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
- Category I
- Category II
- Category III
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 | 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.
Anthony Leung Shing, ACA, CTA
Country Senior Partner, PwC Mauritius
Tel: +230 404 5071
Email
Dheerend Puholoo, ACCA
Tax Leader, PwC Mauritius
Tel: +230 404 5079
Email
As an expert in financial regulations and foreign investment, my experience and knowledge span various jurisdictions, including a deep understanding of the regulatory landscape in India. Over the years, I have closely followed the Securities and Exchange Board of India (SEBI) and its regulatory measures, particularly in the context of the Foreign Portfolio Investment (FPI) regime.
The FPI regime in India is a crucial avenue for foreign investors, regulated by SEBI. This regime streamlines foreign investment by consolidating the Foreign Institutional Investor (FII) and Qualified Foreign Investor (QFI) modes. The categories under FPI include Category I, Category II, and Category III, encompassing a wide range of investors from government entities to mutual funds, insurance companies, banks, and individuals.
Key regulatory aspects of the FPI regime include the types of permitted instruments such as shares, debentures, mutual fund units, government securities, and derivatives. There are also limits on the percentage of investment in an Indian company and corporate bonds, with specific conditions for maturity periods. Importantly, FPI investments are not treated as Foreign Direct Investment (FDI) or External Commercial Borrowings (ECB), offering flexibility in capital repatriation.
The income tax rates applicable to FPIs in India are delineated based on the nature of income, including capital gains, dividend income, and interest income. These rates vary for different types of securities and investments, providing a comprehensive framework for taxation under the FPI regime.
Moreover, the article touches upon the income tax rates applicable to FPIs under the India-Mauritius Double Tax Avoidance Agreement (DTAA). This agreement outlines specific rates for capital gains and interest on equity shares and derivatives/debt, with exemptions for certain categories.
In the final section, the article suggests how PwC can assist in setting up an FPI in India, offering advice on tax and regulatory matters, helping with PAN registration, and supporting the FPI registration process with SEBI. The mentioned individuals, Anthony Leung Shing and Dheerend Puholoo, are identified as experts from PwC Mauritius, emphasizing their roles in providing comprehensive assistance related to FPIs.
In conclusion, the FPI regime in India, as outlined in the article, involves intricate regulatory nuances and tax considerations. The amalgamation of FII and QFI into the FPI framework, along with specific categories and regulatory aspects, reflects the efforts to streamline and attract foreign investments while maintaining regulatory control.
