An Indian entity can invest up to four times of net worth in a foreign entity. Also, it is permitted to put up to 50 per cent of its net worth in overseas portfolio investment. These are part of new rules and regulations for overseas investment, notified by the Finance Ministry, on Monday.

Giving the rationale behind new rules and regulations, the Finance Ministry said that in view of the evolving needs of businesses in India, in an increasingly integrated global market, there is need of Indian corporates to be part of global value chain. The revised regulatory framework for overseas investment provides for simplification of the existing framework for overseas investment and has been aligned with the current business and economic dynamics.

“Clarity on Overseas Direct Investment and Overseas Portfolio Investment has been brought in and various overseas investment related transactions that were earlier under approval route are now under automatic route, significantly enhancing ‘Ease of Doing Business’,” it said.

According to Foreign Exchange Management (Overseas Investment) Rules, 2022, an Indian entity may make Overseas Direct Investment (ODI) by way of buying shares either through subscription, acquisition through bidding or tender procedure by way of rights issue or allotment of bonus shares, capitalisation, swap of securities and through merger, demerger, amalgamation or any scheme of arrangement. An Indian Financial institution may make ODI in a foreign entity, which is directly or indirectly engaged in financial services activity. However, the Indian entity must be earning profit during the preceding three financial. Non financial Indian companies can also go for financial company abroad excluding bank and insurance ones.

Acquiring foreign securities

For the resident individual, rules prescribe he or she can invest in non-financial companies. He or she may, without any limit, acquire foreign securities by way of inheritance from a person resident in India who holds such securities or from a person resident outside India. There will be no limit on the acquiring foreign securities by way of gift from a person resident in India who is a relative and holding such securities. In case the gift giver is from abroad, then provisions of the Foreign Contribution (Regulation) Act, 2010 will be applicable.

Rules allow acquisition of shares or interest under Employee Stock Ownership Plan or Employee Benefits Scheme or sweat equity shares by the resident individuals. This will be applicable for those who is an employee or a director of an office in India or branch of an overseas entity or a subsidiary in India of an overseas entity or of an Indian entity in which the overseas entity has direct or indirect equity holding

Indian residents will not be permitted to make ODI in in a foreign entity engaged in real estate activity; gambling in any form; and dealing with financial products linked to the Indian rupee without specific approval of the Reserve Bank. Also, an Indian entity or resident can make ODI in start-ups recognised under the law in the host country but only from its internal accruals or from own funds.

Presently, the overseas investment by a person resident in India is governed by the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property outside India) Regulations, 2015. Now based on comprehensive review and draft paper, new regulations have been made. Also, extant regulations pertaining to Overseas Investments and Acquisition and Transfer of Immovable Property Outside India have been subsumed within these rules and regulations.

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