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Date : 03 Jun 2005
Transfer of Government Securities/units
10C.33
III. Portfolio Investment in Shares/Debentures of Indian Companies and in Domestic Mutual Funds Regulations regarding Portfolio Investment (i.e. investment through Stock Exchange) in shares/debentures by NRIs/OCBs have been explained in paragraphs 10C.20 to 10C.23. Registration of Designated Branches 10C.20 Portfolio investments in shares/debentures by NRIs/OCBs are permitted only through designated branches of authorised dealers preferably located at centres having stock exchanges. Authorised dealers should inform the names of such branches to Central Office of Reserve Bank and obtain approval. The Code number allotted by Reserve Bank should be quoted in all correspondence undertaken with Reserve Bank in this regard. Non-resident investors can also authorise Indian residents or stock exchange brokers as their agents in India to purchase/sell shares on their behalf under the schemes but all transactions should be routed through the designated branch of authorised dealer. General Conditions for Purchase with Repatriation or Non-Repatriation rights 10C.21 (i) NRIs/OCBs will be permitted to make portfolio investment in shares/debentures (convertible and non-convertible) of Indian companies, with or without repatriation benefits provided the purchase is made through a stock exchange and also through designated branch of an authorised dealer. NRIs/OCBs are required to designate only one branch authorised by Reserve Bank for this purpose. (ii) Investment in equity shares and convertible debentures will be permitted subject to an overall ceiling of (a) 10 per cent of the total paid-up equity capital of the company concerned; and (b) 10 per cent of the total paid-up value of each series of the convertible debentures issued by the company concerned for all NRIs/OCBs taken together both on repatriation and on non-repatriation basis. [See paragraph 10C.23(ii) in respect of investments in excess of the limit of 10%]. (iii) The purchase of shares and debentures under the scheme is required to be made at the ruling market price. 10C.21(iv) NRIs/OCBs intending to invest on non-repatriation basis should submit their applications in Form NRI and NRC respectively, through a designated branch of an authorised dealer, to Reserve Bank (Central Office). Reserve Bank will grant general permission to the concerned authorised dealer to purchase shares/debentures of Indian companies, securities (other than bearer securities) of the Central or any State Government and Treasury Bills on behalf of the NRI/OCB subject to the condition that the payment for such investment is received through inward remittance or from the investor's NRE/FCNR/NRO/NRSR account. The general permission granted by Reserve Bank would be initially valid for a period of five years. Authorised dealers may themselves renew the permission granted by Reserve Bank to individual NRIs as well as OCBs for a period of five years at a time. (v) NRIs and OCBs intending to invest with repatriation benefits should submit their applications through a designated branch of an authorised dealer in Form RPI and RPC respectively. Reserve Bank will grant general permission to the designated branch for purchase of shares/debentures of Indian companies, securities (other than bearer securities) of the Central or any State Government and Treasury Bills subject to the conditions that - the payment is received through an inward remittance in foreign exchange or by debit to the investor's NRE/FCNR account. investment made by any single NRI/OCB investor in equity/preference shares and convertible debentures of any listed Indian company does not exceed 5% of its total paid-up equity or preference capital or 5% of the total paid-up value of each series of convertible debentures issued by it. NRIs/OCBs take delivery of the shares/convertible debentures purchased and give delivery of the shares/convertible debentures sold under the Scheme. The general permission granted by Reserve Bank will be valid initially for a period of five years. Authorised dealers may themselves renew the permission granted by Reserve Bank to individual NRIs as well as OCBs for a further period of five years at a time. Authorised dealers may note to obtain the latest OAC/OAC 1 certificate from the OCB concerned before renewing the permission. (vi) NRIs/OCBs intending to invest in the units of domestic mutual funds on non-repatriation/repatriation basis under the Portfolio Investment Scheme should apply to Reserve Bank (Central Office) in the manner indicated in sub-paragraphs (iv) and (v) above. However, approvals already granted for portfolio investment in shares/debentures of Indian companies will also be valid for purchase of units of domestic mutual funds. Registration of Shares & Investment in Joint Names 