SOME IMPORTANT FREQUENTLY ASKED QUESTIONS

1. What are the forms in which business can be conducted by a foreign company in India?

Ans. Foreign companies can make investments or operate their business in a number of ways such as Liaison/representative office, Project Office, Branch Office,100% Wholly owned subsidiary and Joint venture company. The requisite approval can be granted by Reserve Bank of India RBI) or Foreign Investment promotion Board (FIPB) . Any company set up with FDI has to be incorporated under the Indian Companies Act with the Registrar of Companies,

Department of Company Affairs and all Indian operations would be conducted through this company.

2. What proposals require an Industrial License (IL) and how is it obtained?

Ans. In the New Industrial Policy, all industrial undertakings are exempt from licensing except for those products given in Annexure I and II of this Manual and those reserved for the Small Scale Sector. The project should not be located within 25 kilometres of a city with a population of more than one million as per 1991 Population Census.

The Government has substantially liberalized the procedures for obtaining an Industrial Licence.

The application in form IL-FC should be filed with the SIA. Approvals normally granted within 6-8 weeks.

3. What is the procedure for a delicensed sector?

Ans. An Industrial undertaking exempted from licensing needs only to file information in the Industrial Entrepreneurs Memorandum (IEM) with the SIA , which will issue an acknowledgement. No further approvals are required.

4. What is the Taxation Policy in India?

Ans. Since the onset of liberalization in the country, tax structure of the country is also being rationalized keeping in view the national priorities and practices followed in other countries. Foreign nationals working in India are generally taxed only on their Indian income. Income received from sources outside India is not taxable unless it is received in India. The Indian tax laws provide for exemption of tax on certain kinds of income earned for services rendered in India. Further, foreign nationals have the option of being taxed under the tax treaties that India may have signed with their country of residence. Remuneration for work done in India is taxable irrespective of the place of receipt. Remuneration includes salaries and wages, pensions, fees, commissions, profits in lieu of or in addition to salary, advance salary and perquisites. Taxable payments include all allowances and tax equalisation payments unless specifically excluded. The stock options granted by the employer are taxable as capital gains at the time of sale of shares acquired due to exercise of options.

5. What are the important Labour Rules/ Regulations applicable in India?

Ans. Under the Constitution of India, Labour is a subject in the Concurrent List where both the Central & State Governments are competent to enact legislation subject to certain matters being

reserved for the Centre. Some of the important Labour Acts, which are applicable for carrying out business in India are: Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 | Employees’ State Insurance Act 1948

Workmen’s Compensation Act, 1923 | Maternity Benefit Act, 1961 | Payment of Gratuity Act, 1972, Factories Act, 1948

Dock Workers (Safety, Health & Welfare) Act, 1986 | Mines Act, 1972 | Minimum Wages Act |

Payment of Bonus Act 1965 Contract Labour [Regulation & Abolition] Act 1970 | Payment of Wages Act, 1936 |

6. What is the situation regarding Intellectual Property Rights protection in India?

Ans: India is a signatory to the agreement concluding the Uruguay Round of GATT negotiations and establishing the World Trade Organisation (WTO). This Agreement, inter-alia, contains an

Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), which came into force from 1st January 1995.

It lays down minimum standards for protection and enforcement of Intellectual Property Rights in member countries, which are required to promote effective and adequate protection of Intellectual Property Rights with a view to reducing distortions and impediments to international trade. The obligations under the TRIPS Agreement relate to provision of minimum standards of protection within the member country's legal systems and practices.

As regards the status of various Intellectual Property laws in India and standards in respect of various areas of intellectual property, a law on Trade Marks has been passed by Parliament and

notified in the gazette on 30.12.1999. This law repeals and replaces the earlier Trade & Merchandise Act, 1958. A new law for the protection of Geographical Indications, viz., the Geographical Indications of Goods (Registration and the Protection) Act, 1999 has also been passed by the Parliament and notified on 30.12.1999. A law called the Designs Act,2000 relating to Industrial Designs which repeals and replaces the earliar Designs Act, 1911 has also been

passed by Parliament in its Budget Session, 2000. The Act has been brought into force from 11.05.2001. A Bill on Patents to amend the Patents Act, 1970 was passed by Parliament on

14.05.2002.

7. What are the Incentives offered by States?

India is a federal country consisting of States and Union Territories. States are also partners in the economic reforms being undertaken in the country. Most of the States are making serious

efforts for simplifying the rules and procedures for setting up and operating the industrial units. Single Window System is now in existence in most of the States for granting approval for setting

up industrial units. Moreover, with a view to attract foreign investors in their states, many of them are offering incentive packages in the form of various tax concessions, capital and interest

subsidies, reduced power tariff, etc.

8. Is investment by Non-Resident Indians (NRIs) permitted?

Ans. The Government attaches importance to investments by NRIs and Overseas Corporate Bodies(OCBs) i.e. corporate bodies in which NRIs hold at least 60% of equity. Government has

provided a liberalised policy framework for approval of NRI investments through both the Automatic and the Government route. NRI/OCBs are permitted to invest upto 100% equity in the Real Estate and Civil Aviation Sectors. Automatic Approval is given by the RBI to all NRI/OCB proposals with their investment upto 100% for all items/activities except a few exceptions read with sector specific guidelines. Government approval is given for all proposals not qualifying for Automatic Approval.

