On October 16, 2019, the Ministry of Finance issued a notification under sub-section (7) of section 6 of the Foreign Exchange Management Act, 1999, stating what qualifies as a debt instrument.

As per the said notification, the following instruments have been determined to be debt instruments:

1. Government bonds;
2. Corporate bonds;
3. All tranches of securitisation structure which are not equity tranche;
4. Borrowings by Indian firms through loans;
5. Depository receipts whose underlying securities are debt securities.

Further, the following instruments shall be considered as non-debt instruments:

1. All investments in equity in incorporated entities (public, private, listed and unlisted);
2. Capital participation in Limited Liability Partnerships (LLPs);
3. All instruments of investment as recognised in the FDI policy as notified from time to time;
4. Investment in units of Alternative Investment Funds (AIFs) and Real Estate Investment Trust (REITs) and Infrastructure Investment Trusts (InVITs);
5. Investment in units of mutual funds and Exchange-Traded Fund (ETFs) which invest more than fifty per cent in equity;
6. The junior-most layer (i.e. equity tranche) of securitisation structure;
7. Acquisition, sale or dealing directly in immovable property;
8. Contribution to trusts;
9. Depository receipts issued against equity instruments.

All other instruments which have not been specified herein above, shall be deemed as debt instruments.

This update has been contributed by Aastha (Partner) and Shradha Rakhecha (Associate).