The Reserve Bank of India (RBI) has eased foreign direct investment (FDI) norms, allowing Indian companies to issue shares/convertible debentures to a person resident outside India against any payables, subject to certain conditions like entry route, sectoral cap, pricing guidelines and compliance with the applicable tax laws.
As of now an Indian company may issue shares/convertible debentures under the automatic route to a person resident outside India against lump-sum technical know-how fee, royalty, external commercial borrowings (ECBs) (other than import dues deemed as ECB or Trade Credit as per RBI guidelines) and import payables of capital goods by units in Special Economic Zones subject to certain conditions like entry route, sectoral cap, pricing guidelines and compliance with the applicable tax laws.
As per the new norms, such equity shares can be issued against any other funds payable by the investee company, remittance of which does not require prior permission of the government or RBI under FEMA.
The riders being that the shares shall be issued in accordance with the extant FDI guidelines on sectoral caps and pricing guidelines, etc.
Also, the issue of equity shares under this provision shall be subject to tax laws as applicable to the funds payable and the conversion to equity should be net of applicable taxes.
(Edited by Joby Puthuparampil Johnson)