Can Non Resident Indian (NRI) invest in Partnership firm or a proprietary concern?

The applicable rules for investment in a partnership firm or a proprietary concern under FEMA are summarized below – 

Automatic route –

As per FDI policy of India, A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest by way of capital of a firm or a proprietary concern in India on non-repatriation basis, provided

• the amount is brought in by inward remittance or out of NRE/FCNR(B)/ NRO account
• the amount should come as capital of the firm. No loan or grant is permitted.

Approval route –

In case NRI/PIO wants to repatriate the funds from the firm, then prior permission of Reserve Bank of India (RBI) has to be sought before investing the amount in the firm.

Prohibited sectors

The firm where the investment to be done should not be engaged in any agricultural or plantation or real estate business or print media sector.

The list of prohibited sectors –

• Business of chit fund, or
• Nidhi company, or
• Agricultural or plantation activities, or
• Real estate business, or construction of farm houses, or
• Trading in Transferable Development Rights (TDRs).
• It is clarified that “real estate business” means dealing in land and immovable property with a view to earning profit or earning income there from and does not include development of townships, construction of residential / commercial premises, roads or bridges, housing, hotels, resorts,  educational institutions, recreational facilities, city and regional level infrastructure, townships.

However, the construction of small commercial building is not covered in the above permitted activity for foreign investors! (means the below conditions are not applicable to NRIs) The investment will be subject to the following conditions –

Condition A: Minimum Area under development

• In case of development of serviced housing plots, a minimum land area of 10 hectares
• In case of construction-development projects, a minimum built-up area of 50,000 sq.mts
• In case of a combination project, any one of the above two conditions would suffice.

Condition B: Minimum amount to be invested in the project

• 10 Million USD for wholly owned subsidiary
• 5 Million USD for Joint Venture projects
• The entire amount should be brought in within 6 months of commencement of business of the company

Condition C: Restriction on Repatriation, completion of the project:

• The entire amount brought into the project can’t be repatriated before 3 years from the date of last installment of remittance into India.
• At least 50% of the project must be developed within a period of 5 years from the date of obtaining all statutory approvals.

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