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Gifting of Shares/Money To NRI

Introduction: Navigating the rules for financial gifts and share transfers between residents and non-resident Indians (NRIs) is crucial for ensuring compliance with the Foreign Exchange Management Act (FEMA) and the Liberalised Remittance Scheme (LRS). The regulations set forth by Foreign Exchange Management (Non-debt Instruments) Rules, 2019, and the LRS scheme outline specific conditions under which residents can gift equity shares and money to their non-resident relatives. These guidelines include prior approvals, eligibility criteria, sectoral caps, and monetary limits to facilitate such transactions within the legal framework of India, ensuring that both gifting shares and money adhere to the established legal and financial boundaries.

1. Gifting of Shares from Resident to Non-Resident Relative:

In accordance with Rule 9(4) of FEMA (NDI) Rules, 2019

A person resident in India holding equity shares of the Company may transfer the same to his relative who is resident outside India by way of gift subject to the following conditions:

  • prior approval of RBI;
  • the Non-resident relative is eligible to hold such security;
  • the gift does not exceed 5% of the paid up capital of the Company;
  • the applicable sectoral cap in the Indian company is not breached;
  • the persons shall be “relatives” within the meaning in clause (77) of Section 2 of the Companies Act, 2013; (In our case transfer is between brothers);
  • the value of security to be transferred by together with any security transferred to any person residing outside India as gift during the financial year does not exceed USD 50,000;

2. Gifting Money from Resident to Non-Resident Relative:

In accordance with the LRS Scheme, A resident individual can make a rupee gift to NRI by way of crossed cheque /electronic transfer. The amount should be credited to the Non-Resident (Ordinary) Rupee Account (NRO) of the NRI.

The gift amount shall be within the overall limit of USD 250,000 per financial year as permitted under the LRS.

3. Entry Route- It can be Automatic or Approval Route

Automatic Route Approval Route
means the entry route through which investment by a person resident outside India does not require the prior approval of the Reserve Bank or the Central Government; means the entry route through which investment by a person resident outside India requires prior Government approval and foreign investment received under this route shall be in accordance with the conditions stipulated by the Government in its approval.

4. Sectoral Cap–  Sectoral cap for the sectors or activities specified in the table is the limit indicated against each sector. The total foreign investment shall not exceed the sectoral or statutory cap. (Regulation 3(b) of “NDI Rules”).

Activity Sectoral Cap Entry Route
Insurance Sector 74% Automatic
Infrastructure Companies 49% Automatic

Above table is the example of activities where investment by NRI is governed and limit is prescribed along with the type of Route. As far as investment in Unlisted companies is concerned there is no prescribed sectoral cap as the same is allowed without any limit.

5. Shedule-4 (Rule 12(2) Of (Foreign Exchange Management (Non-Debt Instruments) Rules, 2019), hereinafter referred to as “NDI Rules”.

i. Purchase or Sale of Capital Instruments or convertible notes of an Indian company or Units or contribution to the capital of an LLP by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on Non-Repatriation basis

ii. Purchase/sale of capital instruments or convertible notes or units or contribution to the capital of an LLP/Indian Company.

  • A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI), including a company, a trust and a partnership firm incorporated outside India and owned and controlled by NRIs or OCIs, may purchase/contribute, as the case may be, on non-repatriation basis the following:-

i. Any capital instrument issued by a company without any limit either on the stock exchange or outside it.

ii. Units issued by an investment vehicle without any limit, either on the stock exchange or outside it.

iii. Units issued by an investment vehicle without any limit, either on the stock exchange or outside it.

iv. The capital of a Limited Liability Partnership without any limit.

v. Convertible notes issued by a startup company in accordance with these Regulations.

  • The investment detailed at sub-para 1 above will be deemed to be domestic investment at par with the investment made by residents.

Conclusion: The process of gifting shares and money from residents to non-resident relatives involves a careful adherence to the regulations outlined in the FEMA (NDI) Rules, 2019, and under the Liberalised Remittance Scheme (LRS). While gifting shares to non-resident relatives requires RBI approval and compliance with several conditions including sectoral caps and a monetary limit of USD 50,000 per financial year, monetary gifts fall under the LRS with a cap of USD 250,000 per financial year through an NRO account. Both these avenues provide residents with structured pathways to support their non-resident relatives, ensuring all transactions are transparent, regulated, and beneficial for both parties within the framework of Indian financial regulations.

Author Bio

I am a qualified CS with a strong foundation and 2 years of valuable experience in the industry. My career journey includes significant roles at renowned organizations such as BSES Yamuna Power Ltd and Yes Bank Ltd, where I honed my skills and contributed to the success of these esteemed institution View Full Profile

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April 2024