10C.22 (i) Shares/debentures purchased by NRIs/OCBs should be held and registered in the names of either the investor himself or an authorised dealer or the latter's nominee/s. (ii) Shares/debentures can be purchased by NRIs in joint names with other NRIs with permission of Reserve Bank. In such cases, if the investment is with repatriation benefits, the first holder is to be treated as investor for the purpose of 5% ceiling. The second or third holder will be eligible to invest separately in the same company in his own name as the first holder in joint holdings up to the limit of 5%. Reserve Bank will also permit investment jointly with residents. However, if the resident joint holder inherits the shares/debentures, he/she will not be entitled to repatriation benefits. Procedure for Monitoring the Overall Ceilings 10C.23 (i) Reserve Bank (Central Office) will monitor the overall ceiling of 10% on the acquisition of shares/debentures by NRIs/OCBs under the Portfolio Investment Scheme with the assistance of link offices of authorised dealers in Mumbai. The link offices should submit a statement in form LEC (NRI) giving details of purchases/sales of shares/debentures (company-wise) made by all designated branches on daily basis. The daily statement should be serially numbered. All purchase and sale transactions for which commitments have been made(as evidenced by contract notes issued by recognised stock exchange brokers) irrespective of whether the actual deliveries have been effected or not should be included in the daily statement. Sales where shares/debentures were originally purchased by the NRI/OCB investors through stock exchange should only be included in the statement. If no transactions are effected on any day, a 'nil' statement need not be submitted. (ii) Indian companies listed on recognised stock exchanges in India may, however, resolve by a General Body Resolution to allow NRIs/OCBs to acquire shares/debentures up to 24% instead of the 10% mentioned in paragraph 10C.21(ii). Indian companies desirous of exceeding the limit of 10% should, therefore, forward the necessary resolution to Reserve Bank indicating that the General Body has no objection to NRIs/OCBs purchasing shares/debentures up to 24% of the paid up capital/paid up vakue of each series of convertible debentures. On receipt of the resolution, the name of the company will be intimated to all link offices of designated branches of authorised dealers to enable them to make purchases on behalf of their clients up to the raised/revised limit in respect of the company. IV. Remittance of Dividend/Interest and other Income and Sale/Transfer of Shares/Debentures Remittance of Dividend/Interest on Shares/ Bonds/Debentures held by NRIs/OCBs 10C.24 (i) The procedure outlined in paragraph 10B.6 and 10B.7 should be followed for remittance of dividend (including interim dividend) or interest on shares/bonds/debentures to non-resident holders who have been permitted to make investments with repatriation benefits. In cases where the dividend/interest is to be credited to the non-resident holder's NRE account with a bank in India, it may be paid by issuing individual dividend/interest warrants to the shareholders' mandatee banks for credit to NRE account. The following particulars/documents should be furnished by Indian companies along with the dividend/interest warrant: (a) Nationality and origin of the non-resident share/bond/debenture holder and place/country of permanent residence; (b) A certified statement from the company, under the signature of an authorised official, showing the number of shares/bonds/debentures held by the non-resident, face value, number and date of Reserve Bank's approval under Section 19(1)/29(1)(b)/29(4)(a) of the Act for issue / purchase / holding of the shares/bonds/debentures, rate of dividend declared or interest payable, year/period to which it relates, gross dividend/interest, tax deducted at source and net remittable amount; (c) A certified statement from the company, under the signature of an authorised official, that in the terms of permission granted by Reserve Bank for acquisition of the shares/bonds/debentures there is no prohibition for the remittance of dividend/ interest. On receipt of the above particulars/documents and after verifying documentary evidence that the permission granted by Reserve Bank to the non-resident share/bond/debenture holder for purchase/ holding/issue of shares/bonds/debentures under Section 29(1)(b)/ 29(4)(a)/19(1) of FERA 1973 does not prohibit the remittance of dividend/interest, authorised dealers may credit the amount of the dividend/interest warrant to the NRE account of the non-resident share / bond / debenture holder. (ii) While granting permission to bank branches of authorised dealers to purchase shares/debentures on behalf of NRIs, under the Portfolio Investment Scheme, Reserve Bank also