Regulated by SEBI, the FPI regime is a route for foreign investment in India. The FPI regime came as a harmonised route of foreign investment in India, merging the two existing modes of investment, that is, Foreign Institutional Investor (‘FII’) and Qualified Foreign Investor (‘QFI’).
Categories of FPI
Key regulatory aspects under the FPI regime
- Permitted instruments: shares of listed Indian Company, Non-Convertible Debentures, units of domestic MF, Government Securities, Security Receipts, Pass Through Certificates, derivatives – Exchange traded Futures and Options, FX forwards and Interest rate swaps
- Investment to be less than 10% of the post issue paid-up share capital of the Indian investee company by a single FPI and 24% on a collective basis
- Investments by an FPI (including related FPIs) to be less than 50% of any issue of a corporate bond
- Minimum residual maturity of above 1 year for corporate bond, subject to the condition that short-term Investments in corporate bonds (less than one year residual maturity) shall not exceed 20% of the total investment of that FPI in corporate bonds
- Not treated as Foreign Direct Investment (FDI) or External Commercial Borrowings (ECB);
- No pricing/ sector/coupon restrictions; and
- Ease in capital repatriation.
Income tax rates applicable to FPI under India Income Tax
Nature of Income |
Tax Rate* |
|||
|---|---|---|---|---|
Capital Gains |
Listed Equity/ Units of equity oriented MF |
Unlisted Equity (not subject to STT) |
Debt securities/ |
Future & Options |
Long Term |
10% |
10% |
10% |
Not applicable |
Short Term |
15% |
30% |
30% |
30% |
Dividend income |
Exempt |
Not applicable |
||
Interest income |
Government bonds - 5%*** Rupee denominated corporate bonds - 5%*** Other securities - 20% Other interest income - 40% |
|||
The said restriction could be overcome if investing under Voluntary Retention Route (VRR)
|
Rupee denominated corporate bonds - 5%*** Other securities - 20% Other interest income - 40% |
|||
The said restriction could be overcome if investing under Voluntary Retention Route (VRR)
* In addition, a surcharge and health and education cess is leviable
** STT – Securities Transaction Tax
*** On interest payments between June 1, 2013 and June 30, 2020 and subject to fulfillment of conditions.
Income tax rates applicable to FPI under the India-Mauritius Double Tax Avoidance Agreement (DTAA)
Capital Gains |
Interest |
|
|---|---|---|
Equity Shares |
Derivatives/ Debt |
WHT rate |
Exempt in case of shares acquired pre 01 April 2017 |
Exempt |
7.5% |
How we can help
Should you decide to set-up an FPI in India, for investments into India, PwC could help with the following
- Advise from an India Tax and Regulatory perspective in relation to the fund and product structure.
- Assistance in obtaining the Permanent Account Number (PAN) in India (i.e. Tax identification number);
- Assistance in setting up and obtaining FPI registration from SEBI;
- Assistance in determination of tax liability for repatriation purposes in terms of equity and debt;
- Advise on tax payments (including advance tax payment), where applicable;
- Assistance in preparation of Annual income-tax return and with tax audit / litigation.
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