Salient Features

·     No approval is required for foreign equity participation upto 50/51/74/100˜ percent in specified industries.

·     Foreign investment in excess of above limits as well as in non- specified industries, can be made with approval of the Foreign Investment Promotion Board (FIPB), a high powered inter ministerial body under the Ministry of Industry.

·     Decisions on all foreign investment proposals are taken by the FIPB within four weeks of filing of the application.

·     For each foreign investment proposal in excess of Rs 1 billion, an officer of the administrative ministry (Ministry of Communications in case of proposals relating to telecom industry) is designated as a monitoring officer to help processing and implementation of the project in conjunction with Central and State authorities.

·     Free repatriation of profits and capital investment is permitted, except for a specified list of consumer goods industries where it is subject to dividend balancing against export earnings.

·      Use of foreign brand names/trade marks for sale of goods in India is allowed.

·      Indian capital markets are open to foreign institutional investors.

·      Indian companies are permitted to raise funds from international capital markets.
 

·     India has entered into agreements for avoidance of double taxation with over 45 countries.

·     India has signed several bilateral investment protection agreements.

·     Special investment and tax incentives are extended for exports and certain sectors such as power, telecommunications, electronics, software and food processing.

·     'Single window' clearance facilities and 'investor escort services' have been provided in various states to simplify the approval process for new ventures.

·     Foreign Investment Policy for Telecom Sector

Manufacture of telecom equipment

·     Manufacture of telecom equipment has been freed from industrial licensing.

·     No approval is required for foreign equity participation upto 51 percent in an Indian company engaged in manufacture of telecom equipment.

·     Dividend income and capital invested is fully repatriable.

·     Technical know-how fee of upto US$ 2 million, net of taxes can be paid on an automatic basis. In addition, royalties upto

·     5 percent on domestic sales and 8 percent on export sales, are also permitted.

·     Specific approval can be sought from the FIPB for foreign equity participation in excess of 51 percent and for payment of a higher amount of technical know-how fee.

Telecom Services

·     Foreign investment in Indian companies providing telecom services can be made with the approval of the FIPB. Maximum foreign equity permitted in telecom services sector is as follows: Basic, Cellular, Paging, V-SAT, 49 % Mobile Radio Trunking, Internet E-mail, Voice Mail, On Line Information and 51 % Data Retrieval, and On Line Information and/or data processing, Enhanced/Value Added Facsimile Service including Store and Forward, Store and Retrieve Investment companies set up for investments in 49 % telecom services companies (Investments by these companies in a telecom services company is treated as part of domestic equity and is not set off against the foreign equity cap)

·     Dividend income and capital invested is fully repatriable.

·     Telecom services companies are not permitted to make royalty payments.

Incentives for Telecom Services Sector

·     License fee paid by telecom service providers is eligible for amortisation for tax purposes.

·     Licenses to provide telecom services can be assigned.

·     Limit of External Commercial Borrowings (foreign currency debt) by telecom services companies has been raised to 50 percent of the project cost (including license fee).

·     Investments in equity shares and debentures of telecom services companies qualify for tax rebate.

·     Telecom services companies enjoy 100 percent tax holiday for a period of 5 years and 30 percent for further period of 5 years during the first 15 years from commencement of business.

·     Import of specified telecom equipment is permitted at concessional customs duty rates.

·     Import of all capital goods for manufacturing telecom equipment does not require any license.

Export Oriented Units 

In order to encourage exports, the Government of India offers special incentives to investors to set up units to manufacture goods predominantly for exports. Such units may be set up in Export Processing Zones (EPZ), Software Technology Parks (STP), Electronic Hardware Technology Parks (EHTP) or as 100ÿ percent Export Oriented Units (EOU) outside the designated areas. 100 percent foreign equity is welcome in such units.

The EPZ/STP/EHTP are designed to provide an internationally competitive duty-free environment at low cost for export production. These provide basic infrastructure and facilities like developed land, standard design factory buildings, roads, power, water supply and drainage and customs clearance facilities. While EOUs adopt the same regime as EPZs/STPs/EHTPs, it offers a wider option in project location with reference to sourcing of raw materials, port of export, availability of technological skill, existence of an industrial base and the need for a larger area of land for the project.

Incentives for EPZs and EOUs

·     Exemption from customs duty on industrial inputs.

·     No import licences required.

·     Supplies from the Domestic Tariff Area to EOUs/EPZ units regarded as deemed exports and hence exempt from payment of excise duty.

·     Exempted from payment of corporate income tax for ten consecutive years. Export earnings exempt from tax even after the tax holiday is over.

Other Incentives for Exporters

·     10 year income tax holiday for EOU/EPZ/STP/EHTP units.

·     Export income is exempt from income tax for all exporters.

·     Under the Export Promotion Capital Goods Scheme (EPCG) capital goods can be imported at a concessional rate as follows-

·     10% duty with an obligation to export four times CIF value of capital goods in five years.

·     Nil duty (in case CIF value is Rs 200 million or more) with export obligation of six times CIF value of capital goods in eight years.

·     Nil duty (in case CIF vale is Rs 10 million or more) on import of capital goods for electronics (and some other specified sectors) with export obligation of 6 times CIF value of capital goods in six years.

·     Nil duty (in case CIF value is Rs 1 million or more) for software sector with export obligation of six times CIF value of capital goods in six years.