authorises the bank branch concerned to remit or to credit the dividend/interest to the non-resident investor's NRO/NRE/FCNR account, as the case may be. Dividend/interest due to the non-residents may accordingly be credited to the respective accounts after ensuring that the conditions laid down in this regard are satisfied. (iii) Dividend/Interest due to non-resident share /bond/debenture holders who are not eligible for having them remitted abroad should be paid to their mandatee bankers in India for credit to their NRO accounts. Reserve Bank would permit repatriation of the net (i.e. after payment of tax) income/interest earned during the financial year 1994-95 and onwards on such investments in accordance with the procedure laid down in paragraph 10C.24A. (iv) Before allowing remittance of dividend/interest to an OCB, authorised dealers should ensure that it has submitted the required annual certificate in form OAC or OAC 1, as the case may be, and that the ownership/beneficial interest of non-resident individuals of Indian nationality/origin had remained at or above the level of 60% up to the end of the period for which dividend is to be remitted. Remittance of Income on Investments on non-repatriation basis 10C.24A (i) Non-resident persons of Indian nationality/origin (NRIs) and overseas corporate bodies (OCBs) predominantly owned by NRIs have been permitted to make investment in partnership / proprietorship concerns, shares/debentures of Indian companies, Indian mutual funds, real estate, deposits with Indian companies/banks, units of Unit Trust of India, etc. on non-repatriation basis. NRIs are also permitted by Reserve Bank to grant loans to resident persons/firms/companies on non-repatriation basis. Further, the investment/deposits held in India by Indian nationals who have become non-residents on account of their going abroad on employment/emigration, as well as income/interest earned on such investment/deposit/loan is also not allowed to be repatriated abroad. [cf. paragraphs 10C.6 to 10C.10, 10C.30, 10C.31, 10C.34, 10D.8, 11E.6(item A.5), 11E.7 and 13A.9]. Although the investment/principal amount of deposits/loans made/held on non-repatriation basis under these schemes, investment made by NRIs out of rupee loans from banks in India against the security of NRE/FCNR accounts, sale proceeds of the house/flat acquired/constructed out of loans obtained by NRIs against the security of the NRE/FCNR accounts, if sold, continue to be non-repatriable, authorised dealers may allow repatriation of net income/interest earned (i.e. after payment of tax) on these investments/deposits/loans, as also of net income by way of rent earned on house/flat acquired/constructed, in a phased manner as under : Incomes earned during the financial year Amount eligible for repatriation 1994-95 up to U.S.$ 1,000 (U.S.dollars one thousand) in full and one third of the balance amount of income 1995-96 up to U.S.$ 1,000 (U.S. dollars one thousand) in full and two third of the balance amount of income 1996-97onwards Entire income Applications for remittance of such incomes may be made to Reserve Bank on a consolidated basis at the end of the year in accordance with the procedure laid down in paragraph (ii). Since the entire income will be repatriable from 1996-97 onwards, remittances pertaining to the period 1996-97 and onwards will be permitted to be made either in one lumpsum or in suitable instalments, if so desired by the applicants. (ii) For the purpose of availing of this facility, the concerned NRI/OCB should designate a branch of an authorised dealer through whom the remittance of income is sought to be made and submit an application to it in form RCI, duly completed, together with the documents specified therein and details of income earned on investments/deposits as also any other income like pension earned. Authorised dealer on satisfying himself with reference to the particulars/documents and the Chartered Accountants certificate furnished that the income/interest etc. sought to be repatriated is eligible for remittance, may allow the remittance out of the relevant funds held in the applicant's NRO account or credit the same to the NRE/FCNR account of the applicant after ensuring that the Income-tax has been paid as per the provisions of Income-tax Act and an undertaking/certificate regarding payment of income-tax (cf. paragraph 3 B.10) has been produced from the Income-tax Authorities. Doubtful cases should be referred to Reserve Bank with full particulars NOTE : Remittance of pension may be allowed if the applicant does not have any other income in India, without insisting on a certificate from Chartered Accountant/Income tax authorities regarding payment of Income-tax. In such cases authorised dealers should obtain a "one time certificate" issued by the pension disbursing office that the applicable Income-tax is being