Person of Indian Origin

Millions of people abroad have Indian roots but are no longer Indian citizens. Indian law gives many of them a recognised status — and with it, investment facilities in India that an ordinary foreigner does not get.

The workbook defines a Person of Indian Origin (PIO) as "a citizen of any country other than Bangladesh or Pakistan, Afghanistan, China, Iran, Bhutan, Sri Lanka and Nepal", if:

1. he or she at any time held an Indian passport; or
2. his or her parent(s), grandparent(s) or great-grandparent(s) was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955; or
3. the person is a spouse of an Indian citizen or of a person covered above — the workbook's text of this limb is cut short, reading "a spouse of an Indian citizen or a person".

The workbook adds a caution worth taking seriously: "The definition has been modified for various purposes in various regulations."

The neighbouring definitions (section 4.2.3):

The connotation of NRI under FEMA and under the Income Tax Act, 1961 differ, and so does residence: under FEMA, a person resident in India includes one residing in India for more than 182 days in the preceding financial year, but intention to stay is pertinent; under the Income Tax Act, physical stay is what matters.

Why PIO status matters for AIFs (section 4.2.5). The Indian non-resident community is an important source of foreign exchange, and NRIs and PIOs "have been given some special preferences/ facilities for investment in India", in addition to the foreign investment routes available to non-residents generally. NRIs can invest on a fully repatriable basis — taking back capital and returns in foreign exchange — or on a non-repatriable basis. Investment options include direct investment under the FDI route, government securities, domestic mutual fund units, PSU bonds and shares, shares and debentures of Indian companies, public deposits with companies, NBFCs and HFCs, and investment vehicles such as SEBI-registered AIFs.

Investments by NRIs and PIOs are regulated by the FDI policy read with RBI's Master Directions and Rules. "NRIs along with other categories of non-residents such as PIOs and OCIs are allowed to invest in AIFs registered with SEBI under the FDI policy."

Illustrative figures. An AIF distributor in Mumbai receives interest in a Category II AIF (minimum commitment Rs 1 crore) from five prospective investors, all living outside India.

Ananya, Rohan, Meera and David can all invest in the SEBI-registered AIF under the FDI policy, alongside the facilities available to non-residents generally. Each must pay through proper banking channels, and the distributor should confirm whether each wants the investment on a repatriable basis — so that sale or maturity proceeds, net of taxes, can be remitted abroad in fully convertible foreign exchange.

Tharindu is not a PIO, but that does not make him ineligible to invest; it means the PIO-specific facilities are not his route.

Chapter 4 (Regulatory Framework — Indian Context) defines NRIs, OCIs and PIOs at 4.2.3, explains residence under FEMA at 4.2.4, and sets out investment by NRIs and PIOs — including in AIFs under the FDI policy — at 4.2.5. Expect a question on the excluded countries, on the passport and ancestry limbs, and on the route by which NRIs, PIOs and OCIs invest in SEBI-registered AIFs.

• A PIO is a foreign citizen; an NRI is an Indian citizen. Mixing them up is the commonest error.
• Eight excluded countries: Bangladesh, Pakistan, Afghanistan, China, Iran, Bhutan, Sri Lanka and Nepal. Citizens of these cannot be PIOs under this definition, whatever their ancestry.
• Ancestry goes back to great-grandparents, and the ancestor must have been a citizen of India by virtue of the Constitution or the Citizenship Act, 1955.
• The definition "has been modified for various purposes in various regulations" — do not assume one definition applies everywhere.
• The workbook defines NRI inconsistently on the same page. It first says a person resident outside India "will be 'NRI', if he is either a citizen of India or an OCI cardholder", then that "for the purpose of FEMA, NRI means a person resident outside India who is a citizen of India". For FEMA questions, use the second.
• NRIs, PIOs and OCIs invest in SEBI-registered AIFs under the FDI policy.
• FEMA residence turns on intention; income-tax residence on physical stay.