What is Foreign Investment (FI)?
Foreign Investment refers to investments made by a person or organization located outside India into the equity or ownership of an Indian company.
Who can invest in India?
Any non-resident entity or individual (except citizens/entities of countries sharing a land border with India, which have restrictions) can invest in India, subject to NDI rules and regulations.
From which countries is foreign investment restricted?
Foreign investments originating from countries that share a land border with India, such as China, Pakistan, Nepal, Bhutan, Myanmar, Afghanistan, Hong Kong, Macau, and Bangladesh, require prior approval from the Indian government.
What are the routes for foreign investment into India?
There are two routes:
- Automatic Route: No prior government approval required.
- Government Route: Investments must receive prior approval from the Government of India before proceeding.
What is the classification of foreign investment in India?
Foreign investment in India is mainly classified into:
- Foreign Direct Investment (FDI): Long-term investment in Indian companies, often involving control or significant influence. It can be made through the Automatic or Government route.
- Foreign Portfolio Investment (FPI): Investment in listed securities like stocks and bonds. It’s more liquid and typically short-term.
Are there any prohibited sectors for FDI?
Yes. FDI is prohibited in:
- Lottery business
- Gambling and betting
- Chit funds (other than those under certain conditions)
- Real estate business (excluding construction)
- Manufacturing of cigars, cigarettes, and tobacco substitutes
Are there tax implications for foreign investors?
Yes. Investors are subject to Indian tax laws, including capital gains tax, withholding tax on dividends/interest, and transfer pricing rules, among others.
What are the repatriation rules for profits and capital?
Profits, dividends, and capital can generally be repatriated after payment of applicable taxes, provided that at the time of investment, RBI compliances were made.
Need help with Foreign Investment in India?
At KDP Accountants, we specialize in assisting foreign investors with an end-to-end solution for Foreign Investment in India, including company setup in India, regulatory compliance under FEMA, and tax advisory services. Feel free to reach out to us at enquire@kdpaccountants.com .
The above note is subject to further study and clarification. This note does not form an opinion from our end, and before taking any decision based on the above, it is recommended to consult our experts on the subject. Kamdar, Desai & Patel will not be liable for any damages (including, without limitation, damages for loss of business projects, or loss of profits) arising in contract, tort, or otherwise from the use of or inability to use this article or any of its contents, or from any action taken (or refrained from being taken) as a result of using this article or any such contents.
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Niriksha Goyal
Author
Ms. Niriksha is in her final year of the rigorous Chartered Accountancy program, demonstrating her commitment and drive toward excellence. An inquisitive and thoughtful individual, she continuously seeks to deepen her knowledge across various fields, often engaging in intellectual exploration that keeps her on her toes.
Niriksha’s expertise lies in the Foreign Exchange Management Act (FEMA), cross-border transactions, financial structuring, and advisory services. She has honed a deep understanding of these specialized areas, which allows her to provide comprehensive solutions to clients navigating complex international financial landscapes. Her proficiency extends to representing clients before the Reserve Bank of India (RBI), where she adeptly handles regulatory matters, ensuring that her clients’ cross-border dealings remain compliant and strategically sound.
