NRI Investment


Taxation policy in India
Foreign nationals working in India are generally taxed only on their Indian income. Income received from sources outside India is not taxable unless it is received in India. The Indian tax laws provide for exemption of tax on certain kinds of income earned for services rendered in India. Further, foreign nationals have the option of being taxed under the tax treaties that India may have signed with their country of residence. Remuneration includes salaries and wages, pensions, fees, commissions, profits in lieu of or in addition to salary, advance salary and perquisites. Taxable payments include all allowances and tax equalisation payments unless specifically excluded. The stock options granted by the employer are taxable as capital gains at the time of sale of shares acquired due to exercise of options.
ADR, GDR and Rupee shares
An Indian corporate can raise foreign currency resources abroad through the issue of ADRs or GDRs by issuing its rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs and/or ADRs, subject to the conditions that the ADRs/GDRs are issued in accordance with the scheme for issue of foreign currency convertible bonds and ordinary shares through Depository Receipt Mechanism Scheme, 1993 and guidelines issued by the Government from time to time. The Indian company issuing such shares has an approval from the Ministry of Finance, Government of India, is not otherwise ineligible to issue shares to persons resident outside India in terms of these regulations. There is no limit up to which an Indian company can raise ADRs/GDRs. However, the Indian company has to be otherwise eligible to raise foreign equity under the extant FDI policy. There are no end-use restrictions on GDR/ADR issue proceeds, except for an express ban on investment in real estate and stocks.
A company engaged in making items in automatic route, whose direct foreign investment after a proposed GDRs/ADRs/FCCBs issue is likely to exceed the equity limits under the automatic route.
Foreign currency convertible bonds
FCCBs are issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993, and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of any equity related warrants attached to debt instruments.
The eligibility for issue of convertible bonds or ordinary shares of issuing company is as under: an issuing company desirous of raising foreign funds by issuing foreign currency convertible bonds or ordinary shares for equity issues through Global Depositary Receipt can issue FCCBs up to $50 million under the automatic route, from $50-100 million, the companies have to take RBI approval, from $100 million and above, prior permission of the Department of Economic Affairs is required.
Manufacture of items reserved for small-scale sector
An industrial undertaking is defined as a small-scale unit if the capital investment in plant and machinery does not exceed Rs 10 million. Small-scale units can get registered with the Directorate of Industries, District Industries Centre of the state government. Such units can manufacture any item, and are also free from locational restrictions. The government has reserved certain items for exclusive manufacture in the small-scale sector. 
Non small-scale units can manufacture items reserved for the small-scale sector only after obtaining an industrial license. In such cases, the non-small scale unit is required to undertake an obligation to export 50 per cent of the production of SSI reserved items.