In addition to the FDI route, foreign investment in India is also permitted under the FPI Route. The FPI route is governed by the prescribed regulations (FPI Regulations) framed by the Securities and Exchange Board of India (SEBI), which is the regulatory body governing the Indian capital market. Under the FPI route, foreign investors are permitted to invest in securities which are listed/to be listed on recognized stock exchanges in India.
FPI regulations require any foreign investor to register with SEBI under one of the three categories provided, before initiating any investment activities in India. The selection of the category mainly depends on the business of the entity in its home country. SEBI's registration fee is different for each category. Furthermore, FPIs are also required to appoint a banker in India as their custodian bank.
Indian tax laws provide for a prescribed tax regime for FPIs in India to bring the maximum level of certainty with respect to FPI taxation. As per the Indian tax laws, FPIs are taxable as per the prescribed tax regime or the provisions of the tax treaty (if any) India has entered into with the home country of the foreign investors (Double Taxation Avoidance Agreement - DTAA), whichever is beneficial. To avail the beneficial provisions of the DTAA, the FPI would need to obtain a Tax Residency Certificate from its home country, and would also need to comply with other requirements of the DTAA, as applicable.
FPIs are also required to appoint a tax consultant in India. The tax consultant in India would issue the remittance certificates for the purpose of repatriation of funds back to the FPI’s home country after determining Indian tax liabilities, if any, considering the investment activities carried out by the FPI in India. Furthermore, FPIs are also required to file their annual tax return in India for any financial year (i.e., from 1 April to 31 March any year).