9. Can profits, dividends, royalty, know how payments be repatriated from India?

Ans. All profits, dividends, royalty, knowhow payments that have been approved by the Government/RBI can be repatriated. Some sectors like investment in development of integrated township, NRI Investment in real estates, etc. may attract a lock-in period.

10. What are the formalities a joint venture company has to complete to increase the foreign equity holding?

Ans: The following formalities are required for the joint venture that want to increase in their foreign equity holding by acquisition of shares or by any other means.

a) If only the quantum of foreign equity increased without change in percentage then may be followed.

b) For increase in percentage of foreign equity by way of expansion of capital base, automatic route or FIPB / Government route would apply depending upon the nature of proposal in terms.

c) Cases involving increase in percentage in foreign equity by way of acquiring existing shares in an Indian company would necessarily require prior approval of FIPB/Government.

d) In cases involving inclusion of an additional foreign collaborator, guidelines laid down in Press Note No. 18 (1998 series) would have to be satisfied.

11 What is the policy of conversion of non-repatriable shares into repatriable shares?

Ans. FIPB approval is required. Where original investment was made in foreign exchange, the change is allowed without any conditions; if not, the sale proceed will have to be repatriated to

India by opening an NRO account.

12. What is the mechanism for publicizing the changes in the FDI Policies?

Ans. Changes in FDI policies are brought out in the form of Press Notes by Department of Industrial Policy & Promotion (DIPP) . Soon after releasing the Press Notes to the media, it is also

loaded on the Departmental website (http://dipp.nic.in/).

13 What are the policies and procedures governing Indian Investment abroad?

Ans. The Direct Investment by Indian parties in Joint Ventures (JVs) and Wholly Owned Subsidiaries(WOSs) abroad is encouraged. These Direct Investment by Indian parties can be in newly promoted foreign concerns, to make initial or additional Direct Investment in existing foreign concerns and for acquisition of overseas business. The foreign concern in which the direct investment is proposed to be made may be engaged in industrial, commercial, trading or

service activities including hotel or tourism industries. These also include financial services such as insurance, mutual funds, etc.

There are two categories of applications for setting up overseas JVs and WOSs, viz. category

(a): Fast Track and category (b): Normal Cases.

All applications are to be made to and processed by the Reserve Bank of India(RBI), For Fast Track category, an application for Direct Investment in a JV/WOS abroad from a private/public limited company will be eligible for automatic approval for RBI, provided the total value of the investment by the Indian party does not exceed US $ 15 million and in respect of Indian Rupee investment in Nepal and Bhutan, it does not exceed Rs.600 million and the amount

of investment is up to 25% of annual average export / foreign exchange earning of the Indian party (other than equity exports to existing JVs/WOSs abroad) in the preceding three years, etc.

for Indian software companies norms are different. All applications involving investment beyond US $ 4 million but not exceeding US $ 15 million or those not qualifying for Fast Track clearance on the basis of applicable criteria will be processed in the RBI through a Special Committee appointed by RBI in consultation with Government and Chaired by the Commerce Secretary with the Deputy Governor, RBI, as the alternate Chairman. Investment proposals in excess of US $ 15 million will be considered if the required resources beyond US $ 15 million are raised through the GDR route. Up to 50% GDR resources raised

may be invested as equity in overseas JVs subject to specific approvals of the Government. Indian parties seeking to acquire overseas ventures through time-bound bidding/tender

procedures are sometimes required to obtain “in-principle” approvals on an urgent basis. In such special circumstances, RBI may grant such ‘in principle’ approval. RBI would formulate separate

guidelines/conditions on applications and approvals for such cases.

The detailed guidelines regarding the Indian investment abroad may be seen at the website (www.iic.nic.in) of India Investment Centre, Department of Economic Affairs, Ministry of Finance.

Detailed FAQs are available on the Department’s web site ( www.dipp.nic.in)

Annexure-I

LIST OF INDUSTRIES RESERVED FOR THE

PUBLIC SECTOR

1. Atomic Energy

2. Railway transport.

ANNEXURE-II

LIST OF INDUSTRIES FOR WHICH INDUSTRIAL LICENSING IS COMPULSORY under Industries

(Development & Regulation) Act, 1951

1. Distillation and brewing of alcoholic drinks.

2. Cigars and cigarettes of tobacco and manufactured tobacco substitutes.

3. Electronic Aerospace and defence equipment: all types.

4. Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose and matches.

5. Hazardous chemicals.

a. Hydrocyanic acid and its derivatives

b. Phosgene and its derivatives

c. Isocyanates and di-isocyanates of hydrocarbon, not elsewhere specified (example: Methyl Isocyanate)

6. Drugs and Pharmaceuticals (according to modified Drug Policy issued in September, 1994 and subsequently amended in February, 1999)

Note: Manufacture of SSI reserved items by other industrial undertakings and location of industrial undertakings in relaxation of the notified locational policy will attract compulsory licensing.