Norms on equity shares under FDI scheme eased

RBI says equity shares should be issued in accordance with the extant foreign direct investment guidelines on sectoral caps, pricing guidelines etc

The Reserve Bank of India (RBI) has eased the guidelines for issue of shares or convertible debentures under the automatic route. According to the changed norms, companies can issue equity shares to a resident outside India against any type of fund, subject to certain riders.

The central bank has permitted the issuance of equity shares against any fund payable by the investee company, the remittance of which does not require prior permission of the government or RBI.

The banking regulator said the equity shares should be issued in accordance with the extant foreign direct investment guidelines on sectoral caps, pricing guidelines etc.

“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,” RBI said in a notification.

Earlier, under the automatic route, an Indian company could issue shares or convertible debentures to a resident outside India against lump-sum technical know-how fee, royalty external commercial borrowings and import payables of capital goods by units in special economic zones.

The norms allow issuance of shares subject to conditions such as entry route, sectoral cap, pricing guidelines, and compliance with the applicable tax laws.