Portfolio Investment Scheme (PIS) for NRI

According to the FEMA regulation NRIs can make portfolio investment under certain conditions. However OCBs are not allowed to make fresh investments in India under the (PIS) Portfolio Investment Scheme.
Portfolio investment is covered by general permission subject to following condition/provisions.

(i) Investment is allowed both on repatriation as well as non-repatriation basis.

(ii) Under this scheme buying and selling of shares (Preference and Equity) and/or convertible debentures are included

(iii) Purchase and sale of share is allowed via registered broker of a recognized stock exchange.

(iv) NRI must designate one branch and all buying and selling must be routed through that designated bank branch only.

(v) Speculative transactions is prohibited. Transactions of sales and purchase must be delivery based

(vi) Investment mode should be carried out in any of the following ways:

(a) For investment on Repatriation basis

• Inward remittances is allowed through normal banking channels
  






• Investment can be made Out of FCNR/NRE account.
  

(b) For investment on non-repatriation basis

• Inward remittances is allowed through normal banking channels
  






• Investment can be made Out of FCNR/NRE account
  






• Investment can be made out of NRO account
  

(vii) Ceiling on Investment

(a) For every (Per NRI)

• NRI is allowed to invest 5% of the paid-up value of shares of an Indian Company on both repatriation and non-repatriation basis.
  






• He is also allowed to invest upto 5% of the value of each issue of convertible debenture of an Indian Company on both repatriation and non-repatriation basis.
  

(b) For Per investee Company
Total holding by all NRIs put together on both repatriable as well as non-repatriable basis should not exceed:

• 10% of paid-up value of shares of an Indian Company.
  






• 10% of paid-up value each series of convertible debenture.
  






• This ceiling of 10% could be enhance upto 24%, if the General Body of concerned
  






• Indian Company passes a special resolution to that effect.
  

(viii) Repatriation of Sale/Maturity Proceeds
The income from the Investment held on repatriation basis can be credited to NRE/FCNR/NRO account after payment of applicable taxes.
If investment is made on non-repatriation basis then credit of sale/maturity proceeds is permitted in NRO account.

(ix) If the holding of NRIs become less than 60% in existing OCB(i.e. prior to Sep 16, 2003), the existing OCBs must inform the same to the designated bank branch immediately

(x) NRIs can enter into forward contracts to hedge their investment made in India.

(xi) Subject to the limits prescribed by SEBI, NRI is permitted to invest in exchange traded derivatives contracts approved by SEBI from time to time out of his Rupee funds held in India on Non-Repatriable basis.

(xii) NRIs can also invest without limit on repatriable basis in Government dated securities, treasury bills, units of domestic mutual funds, bonds issued by PSUs, shares in public sector enterprises which are being disinvested by Government.

(Xiii) They can also invest without limit on non-repatriable basis in Government dated securities, treasury bills, units of Domestic mutual funds, units of Money market mutual funds. However, NRIs are not permitted to make Investments in Small Savings Schemes including PPF.

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Updated Guidelines for Investment by NRIs (Non Resident India) (Sept 2001)

Investment Division
F.No.14/11/96-NRI
Government of India
Ministry of Finance
Department of Economic Affairs
(Investment Division)
New Delhi, dated the 20th September, 2001 (Updated)

PRESS NOTE
Subject: Enhancement in the limits on investments by Foreign Institutional Investors (FIIs).

1. Foreign Institutional Investors registered with SEBI are permitted to invest subject to an aggregate investment limit of 24% of the issued and paid up capital of an Indian company. In terms of the RBI Notification No.41/2001-RB dated 02 March, 2001 and Press Note dated 08th March, 2001, the Indian companies were permitted to enhance the normal aggregate portfolio investment limit from 24% to 49% under specified special procedure.

2. It has since been decided to increase the portfolio investment ceiling applicable to Foreign Institutional Investors (FIIs). Pursuant to the above decision, Indian companies would henceforth be permitted to raise the aggregate ceiling for FII portfolio investments through the secondary market from the normal level of 24%, upto the applicable Sectoral Cap levels, of the issued and paid up capital of the company subject to compliance with the special procedure viz.:

a) Approval by the Board of Directors of the Company to the enhanced limit beyond 24%; and

b) A Special Resolution passed by the General Body of the Company approving the enhanced limit beyond 24%.

3. All other requirements governing FII portfolio investments would continue to be operative as before.

4. In terms of RBI Notification No. FEMA 45/2001-RB dated 20th September 2001; the above provision has been made effective from 20th September, 2001.

