# Prohibited Capital Account Transactions for PROI
A Person Resident Outside India (PROI) is barred from making investment in India in a company, firm, proprietary concern, or any entity (whether incorporated or not) which is engaged in the following activities.
## List of Prohibited Activities (PROI cannot invest)
1. Nidhi Company
2. Business of Chit Fund
3. Real Estate Business
4. Agricultural / Plantation Activities
5. Construction of Farmhouse
6. Trading in Transferable Development Rights (TDRs)
## Meaning of 'Real Estate Business' — Exclusions
The term "Real Estate Business" does NOT include the following (i.e., PROI investment is allowed in these):
Development of Townships
Construction of Residential / Commercial premises
Roads & Bridges
Registered REITs (Real Estate Investment Trusts)
So while pure 'buying and selling of real estate / earning rental income from existing property' is prohibited, development activities and infrastructure projects are permitted.
## Special Carve-Out — Chit Fund Subscription
Though investment in the business of chit fund is prohibited, a PROI may subscribe to chits (i.e., participate as a chit subscriber) provided:
Approval of the Registrar of Chits or the officer authorised by the State Government concerned is obtained, AND
Subscription is brought in through normal banking channels, including through an NRE / FCNR / NRO account, in compliance with RBI guidelines.
## Memory Aid (NCRATC)
> Nidhi — Chit fund — Real estate — Agriculture/plantation — Trading in TDR — Construction of farmhouse
Worked example
### Example 1
Example 1: A US-based NRI wishes to invest in 'Sunrise Farms Pvt. Ltd.' which is engaged in commercial cultivation of tea. → Prohibited — agricultural / plantation activity falls in the prohibited list.
### Example 2
Example 2: A UK-based PROI wishes to invest in 'BuildIndia Ltd.' which is engaged in construction of a township in Pune. → Permissible — development of township is excluded from the meaning of 'real estate business'.
### Example 3
Example 3: A Singapore-based NRI wishes to subscribe (as a member) to a chit fund run by a Chennai-based chit company. → Permissible subject to (i) approval of Registrar of Chits / State Govt. officer, and (ii) compliance with RBI guidelines and routing through normal banking channels.
### Example 4
Example 4: A Dubai-based PROI wishes to buy land in Goa to construct a farmhouse. → Prohibited — construction of farmhouse is in the prohibited list.
⚠️ Common exam mistakes
Treating 'real estate business' as covering all real estate — students forget that township development, residential/commercial construction, roads, bridges, and REITs are EXCLUDED.
Forgetting that PROI may subscribe to chits (as a member) though business of chit fund itself is prohibited for investment.
Missing that the prohibition applies to investment in ANY entity (company, firm, proprietary concern) engaged in these activities — not just companies.
Confusing 'trading in TDR' (prohibited) with 'construction of residential/commercial premises' (permitted).
Bare-Act text Regulation 4(b) read with Schedule I · FEM (Permissible Capital Account Transactions) Regulations, 2000 · click to expand
A person resident outside India shall not make investment in India, in any form, in any company or partnership firm or proprietary concern or any entity, whether incorporated or not, which is engaged or proposes to engage in the business of chit fund, Nidhi Company, agricultural or plantation activities, real estate business, or construction of farmhouses, or trading in Transferable Development Rights (TDRs). 'Real estate business' shall not include development of townships, construction of residential/commercial premises, roads or bridges and Real Estate Investment Trusts registered and regulated under the SEBI (REITs) Regulations.