Foreign direct investment (FDI) in most sectors in India is governed by the Ministry of Commerce and Industry’s Department of Industrial Policy and Promotion (DIPP), which decides the extent of FDI in each such sector and related conditions. However, FDI in an insurance company is capped under the Insurance Act, 1938, and any change in the FDI cap would require the Insurance Act to be amended.
Insurance sector
The Insurance Act defines an “Indian insurance company” to include a company where not more than 26% of the paid-up capital of the insurer is held by a “foreign company” (whether by itself or through subsidiaries or nominees). The term “foreign company” has the meaning given to it under the Income Tax Act, 1961.
Essentially, any company that is not a “domestic company” for the purposes of the Income Tax Act would be a foreign company. This also includes a body corporate incorporated outside India.
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Saket Shukla is a partner at the New Delhi office of Phoenix Legal and Aditya Bhargava is a senior associate at the Mumbai office of Phoenix Legal.
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