The Department of Industrial Policy & Promotion (DIPP),
Government of India, on September 15, 2015, issued a clarification
wherein it has allowed leasing/ sub-leasing arrangements between
the group companies by taking out such activity from the ambit of
'real estate businesses' under Consolidated Foreign Direct
Investment Policy Circular of 2015.
Real estate is among the sectors where Foreign Direct Investment
(FDI) is not permitted. Real estate business, as per Foreign
Exchange Management Act, means dealing in land and immovable
property with a view to earning profit or earning income there from
(excluding certain activities as specified). Accordingly,
leasing/sub-letting of land or immovable property was considered as
real estate business and barred for the companies having FDI in
The Department of Industrial Policy and Promotion (DIPP)
received certain references on the issue as to whether entering
into Facility-sharing agreements through leasing or sub-leasing
arrangements within group companies for the larger purpose of
business activities will be considered as real estate business.
this regard, the Department clarified that the Facility-sharing
agreements between group companies through leasing/sub-leasing
arrangements for the larger interest of business will not be
treated as 'real estate business' within the provisions of
the consolidated FDI policy circular 2015.
This permission shall be subject to the following
a. Such arrangements are at arm's length price in accordance
with Income Tax Act 1961, and
b. The annual lease rent earned by the lessor company does not
exceed 5% of its total revenue.
Accordingly, companies with foreign direct
investment (FDI) in them are now free to lease out surplus real
estate to other companies within the group, without violating the
FDI policy on real estate.
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The MDO Guidelines further state that the intent of the MCA was for the purpose of achieving a standard contractual arrangement that may be entered into across the country for procurement of such services.
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