Promoters can gift equity to NRI kin

Here''s another goodie for the ''pravasi bharatiya'' or NRI. Promoters or shareholders in Indian companies can now gift equity to their NRI relatives, albeit with a whole lot of strings attached.
Such a transfer of equity as a gift, however, will be non-repatriable, according to foreign ministry guidelines of gift of equity to NRIs framed this month.
There will be other conditions too, if you are thinking of gifting equity to your NRI near-and-dear ones. Such a transfer will require the approval of the Foreign Investment Promotion Board, since ordinarily the transfer of equity to non-residents needs the approval of this agency.
Furthermore, the equity gift can''t exceed the annual ceiling of Rs 10 lakh per company and should be subject to FDI policy restrictions.
But the clinching condition, of course, is that the gift can only be made to a ''close relative''. Who exactly is a close relative? The government is still working on that one.
In official jargon, "The issue of defining a relationship for permitting such gifts has not been specifically laid down."
The industry ministry may eventually be the agency which would be called in to define "close relations" when specific cases are put up for approval.
The transfer of shares as gift to NRIs on a non-repatriation basis doesn''t upset too many policy applecarts. It has no capital convertibility implications.
Besides, the regulation 10(A) of the Foreign Exchange Management Act has provisions that permit the gift of equity from a person resident in India to a person resident outside the country.
The finance ministry''s decision on gift of equity to NRIs came after prolonged discussions between the finance ministry, the RBI and the industry ministry.
The policy regarding non-repatriable gift of equity to NRI relatives is consistent with the finance ministry''s recent moves.
The government has recently allowed resident Indian individuals, companies and mutual funds to invest in stocks abroad and permitted non-residents to take away up to $1m from the sale of properties and other assets they may own in India.
Individual resident Indians, Indian companies and mutual funds can also buy shares in companies which are listed on recognised overseas stock exchanges like the London exchange or the Nasdaq.
The limit of $20,000 for remittance under employees'' stock options programme scheme has also been done away with.
Indian companies now also have the "general permission" to retain proceeds from American Depository Receipts and global Depository Receipts for meeting future foreign exchange needs.