Are You An NRI Who Wants To Invest In LLP in India? All you need to know about it

Introduction.

NRIs are known as ‘Non-residential Indians’, who contribute to the Indian economy’s growth. The NRI concept has been mentioned under the income tax act, 1961 and the FEMA (foreign exchange management act), 1999. Investments made by NRIs in the LLP business in India are known as ‘foreign investment.’ Recognizing the capability of these investments and compliance and regulation by the laws such as IT act, 1961 and FEMA, 1999, foreign exchange management (transfer or issue of security by a person resident outside India) regulations, 2017 (TISPRO) and regulations of the RBI. 

Also, as stated under the OECD (organization for economic co-operation and development), any investment of ten percent or above from abroad will be taken as FDI (foreign direct investment). Once you decide to commence your business, begin with LLP company registration in India as one of the LLP partners.

The definition of NRI is distinct as given in the IT act, 1961 and FEMA act, 1999. In the IT act, 1961 notes, ‘how the income from the various investment will be taxed,’ where the FEMA act, 1999 notes, ‘where an NRI can invest.’

Definition under the income tax act, 1961.

A person, if complying or satisfying with the following tests, will be an ‘Indian resident’ or ‘non-resident.’

  1. If the person is in India for 182 days in the FY.
  2. If the person is in India for 365 days during four years foregoing FYs and at least 2 months in that FY.

Definition under the foreign exchange management act, 1999.

FEMA explicates NRI as a person who lives outside of India and is a denizen of India or is a PIO (person of Indian origin).

Under the FEMA act, PIO is explicated as a denizen of any country other than Pakistan or Bangladesh and;

  1. Who at any time possessed an Indian passport.  
  2. Who or either of whose parents or any of the grandparents was a denizen of India under India’s constitution or Indian citizenship act, 1955.
  3. Who is the spouse of an Indian citizen or a spouse of an individual mentioned above in 1 and 2.

There are several differences concerning the concept of NRI as stated under the IT act, 1961 as well as FEMA act, 1999 as given below in the table;

1

Investment by an NRI in the LLP.

Investment in the LLP is comparatively a cheaper form of investment, and minimal formalities are needed to be adhered by, compared to investment in any other business forms in India, including but not restricted to private companies.

The RBI entitles NRI investors to invest money in the Indian businesses through following 2 primary routes of FDI in India;

  • Automatic route.

Under this route, the government sanction is not needed for investment and to be separately acquired by an NRI before investing in India, as the name itself says that it is an investment via the automatic route. Nonetheless, this sanction for investment via automatic route is restricted to some particular line of businesses alone. The investment made by NRIs under this route would be directly made to the businesses of their preference. It will be subjected to all the prevalent rules and regulations as might be applicable from time to time.

  • Approval route.

Under this route, government sanction is mandatory to make an investment by NRIs in any stated line of business in India.

In 2015, the government liberalized the policies regarding the FDI investment in the LLPs in India. Since then, NRIs are permitted to invest up to 100%. The reason behind this is to promulgate foreign investment inflows in several sectors of the economy. Under the direct route, NRIs are not required to get approval from FIPB (foreign investment promotion board) as in case of starting a business in a foreign land. If they comply with certain sectoral limits as stated by the policies, then it’s permitted to invest up to 100%. Some of the related provisions are given as below;

  1. There is no provision concerning performance linked with FDI.
  2. As per section 7 of the LLP act, 2008, foreign companies or persons, including NRIs, are allowed to be appointed as designated partners in the LLP.

FPIs and FVCI can also contribute to the LLP’s capital in India.

Schedule four of the TISPRO regulations permit an NRI to invest on a non-repatriation basis, in the LLP’s capital, without any bar. NRIs are also permitted to invest through contribution to the capital of proprietary or a firm in India and partnership firms that are incorporated outside India and are owned and controlled by OCIs or NRIs. The above schedule also clarifies the investment mode to be pursued by an NRI while investing in India on a non-repatriation basis. There are manners in which the amount payable towards the consideration, in case NRI invests in non-repatriation basis can be conducted;

  1. Through direct investment via inward remittance from abroad (with proper banking channel).
  2. Through funds held in NRE (non-resident external) or FCNR (B) (foreign currency non-resident – bank).
  3. Through NRO (non-resident ordinary) account maintained as per the deposit regulations. 

Nonetheless, the maturity or sale proceeds (with taxes) of such investments will be credited only to the NRO account of the NRI investor, regardless of the account’s type from which the respective NRI made the payment. Also, capital appreciation on such investment is not permitted to be repatriated abroad. Nonetheless, interest and dividend income would be permitted to be repatriated, being of the current account in nature. 

A succinct knowledge of various types of accounts maintained by NRIs.

  • Non-resident external account. 

It is an Rs. An account that only NRIs are allowed to open and maintain with sanctioned dealers and with banks sanctioned by RBI (co-operative banks) maintains such accounts. It can be maintained in any form like current, savings or fixed accounts.

From such accounts, ‘credits’ allowed to this account as inward remittances are;

– Interest resulting on investment or account.

– NRE or FCNR (B) ‘s transfer accounts. 

– Maturity proceeds if such investment were made via inward remittance or this account. 

The allowed debits will be coming from the local disbursements which will be transferred to the NRE or FCNR (B) along with investment in India.  

  • FCNR (B).

It is an account only maintained by NRIs in foreign exchange with sanctioned dealers and banks sanctioned by RBI to maintain such accounts. It can be maintained only in the form of FD, and conditions concerning credit or debit to such accounts will be the same as applicable on NRE accounts. 

In conclusion.

An NRI is permitted to invest in India under the above-mentioned routes. Such kind of investment from NRIs would surely accelerate the growth of the Indian economy.