Overview of current FPI Regime


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

Government and government related foreign investors such as Central Banks, Sovereign Wealth Funds.

  • Funds, which are broad based and (i) appropriately regulated, or (ii) whose investment manager is appropriately regulated
  • Includes mutual funds (‘MF’), investment trusts, insurance / reinsurance companies 
  • Also includes banks, Asset Management Companies, investment managers / advisors, portfolio managers, broker dealers and swap dealers, University funds, and Pension funds.

Endowments, Charitable societies, Corporate bodies, Trusts, Family offices, Individuals**

** Non-resident Indians (NRIs) are not permitted to register as FPIs, however they can invest in FPIs, subject to conditions

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
(Subject to STT**)

Unlisted Equity

(not subject to STT)

Debt securities/
Units of MF (other than equity oriented)

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.

Contact us

Anthony Leung Shing

Anthony Leung Shing

Country Senior Partner, PwC Mauritius

Tel: +230 404 5071

Dheerend Puholoo

Dheerend Puholoo

Tax Leader, PwC Mauritius

Tel: +230 404 5079

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