Guide to NRI Share Transfer and Purchase

Non-Resident Indians (NRI), Foreign Nationals and Persons of Indian Origin (PIO) are allowed to invest only in the shares of a Private Limited Company or Limited Company under the automatic route. NRI’s or Foreign Nationals or PIOs who wish to invest in a LLP or register a LLP must first obtain RBI’s prior approval. NRI investment in One Person Company is not allowed. Therefore, private limited company is a popular mode for NRI or foreign investment in Indian businesses. In this article, we look at the regulation for NRI share transfer and purchase.

Definition of NRI

FEMA Act, 1999 has classified two types of NRIs, Non-Resident Indian holding Indian Passport (NRI) and Persons of Indian Origin (PIO) – Non-Resident Indians holding foreign passport. Further, for FEMA regulations we have to determine whether the person is a person resident in India or person resident outside India.
Person Resident in India: A “Person Resident in India” means a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include:

• A person who has gone out of India or who stays outside India for: (The following persons are not considered Person Resident in India, even if they are residing for more than 182 days during the course of the preceding financial year)
  • Taking up employment outside India
  • Carrying on outside India a business or vocation outside India
  • Any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period.
• A person who has come to stay in India for: (The following persons are considered Person Resident in India, even if they have not resided in India for more than 182 days during the course of the preceding financial year)
  • Taking up employment in India
  • Carrying on outside India a business or vocation in India
  • Any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period.

Any person who is NOT a person Resident in India, is considered to be a Non-Resident Indian.

Purchase of Shares by NRI or Person Resident outside India

A person resident outside India may purchase equity or preference shares or convertible debentures offered on right basis by an Indian Company (Private Limited Company or Limited Company), which satisfies the following conditions:

1. The purchase of shares does not result in increase in the percentage of foreign equity already approved, or permissible under the Foreign Direct Investment Scheme.
2. The existing non-resident shareholder’s additional purchase of shares, does not exceed the sectoral cap of FDI for the entity.
3. The purchase of shares were from a person already resident outside of India.
4. The purchase of shares by the person resident outside India is not less than that the price at which the offer is made to resident shareholders.

Transfer of Shares by NRIs or Person Resident outside India

Transfer of shares by NRI to Indian Resident by way of gift

Reserve Bank of India has given general permission to a person resident outside India to transfer the shares by way of gift to an Indian Resident.

Transfer of shares by NRI to person Resident in India

In case the shares of a Private Limited Company are being transferred by a person resident outside India to a person resident in India, then the NRI or Person Resident outside India must obtain prior permission of Reserve Bank of India.

Transfer of shares by an NRI to another NRI

Reserve Bank of India has given general permission to an NRI to transfer by way of sales the shares of a Company to another NRI/PIO.
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