INDIA Law and Practice Contributed by: Kunal Chandra, Kabeer Mathur, Chinmay Bilgi, Sharnam Vaswani and Rajdeep Mukherjee, Trilegal
mations) under the Competition Act, 2002 from an antitrust perspective. • Tax Authorities: the Central Board of Direct Taxes (CBDT) and Income Tax Department administer direct tax implications of transactions under the Income Tax Act, 1961; the Central Board of Indirect Taxes and Customs (CBIC) administers indirect tax matters under the Goods and Services Tax Act, 2017. • Department for Promotion of Industry and Internal Trade (DPIIT): formulates foreign investment policy and sectoral caps, entry routes and conditions for foreign investment; administers foreign investment approvals in conjunction with the relevant sectoral ministry or department and the RBI. • Stock exchanges such as the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE): oversee compliance with listing and disclo - sure obligations. Transactions in regulated sectors also require inter - face with/approvals from sector-specific regulators, such as the Insurance Regulatory and Development Authority of India (IRDAI), Telecom Regulatory Author - ity of India (TRAI) and National Housing Bank (NHB). In addition, transactions involving entities operating in the Gujarat International Finance Tec City (“GIFT City”) are subject to the oversight of the International Financial Services Centres Authority (IFSCA). 2.3 Restrictions on Foreign Investments Foreign investment in Indian companies is governed primarily by FEMA and related rules and regulations. The foreign investment framework distinguishes between foreign direct investment (FDI), being stra - tegic and long-term investment in unlisted or listed companies, and foreign portfolio investment (FPI) in listed securities. The key features of the foreign investment framework are summarised below. Entry Routes Foreign investment in Indian companies is permitted via the following routes, based on the sector in which the target operates and the threshold prescribed for foreign ownership:
• Automatic route: Foreign investments in auto - matic route sectors do not require prior approval and may be undertaken subject to compliance with sectoral caps, pricing guidelines and report - ing requirements. Over 90% of FDI falls within the automatic route. • Government approval route: Investments in govern - ment approval route sectors (or above prescribed foreign ownership thresholds in automatic route sectors) require prior approval from the Govern - ment of India. Sector-Specific Conditions and Foreign Ownership Thresholds India’s foreign investment policy prescribes sector- specific limits on foreign ownership. While many sec - tors permit up to 100% foreign investment via the automatic route, others impose partial caps or addi - tional conditions – for instance, foreign investment is permitted up to 74% in defence and 49% in private sector banking via the automatic route (with higher thresholds requiring government approval), and sec - tors such as single-brand or multi-brand retail trading have specific conditions or compliances for receiving foreign investment. Certain sectors are prohibited for foreign investment, including atomic energy, lottery business, gambling and betting, chit funds and real estate. Pricing Guidelines Transactions involving foreign investors must comply with prescribed valuation rules. In the case of com - panies whose shares are not listed, the shares issued or transferred to a non-resident must be priced at or above the fair market value determined by a SEBI-reg - istered merchant banker or chartered accountant and shares acquired from a non-resident must be priced at or below such fair market value. For listed companies, pricing formulas are prescribed under SEBI regula - tions and linked to the market price of the shares. Investments Originating From Bordering Jurisdictions In 2020, India had introduced additional safeguards for primary and secondary investments originating from entities or individuals based in countries sharing a land border with India. All such investments required
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