Indian startups are gaining pace and getting recognised around the world. They are among the top choices for investment for Non-Resident Indians (NRIs). However, we have been noticing a norm. New startups keep coming up every day, and a few months or years old ones are closing at the same pace.
This makes it difficult to decide which companies you can invest in and earn maximum return. With an unpredictable market, it becomes difficult to shortlist the companies and follow their growth pattern.
According to a Nasscom report of 2023, India added more than 1300 startups to its active list in 2022. Among these 23 were new unicorns making us the second country in the world to produce more than 20 billion dollar companies.
We connected with Shavir Bansal, a finance content creator who runs a page, Bekifaayati, on Instagram, to understand what are the five things NRIs should keep in mind while thinking of investing in Indian startups.
Limitations For NRI Investment In Indian Startups
Bansal said that NRIs must be aware of a few limitations of investing in Indian startups. They should know that they cannot own more than 5% of the total paid-up capital of a company.
You should also know that NRIs are prohibited from investing in sectors like print and print media, agriculture, chit funds, etc. Therefore, when you are picking a company, you should ensure the company and sector you are thinking of investing in.
Options For NRIs To Invest In Indian Startups
According to the finance expert, there are two options for NRIs to invest in Indian startups: as an individual or a part of the group. If you are an individual investor, Angel investing is a good option for you. It will allow you to invest based on your expertise and opens the scope for you to directly speak to the founders. Mumbai Angels and Angellist are two platforms that NRIs can check out.
If you are opting for group investment, your options include Venture Capital (VC), Alternative Investment Funds (AIF), and Private Equity (PE). Venture capital is a better way in which professional managers handle investments.
Pre-Investment Considerations For NRIs To Invest In Indian Startups
Your pre-investment considerations include PAN (Permanent Account Number). It also involves opening an NRE (Non-Resident External) or NRO (Non-Resident Ordinary) account, FCNR (Foreign Currency Non-Resident). Bansal added that if you do not have a PAN card, you can witness difficulty in obtaining tax credits in their home countries, in this case, India.
The financial expert also added that an NRO account makes the capital non-repatriable. NRE and FCNR accounts allow earnings and investments to be repatriable. Hence, the expert prefersNRE accounts.
Tax Implications For NRIs Investing In Indian Startups
NRIs must be aware of tax implications that are associated with investing in Indian startups. Bansal shared that tax rates of capital gains depend on the duration of the investment.
If you are investing for less than 24 months, NRIs with a valid PAN card have to pay 15% on the gains. If you do not have a PAN card, the tax rate slab increases to 30%. If the investment is for more than 24 months, NRIs with PAN cards have to pay 10% of the capital gains. If they do not have a PAN card, the slab sits at 20%.
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Post-Investment Due Diligence For NRIs Investing In Indian Startups
Shavir Bansal added that NRIs and startups receiving investment from NRIs must be aware of the post-investment due diligence requirements. Startups have to report the transactions to the Reserve Bank of India (RBI) within 30 days of receiving the share application money or consideration from the foreign investor. The influx from the NRIs into Indian companies is called Foreign Direct Investment (FDI).
The expert also added that the company is required to issue shares to the foreign investor within 180 days from the date of inward remittance. The companies should also file from FC-GPR (Foreign Currency Gross Provisional Return) with the RBI within 30 days issued date of shares.
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