(G. S. Dutt)
Joint Secretary (FT & Inv.)
Tel: 3014905

Guidelines for Investment by NRIs (March 2001)

Government of India
Ministry of Finance
Department of Economic Affairs
(Investment Division)
New Delhi, dated the 8th March, 2001

PRESS NOTE

Subject: Enhancement in the limits on investments by Foreign Institutional Investors (FIIs)

1. Foreign Institutional Investors registered with SEBI are permitted to invest subject to an aggregate investment limit of 24% of the issued and paid up capital of an Indian company. In terms of the Press Note dated 1st March, 2000, the Indian companies were permitted to enhance the normal aggregate portfolio investment limit from 24% to 40% under specified special procedure.

2. In his Budget Speech 2001-2002, the Finance Minister had announced an increase in the portfolio investment ceiling applicable to Foreign Institutional Investors (FIIs). Pursuant to the announcement, Indian companies would henceforth be permitted to raise the aggregate ceiling for FII portfolio investments from the normal level of 24% to 49% of the issued and paid up capital of an Indian company subject to compliance with the special procedure viz.:

1. Approval by the Board of Directors of the Company to the enhanced limit upto 49%; and

2. A Special Resolution passed by the General Body of the Company approving the enhanced limit up to 49%.

3. Aggregate portfolio investment limits applicable to FIIs would continue to be independent of the portfolio investment limits for NRIs/PIOs/OCBs as announced in the Press Note issued on 22nd June, 1998. All other requirements governing FII portfolio investments would continue to be operative as before.

4. In terms of RBI Notification No. FEMA 41/2001-RB dated March 2, 2001; the above provision has been made effective from 2nd March, 2001.

(G. S. Dutt)
Joint Secretary (FT & Inv.)
Tel: 3014905

Guidelines for Investment by NRIs (2000)

Government of India
Ministry of Finance
Department of Economic Affairs
(Investment Division)
New Delhi, dated the 1st March, 2000

PRESS NOTE

Subject: Enhancement in the limits on investments by Foreign Institutional Investors (FIIs).

1. Foreign Institutional Investors registered with SEBI are permitted to invest subject to an aggregate investment limit of 24% of the issued and paid up capital of an Indian company. In terms of the Press Note dated 4th April, 1997, the Indian companies were permitted to enhance the normal aggregate portfolio investment limit from 24% to 30% under specified special procedure. Aggregate investment limits applicable to FIIs had also been segregated through a Press Note issued on 22nd June, 1998 from the portfolio investment limits for NRIs/PIOs/OCBs.

2. In his Budget Speech 2000-2001, the Finance Minister had announced an increase in the portfolio investment ceiling applicable to Foreign Institutional Investors(FIIs). Pursuant to the announcement, Indian companies would henceforth be permitted to raise the aggregate ceiling for FII portfolio investments from the normal level of 24% to 40% of the issued and paid up capital of an Indian company subject to:
Approval by the Board of Directors of the Company to the enhanced limit upto 40%; and
A Special Resolution passed by the General Body of the Company approving the enhanced limit upto 40%.

3. All other conditions applicable to FII portfolio investment would continue to be operative as before.

( G. S. Dutt )
Joint Secretary (FT & Inv.)
Tel : 3014905

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Modified Guidelines for Foreigh Institutional Investors (Taxation Aspect)
No.F.5(13)/SE/91-FIU
Department of Economic Affairs
(Investment Division )
New Delhi, dated the 24th March, 1994



Press Note
Modified Guidelines for Foreigh Institutional Investors (Taxation Aspect)
The following modifications of FII guidelines dated 14.9.92 in general, and paragraph 9 (f) and paragraph 18 of those guidelines in particular, are issued by way of clarification in the light of the enactment of section 115 AD of the Income-Tax Act through the Finance Act, 1993:



The taxation of income of foreign Institutional Investors from securities or capital gains arising from their transfer, for the present, shall be as under:

i. The income received in respect of securities (other than units of offshore Funds covered by section 115 AD of the Income-Tax Act) is to be taxed at the rate of 20%.

ii. Income by way of long-term capita gains arising from the transfer of the said securities is to be taxed at the rate of 10%.

iii. Income by way of short-term capital gains arising from the transfer of the said securities is to be taxed at the rate of 30%.

iv. The rates of income-tax as aforesaid will apply on the gross income specified above without allowing for any deduction under sections 28 to 44C, 57 and Chapter VI-A of the Income Tax Act.

The expression " securities " referred to above shall have the meaning assigned to it in clause (h) of section 2 of the securities Contract (Regulation) Act, 1956. These include

i. Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated or other body corporate;

ii. Government securities; and

iii. Rights or interests in securities.

1. On account, of the concessional rate of income –tax on the capital gains, the provisions currently available to non-residents for protection from fluctuation of rupee value against foreign currency for computing capital gains arising from the transfer of shares in, or debentures of, an Indian company, will not apply to the Foreign Institutional Investors covered under section 115 AD of the Income-Tax Act. Further, the benefit of cost inflation indexation will also not be available to FIIs while computing long-term capital gains arising to them on transfer of securities.