deducted by them. (iii) The designated branch should maintain party-wise records of the approvals granted by Reserve Bank as also actual remittances made there against. A half-yearly statement in form CIR should be sent to Reserve Bank giving details of the remittances made/credits to NRE/FCNR accounts allowed, by 15th of the month following the half-year. Sale/Transfer of Shares/Bonds/Debentures by NRIs to Residents 10C.25 (i) In order to facilitate quick transfer of shares/bonds/debentures held by NRIs to residents, Reserve Bank has granted general exemptions by Notifications issued under Section 19(6) of FERA1973 for sale/transfer of shares/bonds/ debentures through stock exchanges in India subject to fulfillment of certain conditions. The details of these exemptions have been explained in paragraphs 10C.26 and 10C.27. (ii) Applications for sale/transfer of shares / bonds /debentures held by NRIs/OCBs by private arrangement i.e. other than through stock exchange should be made to Reserve Bank in form TS 1 either by the transferor or the transferee, attaching therewith the letter of consent of the other party irrespective of whether the shares/bonds/ debentures are listed on a stock exchange or not. While conveying its approval, Reserve Bank will stipulate the conditions subject to which the sale/transfer should be effected. In cases of sale/transfer of shares/bonds/debentures acquired on repatriation basis, repatriation of such proceeds of bulk holdings (i.e. shares/bonds/debentures exceeding Rupees one lakh in face value or 5% of the company's paid-up capital whichever is lower) will be permitted only on production of a certificate from a Chartered Accountant or the concerned company's secretary stating that shares with necessary transfer forms duly signed have been received/lodged with the company for registration in favour of the transferee. General Exemption for Sale/Transfer of Shares/Bonds/ Debentures of Indian Companies through a Stock Exchange acquired without repatriation benefit 10C.26 (i) Reserve Bank by its Notification No. FERA.149/93-RB dated 26th April 1993 has exempted the transfer of shares, bonds or debentures of Indian companies made by NRIs through stock exchange in India in case where (a) such transfers are made in favour of an Indian citizen or person of Indian origin resident in India or in favour of a company or other body corporate incorporated in India and (b) sale proceeds of shares are credited to the NRO account of the transferor with no right of repatriation outside India. In such cases, authorised dealers may credit the sale proceeds to the seller's NRO account after verifying the contract notes issued by recognised stock exchange brokers through whom the sale was effected. This exemption is available in respect of shares, bonds or debentures acquired by NRIs under the Portfolio Investment Scheme as well as under any Direct Investment Scheme. (ii) For sale/transfer of shares, bonds or debentures by OCBs acquired on non- repatriation basis through a stock exchange in India, a consolidated application giving full particulars may be submitted to the concerned office of Reserve Bank. Permission will be granted by Reserve Bank for a specific period subject to renewal. General Exemption for Sale/Transfer of Shares/Bonds/Debentures of Indian Companies through a Stock Exchange acquired with repatriation benefits under the Portfolio Investment Scheme 10C.27 (i) Reserve Bank by its Notification No.FERA.150/93-RB dated 26th April 1993 has exempted transfer of shares, bonds or debentures of Indian companies registered in India previously acquired by NRIs/OCBs with repatriation benefits under the Portfolio Investment Scheme to persons resident in India or persons of Indian origin resident in India or in favour of companies or bodies corporate, incorporated under any law in force in India on the following conditions. (a) The transferor had purchased such shares, bonds or debentures from the stock market through a member of a recognised stock exchange in India and delivery of shares, bonds or debentures so purchased has been taken by him or on his behalf by the concerned authorised dealer or its nominee. (b) The shares, bonds or debentures are sold in the stock market through a member of a recognised stock exchange in India and the sale transaction is effected at the ruling market price as determined on the floor of the stock exchange by normal bid and offer method and through the same designated branch of the authorised dealer through which the shares, bonds or debentures were earlier purchased; and (c) The sale proceeds are paid to the said designated branch. Consequently, it is not necessary for NRIs/OCBs to obtain Reserve Bank's permission for sale of shares/bonds/debentures effected in the above manner. As regards the repatriation of sale proceeds received by the designated branches, Reserve Bank