P0008 Purpose Code
According to the RBI, it is for transactions related to “Foreign direct investment in India in real estate.”
Purpose Code P0008 is used when a foreign investor, whether an individual or a company, sends money to India as Foreign Direct Investment (FDI) in approved real estate activities, such as commercial projects, infrastructure development, or township construction. This code helps track debt-based investments like External Commercial Borrowings (ECBs) made for real estate purposes. The Indian company receiving the funds must report the transaction through its Authorised Dealer (AD) bank and follow RBI and FEMA rules, including proper use of funds, project size, and reporting timelines.
For Example, A real estate development company in India receives $10 million from a foreign investor to construct a business park in Bengaluru. The funds are brought in as an External Commercial Borrowing (ECB) and are reported under P0008. The Indian company ensures that the money is used only for approved purposes, such as land development, construction, and infrastructure, and reports the transaction to the RBI through its authorised dealer (AD) bank.
Real Estate Activities under which An Investor Can and Can Not Invest Money Into
- Permitted Real Estate Activities – Foreign investment is allowed in certain real estate development projects in India, such as commercial real estate like office buildings, malls, hotels, and industrial parks. It is also permitted in integrated townships that include infrastructure like roads, sewage, and water supply, as well as in affordable housing projects under government policy. Construction-development activities, which involve developing land, building structures, and selling the completed property, are also allowed. However, these investments must follow RBI’s rules and can only be used for genuine development purposes, not for speculative buying or selling.
- Restricted Real Estate Activities (Not allowed under ECB/FEMA rules) – Foreign investors are not allowed to invest in certain real estate activities like real estate trading, which means buying and selling land or property without actually developing it. They also cannot invest in the construction of farmhouses, as these are usually recreational or non-commercial properties. Moreover, agricultural land, plantations, and forestry are off-limits, since these involve land used for farming or cultivation, which is restricted for foreign investment, as these are considered to be sensitive fields.
Instruments of Investments
- Fully Convertible Debentures (FCDs) – FCDs are debt instruments that are initially loans but are converted into equity shares of the company after a fixed period. Under P0008, foreign investors can invest in FCDs issued by Indian real estate or infrastructure companies, provided the underlying project is within the permitted sector.
- Non-Convertible Debentures (NCDs) – NCDs are loans given to a company that do not turn into shares. Under Purpose Code P0008, foreign investors can invest in NCDs only if the Indian company is involved in approved real estate projects, such as building offices or commercial spaces. The money raised through these NCDs cannot be used for buying land, trading in property, or building farmhouses.
- Bonds issued by Real Estate or Infrastructure Companies (aka Real Estate Bonds) – These are long-term debt securities issued by companies to raise funds. If a real estate or infrastructure company in India issues bonds to develop commercial spaces, townships, logistics parks, or affordable housing, a foreign investor can invest in these under the P0008 category.
- Joint Ventures or Wholly Owned Subsidiaries – Foreign investors are allowed to invest in real estate in India by forming joint ventures with Indian partners or by setting up wholly owned subsidiaries. These investments must be directed toward real estate projects that involve actual development, and not towards simply holding land or engaging in real estate trading is not permitted under this route.
- Investment Through REITs (Real Estate Investment Trusts) – It means putting money into a trust that owns and manages real estate properties. Instead of buying property directly, investors buy units of the REIT, similar to buying shares in a company. This way, investors can earn a share of the rental income and any profits from property sales, without owning or managing the buildings themselves.
Important Rules for Investing
- Investment Must Be Lawful – This means that the investor must follow the guidelines outlined under the Foreign Exchange Management Act (FEMA), as laid down by the RBI.
- Use of Proper Banking Channels – Foreign investors must transfer funds through proper banking channels, using international systems like SWIFT (Society for Worldwide Interbank Financial Telecommunication). The remittance must go through an Authorised Dealer (AD) bank in India to ensure transparency and compliance with RBI and FEMA rules.