Shares in a company shall have to be held for more than 12 months in order to qualify as a long-term capital asset. Other securities shall have to be held for more than 36 months in order to qualify as a long-term capital asset.



2. The expression "Foreign Institutional Investors" has been defined in section 115AD of the Income-Tax Act to mean such investors as the Central Government may, by notification in the official Gazette, specify in this behalf. The FIIs as are registered with Securities and Exchanges Board of India will be automatically notified by the Central Government for the purposes of section 115AD.



3. Income of Foreign Institutional Investors from securities shall be subject to deduction of tax at source. However, no deduction of tax shall be made from any income by way of capital gains arising from the transfer of securities. In order that the tax on capital gains arising to FIIs can be realized, each FII, while applying for initial registration with Securities and Exchange Board of India, will have to specify an agent, including a person who is treated as an agent under section 163 of the Income-Tax Act for the said purposes.

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Portfolio Investment Scheme
FII is an institution that allows the investors ton invest in Indian securities traded in both primary and secondary capital markets secondary market. The comprehensive list of FII includes , Incorporated/Institutional Portfolio managers or their power attorney holders, University Funds,



Asset Management Companies, Pension Funds, Investment Trust as nominee companies, Endowment Foundations, Charitable Trusts Charitable Societies and Mutual Funds.

Foreign Institutional Investors (FIIs) can invest in India in the securities traded in both primary and secondary capital markets. The securities consist of shares, debentures, warrants, and units of mutual funds, government securities and derivative instruments.



Regulation of Portfolio Investment / FIIs
There are two main bodies regulating portfolio investment in India- SEBI (Securities and Exchange Board of India) and RBI (Reserve Bank of India). Every FII is required to register himself with Securities and Exchange Board of India (SEBI) and shall comply with the Exchange Control Regulations of RBI. SEBI (FII) Regulations, 1995 and Regulation 5(2) of FEMA regulates the FIIs. Under the regulation of FEMA, RBI approval is also required in order to purchase or sell securities on Stock Exchanges and open foreign currency and Indian Rupee accounts with a designated bank branch. The permission from RBI is not requited so long as the FIIs purchase and sell on recognized stock exchange. All non-stock exchange sales/purchases require RBI permission.



Policy on FII Investment/ Portfolio Investment
The policy regulating FII, (Foreign Institutional Investors) NRI,( Non-Resident Indians) and PIO (Persons of Indian Origin) investment are as follows:

• (FIIs), (NRIs), and (PIOs) can invest in Indian capital market- both primary and secondary capital markets through the portfolio investment scheme (PIS). Through this scheme, foreign institution investors and Non resident Indians (NRIs) can acquire shares/debentures of Indian companies through the stock exchanges in India.
• FIIs can invest only up to 24 per cent of the paid up capital of the Indian company whereas for NRIs and PIOs this ceiling is kept up to 10 per cent. However for investment in public sector banks, including the State Bank of India the limit is 20 per cent of the paid up capital.
• The ceiling of 24 per cent for FII investment can be raised up to sectoral cap/statutory ceiling, if it is approved by the board and the general body of the company through a special resolution. Similarly the ceiling limit for NRIs and PIOs can be raised to 24% from 10% if it is approved by the general body of the company passing a resolution to that effect.
• The ceiling for FIIs is independent of the ceiling of 10/24 per cent for NRIs/PIOs.
  

The equity shares and convertible debentures of the companies within the prescribed ceilings are available for purchase under PIS subject to:

1. the total purchase of equity and debentures by all NRIs/PIOs both, on repatriation and non-repatriation basis, should be 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




2. 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.

• The FIIs can divide their investment between equity and debt instruments in the ratio of 70:30.
• FII can also pronounced itself as a cent percent(100 percent) debt FII in which case it can make its entire investment in debt instruments.
• The FIIs are allowed to both purchase and sell securities on stock exchanges. These FIIs canalso invest in listed and unlisted securities outside Stock Exchanges where the price has been approved by RBI.
• Individual FII or Sub account is not allowed to purchase more than 10% of the paid up capital of an Indian company.
• Acquiring more than 24% of the paid up capital of an Indian Company, by all FIIs and their sub-accounts taken together is prohibited.

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Portfolio Investment or FII Investment

The major constituents of Portfolio investment (FII investment) in India are:

Fund flows and resource mobilization by Indian companies through American Depository Receipts (ADRs) and Global Depository Receipts (GDRs). These inflows are indicative of robustness of Indian capital market and overall macroeconomic conditions.

Indian Scenario
After the economic reforms of 1991, FII investment or portfolio investment started to gain momentum in India. Within the 15 years of span FII investment multiplied by leaps and bounds. The pace of investment started to gear up in 1993 and in 2004-05 it shot up rapidly. In 2005-06, the inflow of foreign investment was US$68.1 billion whereas the outflow of this investment was US$55.6 billion. Thus India recorded net portfolio inflow of US$12.5 billion. The flows through GDRs/ ADRs and others, reached the level of US$2.6 billion in 2005-06.