will, while granting approval for purchase of shares/bonds/debentures also grant approval for repatriation of the sale proceeds if and when shares/bonds/debentures are sold in the above manner. The actual repatriation of the sale proceeds or credit thereof to the NRE/FCNR account of the beneficiary will be subject to payment of Indian taxes. (ii) Sale/transfer of shares/bonds/debentures acquired by NRIs/OCBs with repatriation benefits under the Direct Investment Scheme and sold through the Stock Exchange in India will require permission of Reserve Bank. Applications for necessary permission should be made by NRIs/OCBs to the Central Office of Reserve Bank in form TS 4 through the designated bank branch of an authorised dealer. A.D.(M.A. Series) Circular No.9 In such cases, permission for sale/transfer of shares / bonds/ debentures acquired with the right of repatriation will be granted by Reserve Bank to the bank branch designated by the seller or to the authorised dealer, as the case may be, who may sell the holdings at the ruling market price through a stock exchange at any time within the validity of the permission. While granting permission for sale/transfer, Reserve Bank will also authorise the designated branch/authorised dealer to credit the sale proceeds to the NRE or FCNR account of the seller or to remit them abroad subject to payment of taxes on capital gains, if any. Where the amount of capital gains tax is not immediately determinable, the designated branch/authorised dealer may allow repatriation of sale proceeds or credit thereof to the seller's NRE/FCNR account to the extent of the original cost of investment immediately on realisation of the sale proceeds. The excess amount, if any, representing capital gain should be kept by the designated branch/authorised dealer in a separate NRO account of the seller or in a suspense account. The designated branch/authorised dealer may allow withdrawal of this amount for credit to the NRE/FCNR account of the seller or remit it abroad, on production of necessary tax clearance certificate. NOTE: Under Section204 of the Income-tax Act 1961, authorised dealers are required to deduct income-tax at a flat rate of 20% of the long-term capital gains accruing to NRIs on the transfer of specified assets which include shares/bonds/debentures of Indian companies, Government securities and any other notified assets. The amount of capital gains is to be arrived at on the basis of a formula laid down by Government. The tax deducted at source is required to be paid into Government treasury or the office of Reserve Bank, State Bank or any other nationalised bank authorised for the purpose, within one week from the date of deduction of tax. NRIs have, however, been given the option to pay tax at the above flat rate or pay it on the total income for the assessment year, in which case the remaining amount of sale proceeds withheld by authorised dealers may be credited to NRE/FCNR account of the seller or remitted to him abroad only after production of the necessary tax clearance certificate. (iii) A quarterly statement of sales / transfers of shares / bonds / debentures acquired by NRIs/OCBs under the Direct Investment Scheme and sold through stock exchange by authorised dealers vide sub-paragraph (ii) above should be submitted by the concerned authorised dealer to the Central Office of Reserve Bank in form DSP within 15 days from the close of each calendar quarter. General Exemption for Transfer of Rupee Securities by Non-residents as Gift 10C.28 By its Notification No. FERA.151/93-RB dated 26th April 1993, Reserve Bank has also exempted transfer, by way of gift, of any share, bond or debenture of a company registered in India made by a non-resident Indian or person of Indian origin to a citizen of India or a person of Indian origin resident in India provided - (a) such share, bond or debenture was held by the transferor with the permission of the Reserve Bank, and (b) such transfer is between relatives as defined in Section 6 of the Companies Act, 1956. A.D.(M.A. Series) Circular No.9 Transfer of Rupee Securities to Non-residents as Gifts 10C.29 Transfer of rupee shares/securities by residents to non-residents by way of gift requires prior approval of Reserve Bank. Applications for such transfers should be made to the concerned Office of Reserve Bank and should, inter alia, contain the following information: (a) Name, address and permanent place of residence of both the transferor and the transferee. (b) Relationship between the transfer or and the transferee. (c) Reason for making the gift. Recording of Overseas Address by Indian Companies Consequent on Resident Security Holder Becoming Non-resident 10C.30 In terms of Section 19(4) of FERA 1973, permission of Reserve Bank is required to be obtained by Indian companies for recording in their registers/books, the overseas address