- Use and Reporting Responsibilities – A foreign investor uses Purpose Code P0008 when sending money to India as a loan or investment through External Commercial Borrowings (ECBs) via their overseas bank to indicate the purpose of the funds. Once the money is received in India, the Indian company has the responsibility to report the transaction. It must inform its Authorised Dealer (AD) bank within 30 days using Form ECB, after which the AD bank sends the details to the Reserve Bank of India (RBI) to obtain a Loan Registration Number (LRN) on behalf of the company. The Indian company must also file a monthly ECB return (Form ECB-2) within 7 working days (excluding Saturdays, Sundays, and declared public holidays) from the end of each month, reporting drawdowns, interest payments, repayments, and outstanding balances. The foreign investor does not report directly to the RBI but is reported by the Indian recipient company through its AD bank.
- Rules of Investment for a Non-Resident Indian (NRI) – Payments for investments should be made either through inward remittance from abroad or using funds held in specific bank accounts such as NRE (Non-Resident External), NRO (Non-Resident Ordinary), or FCNR (Foreign Currency Non-Resident) accounts. These accounts are maintained by Non-Resident Indians (NRIs) to manage income and investments in India under RBI regulations.
How to Report the Purpose of The Transaction to The RBI by Giving the Purpose Code:
Investors investing money in India must file several forms before starting the process. Usually, the transactions are via bank transfers, and your bank will ask you to provide a purpose code by giving a form to fill out. If you have any doubts or questions, feel free to reach out to us via email- support@bankerpanda.com, and we will try our best to help you out.
Tax or No Tax?
When a foreign investor sends money to invest in real estate activities in India, the capital amount remitted is treated as an investment and is not taxed under Indian income tax laws at the time of receipt. This is because the remitted amount is considered capital, not income. However, the Indian company receiving the funds must comply with RBI and FEMA regulations. While no tax is levied on the initial capital, any interest or income earned (if structured as a loan) may be taxable in India, typically through withholding tax. Provisions under Double Taxation Avoidance Agreements (DTAA) and the Liberalised Remittance Scheme (LRS) do not apply, as this transaction involves foreign direct investment in real estate via debt instruments, not personal remittances or equity-based investments.
P0008 Purpose Code Use Case Examples:
Here are some real-life examples where the RBI’s Purpose Code P0008 would be used to report transactions in India:-
- Commercial Office Complex Development:-
A Singapore-based investment firm partners with an Indian real estate company to jointly develop a commercial office tower in Bengaluru. The foreign investor brings in capital through FDI under P0008 and takes a stake in the Indian company. The funds are used strictly for the construction and development of the property, not land acquisition.
- Wholly Owned Subsidiary for Infrastructure-Linked Project:-
A Dubai-based real estate company sets up a wholly owned subsidiary in India to develop a logistics and warehousing park near Mumbai. The investment is made under P0008 and complies with FDI rules. The entire project includes the development of built infrastructure and earns rental income from businesses.
- Investment in Real Estate Bonds:-
A US-based institutional investor buys bonds issued by an Indian real estate developer focused on affordable housing. The bonds are used to fund the construction of a mid-income housing project in Pune. Since the funds are used for permitted end-use (development, not land buying), the investment qualifies under P0008.
- FDI in Housing Project through Joint Venture:-
A UK-based investor enters into a joint venture with an Indian developer to build a gated residential community in Hyderabad. The foreign investor contributes funds and shares profits from the sale of housing units.
- Investment in Urban Infrastructure Development:-
A Canadian pension fund invests in an Indian infrastructure company engaged in developing smart city components, such as roads, sewage systems, and energy-efficient buildings. The investment supports the physical development aspect and qualifies under real estate-linked infrastructure activities allowed in P0008.
- Investment by an NRI in Commercial Property Development:-
An NRI based in Canada invests in an Indian real estate company developing a commercial office park in Hyderabad. He buys fully convertible debentures (FCDs) issued by the company. The money is used for construction and infrastructure, not for buying land directly. Since the investment supports an approved commercial real estate project, it qualifies under P0008.
- Individual Investor Buying Bonds in an Infrastructure-Linked Project:-
A foreign individual investor from the European Union purchases bonds issued by an Indian infrastructure company that is building a logistics and warehousing hub near Mumbai. The funds are strictly for project development. Since the activity falls under permitted infrastructure-related real estate, and not speculative buying or land trading, the investment is reported using P0008.
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