Easing foreign direct investment (FDI) norms, the Reserve Bank of India (RBI) has allowed companies to issue equity shares to a resident outside India against any type of fund subject to certain conditions.
The RBI reviewed the extant guidelines for issue of shares or convertible debentures under the automatic route and has permitted issue of equity shares against any fund payable by the investee company, remittance of which does not require prior permission of the government or RBI. The RBI said the “equity shares shall be issued in accordance with the extant FDI guidelines on sectoral caps, pricing guidelines and 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.”
Earlier, an Indian company under the automatic route could issue shares/convertible debentures to a person resident outside India against lump-sum technical know-how fee, royalty External Commercial Borrowings (other than import dues deemed as ECB or Trade Credit) and import payables of capital goods by units in Special Economic Zones.
The guidelines allow issuance of shares subject to certain conditions like entry route, sectoral cap, pricing guidelines and compliance with the applicable tax laws.
