Tuesday, March 8, 2011

100% FDI BY A FOREIGN COMPANY IN CONSTRUCTION OF TOWNSHIPS ,HOTELS Etc



Press Note 2 dated March 3, 2005 specifies the guidelines regarding the size of the project, amount of investment, repatriation of funds, and other matters. As per the said guidelines, minimum area to be developed under each project has been fixed at land area of 10 hectares for development of serviced housing plots, and built-up area of 50,000 square meters for construction-development projects, and fulfillment of any one of the said two conditions in case of a combination project.

Thus in case of combination of project, i.e. serviced housing plots and construction -development projects , either it may have a land area of 10 hectares or 50000 sq mts . Thus , any one of the condition has to be fulfilled in case of combination of project.

Besides, these guidelines prescribe minimum capital at US $ 10 million for wholly owned subsidiaries and US $ 5 million for joint ventures with Indian partners. Moreover, it is also stipulated that the funds would have to be brought in within six months of commencement of business. Regarding repatriation, the said Press Note clarifies that original investment cannot be repatriated before a period of three years from completion of minimum capitalization. However, the investor can exit earlier with Government's permission. It is also laid down that at least 50 per cent of the project must be developed within a period of 5 years from the date of obtaining all statutory clearances.

Subsequently, vide Press Note 4 of 2006 dated 10.2.2006, provisions regarding Foreign Direct Investment in a number of sectors were further liberalized. Vide serial number 11 of paragraph number IV of Annexure to Press Note 4 dated 10.2.2006, provisions regarding automatic entry route, and 100 per cent FDI cap/equity in construction-development projects including housing, commercial premises, resorts, educational institutions, recreational facilities, city and regional level infrastructure, townships, as also other guidelines given in Press Note 2 dated March 3, 2005 were reiterated. The said Press Note dated 10.2.2006 also stated that for investment by Non Resident Indians, conditions mentioned in Press Note 2 dated March 3, 2005 were not applicable. Thus, NRIs have been given a special and preferential treatment in this regard. All these stipulations have been re-affirmed vide items number 23 and 6 of Annexure 2 of Master Circular Number 2/2006-2007 dated July 1, 2006.

Another salient feature is that there is no Income Tax on townships so constructed.

Section 80-IB (10) of the Income Tax Act, 1961 exempting the entire income from specified housing projects from income tax invites Foreign Direct Investment and NRIs to rush to India.

As per recent RBI master circular , a non-resident entity (other than a citizen of Pakistan or an entity incorporated in Pakistan) can invest in India, subject to the FDI Policy.
As per Master Circular with effect from 1st October 2010 , 100% FDI is allowed under Automatic route for Townships, housing, built-up infrastructure and construction , development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure) .

There is no restriction for the above mentioned projects by NRI.

As per Master Circular dated 1st Oct 2010 , an entity is considered as ‘Owned’ by ‘non resident entities’, if more than 50% of the capital in it is beneficially owned by non-residents or NRI.

Minimum capitalization of US$10 million for wholly owned subsidiaries and US$ 5 million for joint ventures with Indian partners. So , an NRI entity can invest more than the minimum prescribed above.
Master Circular dated 1st Oct 2010 clearly says that the following conditions

* investment

* Capitalization

* -period

* least 50% of the project must be developed within a period of five years

for investment by NRIs, the conditions at (1) to (4) above of section 5.2.13.2 of Master Circular dt 1Oct 2010 would not be applicable.
R.V.Seckar
919848915177

3 comments:

  1. For any clarification or further information , you may contact the author at the following email id

    rvsekar2007@gmail.com

    mobile -09848915177

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  2. does lock in ristriction of 3 years also extends to sale of shares of the off-shore entity which has made investment in indian company undertaking construction development activities ?

    thx..
    Ketan
    ketanshah100@yahoo.com

    ReplyDelete
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