of the holder of securities, consequent on change of his status from resident to non-resident. By its Notification No. FERA 122/92-RB dated 17th September 1992, Reserve Bank has granted general permission to companies in India to enter the overseas address in such cases provided the company obtains an undertaking from the holder of any security that he will not seek repatriation of any income, dividend or sale proceeds of the security. The dividend/interest earned on such securities or sale proceeds thereof should, therefore, be credited only to the Ordinary Non-resident Rupee (NRO) Account of the holder with a bank in India. Note: See paragraph 10C.24A regarding repatriation of income/interest earned during the financial year 1994-95 and onwards. Conversion of Holdings of Securities into Joint Holdings Between Residents/Non-residents 10C.31 By its Notification No. FERA.145/93-RB dated 26th April 1993 issued under sub- sections (1) and (5) of Section 19 of FERA 1973,Reserve Bank has granted general permission to NRIs/resident Indian citizens for conversion of their holdings in securities issued or registered in India, into joint holdings by addition of the names of persons of Indian nationality or origin subject to the following conditions: a) An NRI to convert his holding into joint holding by addition of name/s of person/s of Indian nationality/origin resident in India provided (i) transfer formalities as required under the Companies Act, 1956 are complied with and (ii) dividend income or sale proceeds of the securities accruing to the person resident in India are not repatriated outside India in the event of his becoming a non-resident sole (or joint named) holder of the security by succession, gift or otherwise. b) A resident Indian citizen to convert his holding into a joint holding by addition of name/s of an NRI/s provided (i) the resident holder continues to be the first holder; (ii) the joint holding is treated as non-resident holding in the books of the company; (iii) any dividend or income or sale proceeds becoming payable to NRIs are credited to his NRO account and (iv) the securities are not sold or disposed of otherwise than through a member of a recognised stock exchange in India, except with the permission of Reserve Bank. Note: See paragraph 10C.24A regarding repatriation of income/interest earned during the financial year 1994-95 and onwards. V. Investment in Government Securities/Units, etc. Investment in Government Securities, National Plan/ Savings Certificates and Units of UTI 10C.32 (i) NRIs are permitted to invest freely in securities (other than bearer securities) of the Central or any State Government and National Plan/Savings Certificates by making remittances from abroad or out of funds held in their NRE/FCNR accounts, provided the purchase/subscription is arranged through the authorised dealer maintaining the account. Authorised dealers may also make such investments on behalf of NRIs out of funds held in their NRO accounts subject to the condition that the funds invested and any income earned thereon will not be eligible for repatriation out of India at any time in future. Likewise, OCBs can also invest in Government securities and National Plan/Savings Certificates if permitted under the terms and conditions applicable to the sale/issue of such securities and the purchase/subscription is arranged through an authorised dealer. (ii) NRIs/OCBs are permitted to invest in units of UTI subject to the terms and conditions applicable for the issue/sale thereof, against remittances from abroad or out of funds held in their NRE/FCNR account, through the authorised dealer maintaining the account. Funds held in their NRO accounts may also be utilised for the purpose subject to the condition that the funds invested and any income earned on such investment will not be eligible for repatriation out of India at any time in future. UTI has also been granted general permission by Reserve Bank for issue of units to NRIs/OCBs, provided the funds towards the purchase price are remitted by the investors from abroad in an approved manner or the price is paid out of the investors' NRE/FCNR accounts maintained with authorised dealers in India. Where funds held in NRO accounts are utilised for purchase of units, UTI will issue units to NRIs/OCBs on the condition that the funds invested and income earned thereon will not qualify for repatriation out of India at any time in future. Units can thus be bought by NRIs/OCBs directly from UTI also. Sale/Transfer of Government Securities/Units 10C.33 NRIs/OCBs may freely sell/transfer Government securities through a Stock Exchange in India, provided the sale/transfer of such securities is arranged through an authorised dealer. Similarly NRIs/OCBs holding units of UTI may freely tender them for repurchase by the Trust.
 
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