Whereas FDI increased in 2006-07, the net portfolio investment declined from US$5.4 billion in April-September 2005 to US$1.6 billion in April-September 2006. This is due to the fact that while thee portfolio investment increased by US$21.2 billion (from US$27.5billion to US$48.7 billion), outflows increased even more by US$25.0 billion (from US$22.1 billion to US$47.1 billion), during the reference period. Thus the decline of FII investment was more than the increased FDI thereby resulting in a decline in foreign investment inflows between the first half of the previous year and current year.

As FII is one of the major instruments for attracting foreign investment in India, government is trying hard to persuade foreign investors to invest in India. With GDP growing over 8%, foreign investors too are making India as a preferred destination for investment. Government’s policy regarding investment policy is meant to make procedure simpler to attract FIIs. Some of the steps taken by the Government are mentioned below:

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Investment Limits and Routes for Various sectors

Government has allowed foreign direct investment (FDI) in India through two routes- Government route (FIPB route) and Automatic approval route of RBI. Foreign investment in most of the cases is hundred percent (100%). Whereas in some of the cases foreign participation is allowed up to 74%, 49% and 26%.
The following list will give you an insight about the foreign investment limits and their route of approval.

The chart below shows the sectorial caps and route of FDI for Infrastructure, Service and Manufacturing, Knowledge based & and resource based sectoe respectively

Click on the image to see the enlarge view

New FDI Norms 2009-2010

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Approval of Foreign Direct Investment
As the third-largest economy in the world, India has become one of the most preferred destinations for foreign investment. With skilled labor and expertise in certain areas like information technology, auto components, chemicals, apparels, pharmaceuticals and jewellery, India promises huge returns to global investors.

According to the latest survey by AT Kearney, India has replaced the US as the second most attractive FDI location, up from last year's third place ranking. This due to the adopting of more prudent FDI policy by the government of India by which more sectors were opened for foreign investors and on many sectors 100% FDI is permitted.

FDI investment or foreign direct investments in India are approved through two routes:

• Automatic approval by RBI
• Government Route through FIPB
  

Automatic Approval by RBI
Automatic approval to invest in India is granted by RBI within a period of two weeks. However this requires meeting of certain parameters. The approval is granted to following proposals:

• 50% foreign equity in 3 categories relating to mining activities (List 2)
• 51% foreign equity up to 51% in 48 specified industries (List 3).
• 74% foreign equity up to 74% in 9 categories (List 4).
  
  

The list is extensive and covers almost all the sectors for foreign investors. An automatic approval is granted by RBI for investment in high-priority industries or for trading companies primarily engaged in exporting.

Opening an office in India
For the above purposes foreign companies or investors can open the offices to asses the commercial opportunity for self, plan business, obtain legal, financial, official, environmental, and tax advice as needed, choose legal and capital structure, select a location, obtain personnel, develop a product marketing strategy and more.

Automatic Approval for New Ventures
All items and activities (except those that expressly require a prior Government approval.) for which 100% FDI is permitted comes under automatic approval route. NRIs and Oversea Corporate Bodies (OCB) can make investment in these sectors by applying through the route of automatic approval route of RBI.

Investment in the following sectors and units also comes under the automatic approval route of the RBI:

• Public Sector Units
• Export Oriented Units (EOU)
• Export Processing Zones (EPZ)
• Special Economic Zones (SEZ)
• Electronic Hardware Technology Parks (EHTP)
• Software Technology Parks (STP) would also qualify for the Automatic Route.
  

The investment made under the Automatic Route is regulated by the by the notified sectoral policy and equity caps and RBI ensures compliance of the same.

Automatic Approval for the Existing Companies
Automatic approval is also meant for the existing companies. NRIs /OCB, who wish to induct foreign equity or have an expansion programme, can do so provided:
• The equity level of the company must increase from the expansion of the equity base of the existing company and not by acquiring existing shares by NRI/OCB/foreign investors
• The remitted money should be in the sector(s) under the automatic route.

If these conditions are not fulfilled, the investors would have to take the approval through the FIPB. For this, the proposal must be supported by a Board Resolution of the existing Indian company.

The companies which don’t have any expansion programme require additional requirements to be eligible for automatic route which are as follows:

• Companies should be engaged in the industries under automatic route (this includes additional activities covered under the automatic route immaterial of whether the original activities were undertaken with Government approval or by accessing the automatic route)
• The equity level must increase from expansion of the equity base
• The equity must be a foreign currency.
• Equity participation by international financial institutions for equity participation in domestic companies is permitted through automatic route subject to Securities Exchange Board of India (SEBI) and RBI regulations and sector specific caps on FDI.

