The framework, in outline
Foreign investment into India, including investment by NRIs, is regulated under the Foreign Exchange Management Act 1999 and the rules made under it, which set out which sectors permit foreign investment, on what terms, and whether approval is required in advance or the investment can proceed automatically. The detail varies by sector and changes from time to time, so rather than relying on a general figure or percentage that may no longer be current, we confirm the applicable position for the specific sector and structure at the time the investment is actually being made.
NRE, NRO and FCNR accounts
Which bank account an NRI uses affects how funds can later be moved. An NRE account generally holds foreign earnings converted to rupees and is freely repatriable, including both principal and interest. An NRO account is typically used for income earned within India, such as rent or dividends, and repatriation from it is more restricted and usually requires supporting documentation and a chartered accountant's certificate. An FCNR account holds a foreign currency deposit rather than converting it to rupees, which avoids exchange rate risk on the deposit itself. Choosing the right account for the source of the funds, before the money arrives, avoids a reclassification exercise later.
Repatriable and non-repatriable investment
Investment made in India can be structured to be repatriable, meaning the invested amount and its returns can later be sent abroad, or non-repatriable, meaning it generally cannot, or can only be dealt with domestically. This distinction runs through both direct investment and portfolio investment, and it affects how an exit is eventually structured, so it is worth settling deliberately at the time of investment rather than discovering the position only when a client later wants to bring the money out.
Setting up in India from abroad
An NRI or an overseas entity can incorporate a company or form an LLP in India, subject to sectoral conditions and, in some structures, prior approval requirements. Once set up, the entity typically has recurring obligations, including reporting to the Reserve Bank of India when foreign investment is received or when shareholding changes, and separate filings under company or LLP law. Missing these filings does not usually stop a business from operating day to day, but it accumulates as a compliance problem that becomes considerably more expensive to fix the longer it is left, particularly if the business later seeks further investment or looks to exit.
- Confirm the sector-specific FDI position before committing funds.
- Match the bank account type to the actual source of the money.
- Decide repatriable or non-repatriable status at the outset, not at exit.
