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Investment in India

Investment in India. Dr. Manuelpillai Paul Dominic. Basic Regulations Governing the Entry by Foreign Investors. Specific approval is required for a few sectors and no investment in a few sensitive sectors

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Investment in India

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  1. Investment in India Dr. Manuelpillai Paul Dominic

  2. Basic Regulations Governing the Entry by Foreign Investors • Specific approval is required for a few sectors and no investment in a few sensitive sectors • In all other sectors, foreign investment is allowed on an automatic basis up to the permissible limit set for a sector • Prior approval is required in cases where the foreign investor has an existing joint venture

  3. The Automatic Route • Requiring no prior approval. Applies to all proposals that are completely in line with the investment guidelines prescribed for the sector • Name of the collaborators, details of allotment, copy of the foreign collaboration agreement, the original foreign inward remittance certificate from the authorized dealer and other specified information are to be provided to the RBI within 30 days

  4. The Specific Approval Route • Requires prior approval by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance • Weightage is given to the employment potential, potential inflow of foreign exchange through exports, long term competitive advantage to India and favourable alignment of the proposals with government priorities

  5. Regulation Governing Relations with Parent Comapny • Liberalised foreign exchange control means the trade account of India is fully convertible • Full capital convertibility is yet to be introduced but specific transfers such as capital and profits of foreign investment in approved industrial activities are allowed on the capital account

  6. Procedure for Profit Repatriation • Profit repatriation can be in the form of dividends and bonus shares or from capital gains from the sale of investments in India • Dividend to foreign shareholders must be repatriated within 42 days of their being announced, after submitting the necessary documentation to the RBI

  7. Foreign Technology Agreement • Allowed in all industries • Automatic approval as long as it is within the following ceilings • Payment of no more than USD 2 million and royalties up to 5% on domestic sales and 8% on export sales

  8. Royalties and Withholding Taxes • The incidence of withholding taxes on fees, royalties, dividends and business income, as well as the relief given under various bilateral tax treaties must be checked to arrive at the realistic repatriation values. • Royalty agreements are valid for only 10 years

  9. Prohibited Sectors • Retail trading • Atomic energy • Lottery business • Gambling and betting

  10. Policy Specific Sectors • Airports • Banking • Coal and Lignite • Mining • Petroleum and Natural Gas • Refining • Telecommunications etc.

  11. Sectors Other than Prohibited and Policy Specific Sectors • 100% automatic route

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