Indian companies, receiving inward remittances are required to notify the RBI of such receipt within 30 days and file required documentation within 30 days of issue of shares to Foreign Investors. This facility is also available to NRI/OCB investment.


The FIPB Route:
FIPB or Foreign Investment Promotion Board main function is to approve all those cases where the parameters of automatic approval are not fulfilled. The processing time taken by FIPB is between 4 to 6 weeks. The processing is done liberally for all sectors and all types of proposals, and rejections are few. In case foreign investor wishes to hold less than the entire equity of the company, it is not necessary for him to have a local partner. The equity proportion not proposed to be held by the foreign investor can be offered to the public.

Approval by FIPB is necessary for the following categories of industries by NRI/OCB and other investors.

• FIPB is necessary for those proposals which require an Industrial License.
• Proposals where the foreign collaborator has a previous venture/tie-up in India in the same or allied field. This condition does not apply to proposals pertaining to Information Technology industry.
• Investors investing more than 24 per cent in the equity capital of units manufacturing items reserved for small scale industries
• FIPB route is also necessary in the items requiring an Industrial License in terms of the locational policy notified by Government under the New Industrial Policy of1991.
• Proposals meant to acquire shares in an existing Indian company.
• All proposals not inside the notified sectoral policy/caps or under sectors for which FDI is not permitted
• If any investor chooses to submit proposals through the FIPB route bypassing the automatic route.
  

Useful Links

http://www.indianembassy.org/newsite//Doing_business_In_India/FDI_Policy_Procedures.asp

http://www.iic.nic.in/iic3_a.htm

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FDI Policy of India

Introduction to Investment in India

FDI is considered is considered as the life breadth of any nation. In the present world, FDI is considered as one of the most important vital economic tool to give economy a big leap. India too has adopted Foreign Direct Investment as the major strategy to boost its economy. The year of 1991 came as a breakthrough that almost revolutionized the economic scenario of the country. In 1991 inspector raj and paved the way for globalization. More pragmatic and scientific program and policies were adopted. Much emphasis was given on foreign investment. Red tapism, license policy was done away with. Emphasis was given on competition and fair trade practices.

Sector after sector were opened for foreign investors. Foreign investors can invest in India via financial and technical collaborations, Joint Ventures, through capital markets (Euro issues) and through preferential allotments.

Restricted Areas
Virtually all the sectors are opened for the foreign investors but there are certain sectors in which foreign investors are not allowed to participate. These are

• Arms and ammunition.




• Atomic Energy




• Railway Transport




• Coal and lignite




• Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc
  

Industrial Policy
The industrial policy of 1991 further removed all the hassle for installation of industry. It encouraged private participation and eliminated the industrial licensing requirements except for certain select sectors. The policy not only gets away with restrictions on investment and expansion but also aimed to promote easy access to foreign technology and direct investment.

The Industrial Policy Resolution of 1991 clearly outlines the Government’s overall industrial policy. Government approval for setting any industry was simplified and normal FDI proposals are cleared within a month, private participation was promoted and the areas earlier reserved for public sector was also opened for the private sector.

Industrial Licensing
Industrial licensing in post reform period is only necessary for few cases like:
• Manufacturing unit reserved for the Public Sector;
• Industries which are included in compulsory licensing;
• Goods reserved for the small scale sector manufacturing
• Any proposal that comes under locational restriction.

Foreign Investment Policy
Barring few sectors, foreign investment is virtually open for all sectors. In many units and industries 100% FDI is permitted and no government approval is required. In some cases however government approval is required.

FDI Approval
FDI can be accomplished by the investors through two medium

• Automatic approval route of RBI




• Approval through FIPB route
  

In automatic approval route, the application for proposal is cleared within 4 weeks. All the cases in which 100% FDI is permitted falls under automatic approval route.

In FIPB route approval is granted within 4 to 6 weeks. The proposals requiring industrial licensing, acquiring of shares in Indian company, where foreign company has previous tie ups in India etc falls under this category.

Secretariat for Industrial Assistance (SIA)
Secretariat for Industrial Assistance (SIA) foreign investment facilitation agency set up by the government for providing a single window service for assisting investors, facilitating investors, receiving and processing all applications which require Government approval, conveying decisions of government on applications filed, helping entrepreneurs and investors in setting up projects (including liaison with other organizations and State Governments) and in monitoring implementation of projects. It also conveys and notifies Government Policy decisions relating to investment and technology, and collects and publishes monthly production data for select industry groups. It also assist the investors through its website (http://siadipp.nic.in/) where all questions are answered.

Foreign Investment in the Small Scale Sector
The unit having the asset size of INR 10 million is called as small scale industry. The policy states that any investment in this sector by other units including foreign equity is permissible up to 24 per cent. However, if the unit is willing to give up its small scale status, there is no bar on higher equity holding for foreign investment. If foreign investors want to invest more than 24% in a small scale unit manufacturing small scale reserved item(s), an industrial license carrying a mandatory export obligation of 50 per cent must be obtained.

