The NRI pays the subscription money in INR in India. Is this considered as Foreign Direct Investment

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RAMKUMAR (Querist)
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30 December 2023 A Non-Resident Indian (NRI) and a person residing in India form a private company in India. The NRI pays the subscription money in INR in India. Is this considered as Foreign Direct Investment (FDI), and is the transaction legal?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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30 December 2023 This transaction is legal but it will not be considered as FDI.

RAMKUMAR

RAMKUMAR (Querist)
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31 December 2023 Sir, could you please explain, with reference to the relevant provisions, why it is not considered as FDI?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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02 January 2024 See the link.
https://acrobat.adobe.com/id/urn:aaid:sc:AP:31d7e22e-3633-47d4-b2fa-864088b275fb

RAMKUMAR

RAMKUMAR (Querist)
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03 January 2024 Sir, could you please specify the paragraph in the PDF that mention about this?

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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20 January 2024 Type of instruments are covered in FDI:

Indian companies can issue equity shares, fully and mandatorily convertible debentures and fully and mandatorily convertible preference shares subject to the pricing guidelines / valuation norms and reporting requirements amongst other requirements as prescribed under FEMA Regulations.

Issue of other types of preference shares such as, non-convertible, optionally convertible or partially convertible, have to be in accordance with the guidelines applicable for External Commercial Borrowings (ECBs).

As far as debentures are concerned, only those which are fully and mandatorily convertible into equity, within a specified time would be reckoned as part of equity under the FDI Policy.

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7355&Mode=0#3