Investing in India - Part II

T.Haridas Nair and S.N. Nair presents a compilation of questions and answers about Indian regulations applicable to NRI investments

Q: What is the Portfolio Investment Scheme?
A: Under this scheme, NRIs are permitted to acquire shares/ debentures of Indian companies through the stock exchange in India.

Q: What is the procedure for making applications?
A: The application is to be submitted to Reserve Bank through a designated branch of a bank in India in a prescribed form.

Q: What is a designated branch?
A: Reserve Bank has authorised a few branches of each bank to conduct the business under Portfolio Investment Scheme on behalf of NRIs.  These branches are the main branches of major commercial banks located close to the stock exchanges.  NRIs will have to route their applications through any of the designated bank branches who have authorisation from Reserve Bank.

Q: Can a NRI can apply through more than one designated Branch?
A: No.  Each NRI has to select one branch for this purpose for investment on repatriation/non-repatriation basis.

Q: Is it necessary to maintain a bank account with the designated Branch through whom the application is made?
A: It is advisable to maintain bank account with the designated branch for administrative convenience.

Q: What is the validity period of Reserve Bank approval for the purchase of shares and debentures?
A: Reserve Rank approval is valid for a period of five years from the date of issue.  This can be renewed future by making a request by means of a simple letter.

Q: Is there any ceiling on the Investment under the Portfolio Investment Scheme?
A: These is an overall ceiling of 5% of paid up share capital of the company/paid up value of each series of convertible debentures for purchase by NRIs/OCBs.  The overall ceiling can be raised to 24% if the company concerned passes a resolution to that effect in its general body meeting.  Individually, NRIs / OCBs can make investment upto 1% of the paid-up share capital/each series of convertible debentures.

Q: Is there any lock-in period for investment made under the scheme?
A: Yes.  There is lock-in period of one year for investment made on repatriation basis.  The period of one year is reckoned from the date of registration of the shares.  However, for investment made on non- repatriation basis, there is no lock-in period.

Q: As an NRI, I understand that I am eligible for import of gold/silver to India.  I would like to sell the gold so imported.  Kindly advise me the tax implications.
A: Reserve Bank has permitted NRIs to legally import gold (maximum 5 kgs, duty of Rs 220 per l0gms) and silver (100 kgs per passenger, duty of Rs 500 per kg) once in six months.  Many NRIs are under the mistaken belief that if the imported gold/silver is sold in India, it is exempted from tax.  No.  This is not true.  When you sell the precious metal in India, and earn profit, it is liable to Indian income tax.  The profit is liable to tax as business income or capital gains.  It depends on your intention.  If your intention is to take advantage of the business opportunity as sell the precious metal, it would be treated as business profit.  If your intention is to hold it as a capital asset, it would be treated as capital gains.

Most NRIs take advantage of the business opportunity and buy the precious metal before coming to India and sell it soon.  In such circumstances, it will be treated as a business income.  From the sale proceeds, the cost and expenses incurred for the sale can be deducted.  Tax will be payable at the normal applicable rates.  If you have acquired the gold as a capital asset, income will be treated as short term or long term depending upon your period of holding.  If you hold it for less than 3 years, it will be short term.  Tax at normal rates have to be paid.  If you hold it for more than 3 years, the capital gains will be long term and you can get some tax benefits.  Tax will be payable at the rate of 20% only on the capital gains, after taking the benefit of cost and expenses.

The Q&A provided here are for information purposes and they do not constitute investment advice.  Government legislation in this field in updated on a regular basis.  Investors should check with an appropriate agency for up to date information before making major decisions.

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