Any SSI manufacturing reserved item(s), if exceeds the small-scale investment ceiling in plant and machinery needs to apply for and obtain a Carry-on-Business (COB) License. No export obligation is fixed on the capacity for which the COB license is granted. In case if the unit expands its capacity for the small scale reserved item(s) further, it needs to apply for and obtain a separate industrial license.

Foreign Investment Policy for trading activities
Investment in the trading activities up to 51% is permissible under automatic route and above that through Government (FIPB) route. Approval through automatic route requires that the activity should be purely export activities and the undertaking concerned is an export house/trading house/ super trading house/star trading house registered under the provisions of the Export and Import policy in force.

100% FDI is permitted under Government route in case of trading activities carried out in certain specified sectors like hi-tech medical and diagnostic items, items for social sector, exports, bulk imports, to name a few.
100% FDI is allowed for E-commerce activities subject to the condition that such companies would divest 26% of their equity in favor of the Indian public in five years, if these companies are listed in other parts of the world.

Other modes of Foreign Direct Investments
Investment through Global Depository Receipts (GDR)/American Deposit Receipts (ADR)/Foreign Currency Convertible Bonds (FCCB) is considered as other modes of FDI in India. Indian companies can raise equity capital in the international market through the issue of GDRs/ADRs/FCCBs. There are no ceilings on investment. The company going for such investment however should have good track record of performance (financial or otherwise) for a minimum period of 3 years.

The companies can float any number of GDRs/ADRs/FCCBs in a financial year. A company manufacturing certain items within specified limits of automatic approval of might exceed that limit after floating of GDRs/ADRs/FCCBs . In such case the company needs to obtain prior Government approval. Foreign investment through preference shares is also treated as foreign direct investment

Extra Resources

New FDI Norms 2009-2010

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Foreign Direct Investment in India
According to global services location index by AT Kearney, India continues to be the best place to start a business, and has replaced USA to become the second-most favoured destination for foreign direct investment after China.

The FDI inflow from 2005-06 to 2006-07 has tripled from US$ 5.5 billion in 2005-06, to US$ 15.7 billion in 2006-07, representing a growth rate of 184 per cent. As per international practices the total inflow of FDI in India stands to US$ 19,531 million.

Infact FDI (Foreign Direct Investment) has overtaken FII investment by almost US$ 5.6 billion in 2006-07, as per RBI’s report on International Investment Position.

According UNCTAD’s World Investment Report, India was the fourth-largest recipient of FDI during 2005-06 and was instrumental in FDI inflows to South Asia surging by 126 per cent, amounting to US$ 22 billion in 2006. Between 2001-02 and 2006-07 cumulative FDI inflows amounted to US$ 60,242 million that is between this period, inflows increased by about two and a half times.

Mauritius, US , UK Netherlands Japan ), Singapore and Germany were the principal sources of FDI during August 1991 to June 2007. The major sectors attracting FDI during August 1991 to June 2007 have been services (US$ 9,443 million), electrical equipment (US$ 8,964 million), telecommunication (US$ 4,880 million), transportation (US$ 3,856 million), fuels (US$ 2,892 million), chemicals (US$ 2,465 million) and construction (US$ 1,912 million).

The number of Foreign technical collaboration has also been increasing along with the increase of FDI. In 2006-07 total FTC approval was 81 whereas in the first four months of the 2007-08 this number has already reached 40. From August 1991 to June 2007 total FTC approval has reached up to 7,886.
Countries that contributed most in wise technology transfer approvals are US, Germany, Japan and UK whereas major sectors attracting technology transfers are -electrical equipment, chemicals, industrial machinery and transportation .


Major FDI proposals in Next Few Years

Government Initiatives
In order to boost FDI in India government has taken series of steps. Nearly 98 per cent of the Indian economy is open to FDI through the automatic route. Some of the other steps are as follows:
The Centre initially approved foreign investment through Foreign Investment Promotion Board (FIPB). Now center has handed some of its power over to the general permission route under the RBI. The FDI ceiling limit for telecommunication sector has been raised from 49% to 74%.

Government has also set up an Investment Commission whose main aim is to garner investments in the infrastructure sector. Government is also planning to increase the limit for investment in the infrastructure sector.

Retail market for foreign investors has been partially opened. Government has now allowed 51 per cent FDI in single brand retail outlets. 100 per cent FDI is permitted in sectors like power trading, processing and warehousing of coffee and rubber.

In some of the sectors, FDI limit has been raised to 100 per cent under automatic route. The sectors include mining of diamonds and precious stones, development of new airports, cash and carry wholesale trading and export trading, laying of natural gas pipelines, petroleum infrastructure, captive mining of coal and lignite.
Foreign funds would be allowed to own up to 26 per cent stake in entities that would be set up by state-owned banks, mutual funds and financial institutions to manage pension funds.

The Government is also planning to set up joint-venture company with the private sector for setting up country-specific investment promotion centers in India and abroad. The countries which government is planning to target are: US, Japan, Taiwan, UK, Germany, Singapore, France, South Korea, Switzerland and Italy.

Future Outlook
According to a report by Economist Intelligence Unit, India is likely to receive FDI of US$ 20.4 billion every year during 2007-11. Due to increasing and constant inflow of FDI in India, government has fixed the target FDI of US$ 30 billion during 2007-08. Also, according to UNCTAD’s world investment report, India has emerged as the second most-attractive location after China, ahead of the US and Russia, for global FDI in 2007.

Extra Resources

New FDI Norms 2009-2010

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Agencies Assisting In Investment
It is necessary for the foreign investors to know about the agencies facilitating investment. There are different Investment facilitation agencies working in India that are assisting the foreign investors to venture in India. The agencies nominated for such functions are as follows:

Foreign Investment Promotion Board (FIPB)
To make the process of investment smoother and faster this agency has been especially designated. Chaired by the Secretary, Ministry of Finance, FIPBs main function is to expedite the approval process for foreign investment proposals.

Only in the case of technical collaborations, there is specified application form. Any firm, Individual or corporate house that wish to invest in India can send their application or proposals to the FIPB unit, Department of Economic Affairs, Ministry of Finance or through any of India’s diplomatic missions abroad. FDI proposals are also accepted by a mailbox facility for accepting FDI proposals through the Internet and providing an acknowledgement number for these. However investment via Internet is subject to the condition that a hard copy should be received in original before the proposal is considered by the Government.

Foreign Investment Implementation Authority (FIIA)
FIIA or foreign investment implementation authority has been set up under the Ministry provide all solutions to the foreign investors by helping them obtain the necessary approvals, address all the operational problems and meet various Government agencies to find solutions to problems and maximize opportunities through the partnership approach.


FIIA in its authority tries to understand the concerns of both the investors and the approving authority and tries to sort them out. It also starts the multi-agency consultation.
FIIA may also refer the cases to higher authority on a quarterly basis if the matter is not resolved. It may also report the cases to higher authorities in cases of project slippage on account of implementation bottlenecks


Investment Commission (IC)
Investment commission has been appointed by the government of India under ministry of finance to advice and recommend on the matter related to policies, fast execution of projects and proposals to promote India as popular investment destination. The current chairman of the commission is Mr. Ratan Tata.


Secretariat for Industrial Assistance (SIA)
The SIA, secretariat of Industrial assistance functions under Department of Industrial Policy and Promotion, Ministry of Commerce and Industry. The agency facilitates investment by providing a single-window clearance for entrepreneurial assistance and facilitates the processing of investors’ applications requiring Government approval.


India Brand Equity Foundation (IBEF)
If any investor requires any data about India he may contact IBEF whose main function is to collect, collates and disseminates comprehensive information on India. It is a single window resource to obtain in-depth information and insight on India. IBEF also provides well researched publications focused on India’s economic and business advantages.

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How to Invest In India?
Investment in India is an opportunity- an opportunity to take strides in business and multiply the profits in geometric progressions. World has now recognize the potential of India and that is why streams of investment is flowing in India.How foreign investors can make entry? There are different entry options for foreign investors. Foreign company or a firm which is planning to invest in India has following options Under companies’ act 1956; foreign company can incorporate a company through:

• Joint Venture or
• Wholly owned Subsidiary.In such Indian companies, foreign equity can be up to 100% depending on the requirements of the investor. However this is subject to equity caps in respect of the sector/area of activities under the FDI policy.


Foreign companies can also make entry through
• Office/Representative Office
• Liaison Project Office
• Branch Office


The activities of such offices are subject to Foreign Exchange Management Regulations, 2000 (Establishment in India of branch or office of other place of business).

Incorporating the Company
Foreign company in order to register or incorporate a company has to file an application with the Registrar of Companies (ROC). After the registration is completed, such company is treated as an Indian company and is subject to Indian laws and regulations as applicable to other domestic Indian companies.Look for further information: http://dca.nic.in/

Liaison Office or Representative Office
Approval to set liaison office in India is given by Reserve Bank of India.The liaison office can collect information about possible market opportunities and furnish information about the company and its products to prospective Indian customers. The office can also help promote import and export from and to India. It can also assist technical and financial collaboration between the parent company and companies in India. A liaison office however is forbidden to undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India.


Project office
Foreign companies which are executing or planning to execute any project or projects in India can set up temporary project/site offices in India. The permission is granted by RBI. Foreign entities can establish their project office in India under specific conditions. Offices are however only allowed to carry on activity that is related to particular project. They are also allowed to remit the profit of the project on completion outside India.


Branch office
Foreign manufacturing and trading companies can set up Branch Offices in India for the following purposes:•

• For Exporting and importing of goods.


• To provide professional or consultancy services.


• To carry out research work in which the parent company is engaged.


• Can promote technical or financial collaboration between Indian companies and parent or overseas group company.


• Act as buying or selling agent for the parent company


• Providing service in the field of Information and technology, and developing software• Providing technical support to the products supplied by the parent/group companies.


• Foreign airline/shipping Company.

A branch office can be set up after receiving permission from RBI. These offices can’t engage themselves in manufacturing activity directly. However they can subcontract these to an Indian manufacturer. They are allowed to remit outside India the profit of the branch net of applicable Indian taxes and subject to RBI guidelines.Branch Office on Stand-Alone Basis in SEZThe activity of such branch offices is restricted to SEZ. They can undertake manufacturing and service activities, subject to specified conditions.No approval shall be necessary from the RBI for a company to establish a branch/unit in SEZs. These branch offices are however not allowed to take any business activity/transaction outside SEZ.To obtain such permission the company must submit form FNC 1 available at RBI website at http://www.rbi.org.in/.


Investment in a Firm by NRIs
Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) can invest by contributing to the capital of a firm or a proprietary concern in India on non-repatriation basis provided:The invested amount should be on the basis of inward remittance or out of specified account types (NRE/FCNR/NRO accounts) maintained with an Authorized Dealer (AD).The amount so invested in the firm should not be one engaged in any agricultural/plantation or real estate business.The invested amount is not eligible for repatriation outside India. NRIs/PIOs can invest in sole proprietorship concerns/partnership firms with repatriation benefits with the approval of Government/RBI.


Investment in a Firm or a Proprietary Concern by Other than NRIs
Only NRI/PIO are allowed to invest in India are allowed to invest through contribution to the capital of a firm or a proprietorship concern or any association of persons in India. Investors other than NRI may apply for such investment with RBI. The RBI may grant such permission to a person resident outside India to make such an investment subject to such terms and conditions as may be considered necessary.

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Investment Climate in India

“India has among the highest return on foreign investment”
US Department of Commerce

“India is among the three most attractive FDI destinations of the world”
A. T. Kearney -FDI Confidence Index 2005


Any country across the globe aspiring to become world leader in business, can hardly afford to miss the investment opportunities in India. With the population crossing one billion marks, this country offers huge market and reservoir of cheap and skilled labor for every enterprise. According to World Bank and many other financial institutions of the world, India would overtake many of the developed nations by 2030Investment opportunities in India today are at acme. Backed by its natural strength, India offers investment opportunities in excess of $500 billion in diverse sectors over the next five years. Today, in an era of globalization, the world’s largest democracy has come to the forefront as a global resource for industry in manufacturing and services.

Why Invest In India?
“By 2032 India will be among the three largest economies of the world” - BRIC Report


The Case is simple. Investing in India is profitable and the reasons are very simple to understand. Some of the reasons can be highlighted below:

• India is largest democracies, and largest and fastest growing economies

• Geographically surrounded by seas from the three sides thereby giving access to the vast domestic and South Asian market.

• India has Strong consumer base. Nearly 300 million people constitute the market for branded consumer goods. This number is estimated to rise by 8% per annum. Consumer good demand is also rising by 12% per annum.

• Procedure for foreign investment is simple. In sixty categories of Industries, permission is granted through automatic route.

• The country is full of skilled manpower and qualified professionals and that too at competitive cost.• Comprises one of the largest manufacturing sectors in the world. Manufacturing is done in almost all the sectors.

• Has rich manpower resource including scientists, engineers, technicians and managers.• Consist of rich base of mineral and agricultural resources.

• Has good market economy infrastructure

• Sound financial sector.

• Strong capital market listing more than 9,000 listed companies with market capitalization of US$ 154 billion (March, 1996)

• Sound R&D infrastructure and technical and marketing services.

• Policy is framed to provide all benefits to the investors. Policy gives complete freedom of entry, investment, location, choice of technology, production, import and export.

• Good and balanced package of fiscal incentives.• Legal and accounting system is sophisticated and world class

• Majority of the population can speak, read and understand English very well.

• Full convertibility of rupee Current Account at market determined rate.• Full repatriation of capital, technical fee, royalty and dividends.

• Investing company can use its brand name freely

• Exemption from income tax on profits derived from export of goods.

• Export Oriented units and units in Export Processing ones.

• Corporate Tax applicable to the foreign companies of a country, with which agreement for avoidance of Double Taxation exists, can be one which is lower between the rates prevailing in any one of the two

• Investors are completely exempted from Customs Duty on industrial inputs. They are also provided sops in the form of Corporate Tax Holiday for five years for 100 per cent countries and the treaty rate.

• Parliamentary democracy is deep rooted in the country.

Article

New FDI Norms 2009-2010 Relaxed

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