Foreign direct investment in India is governed by FEMA 1999, the Foreign Exchange Management (Non-Debt Instruments) Rules 2019 and the consolidated FDI Policy. Most sectors allow investment under the automatic route without prior approval; some need government approval, and investors from countries sharing a land border with India always need it under Press Note 3 of 2020. Shares must be priced at not less than fair value, reported in Form FC-GPR within 30 days of allotment, and the company files an FLA return by 15 July every year.
- Law
- FEMA 1999 and NDI Rules 2019
- New shares
- FC-GPR within 30 days of allotment
- Share transfers
- FC-TRS within 60 days
- Annual
- FLA return by 15 July
Automatic route, government route and sectoral caps
The first question in any inbound investment is whether the sector is open, and on what terms. Under the automatic route the investor and the Indian company need no prior approval; the RBI is simply informed after the event. Under the government route the proposal is filed on the National Single Window System and decided by the administrative ministry concerned, which usually takes a few months. A small list of activities is closed to foreign investment altogether.
| Sector (examples) | Cap | Route |
|---|---|---|
| Most manufacturing, IT and software services, consulting, marketplace e-commerce | 100% | Automatic |
| Single-brand retail trading | 100% | Automatic, with local sourcing conditions above 51% |
| Telecom services | 100% | Automatic, subject to licence and security conditions |
| Defence manufacturing | 100% | Automatic up to 74%; government route beyond |
| Multi-brand retail trading | 51% | Government |
| Print media dealing with news and current affairs | 26% | Government |
| Lottery, gambling and betting, chit funds, nidhi companies, real estate business, trading in TDRs, manufacture of tobacco cigarettes | Prohibited | Not permitted |
Caps and conditions change through press notes and amendments to the NDI Rules, so we check the current position for your exact activity before money moves. Conditions such as minimum capitalisation, sourcing norms or security clearance often matter more than the headline percentage.
Press Note 3 of 2020: investors from land-border countries
Since April 2020, an entity of a country that shares a land border with India, or an investor whose beneficial owner is situated in or is a citizen of such a country, may invest only under the government route, whatever the sector. The countries are China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan. Investments from Hong Kong and Macau are examined closely because of their links to China.
The rule also catches later changes. A transfer of existing shares that results in beneficial ownership falling within the restriction needs approval, and so does an indirect change, for example when a fund that already holds Indian shares admits a significant investor from a land-border country. In practice we ask every investor for a beneficial ownership chain down to individuals, and we advise Indian companies to get written confirmations before accepting money. Investments made in breach are treated as contraventions and cannot simply be reported late.
Pricing guidelines and valuation
For an unlisted Indian company, new shares issued to a person resident outside India must be priced at not less than fair value worked out under an internationally accepted pricing methodology on an arm's length basis. The valuation is certified by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant, and is dated close to the issue.
- Transfer from a resident to a non-resident: price not less than fair value.
- Transfer from a non-resident to a resident: price not more than fair value.
- Convertible instruments (CCPS and CCDs): the price or conversion formula must be fixed at the time of issue, and conversion cannot be at a price lower than fair value at that time.
- Listed companies follow SEBI pricing instead.
Money must arrive through banking channels and shares must be allotted within 60 days of receipt; otherwise the money is refunded within the next 15 days. Swaps of shares and issues against legitimate dues such as import payables are possible but need their own documentation and, in some cases, approval.
The FEMA reporting calendar
Reporting is done on the RBI's FIRMS portal through the company's authorised dealer (AD) bank. The company first registers an entity master and a business user.
| Event | Form | Deadline | Who files |
|---|---|---|---|
| Issue of shares or convertibles to a non-resident | FC-GPR | 30 days from allotment | Indian company |
| Transfer of shares between resident and non-resident | FC-TRS | 60 days from transfer or receipt of funds, whichever is earlier | Resident transferor or transferee |
| Convertible notes issued by a startup | CN | 30 days from issue | Indian startup |
| Shares issued to non-resident employees under ESOP | ESOP | 30 days from issue | Indian company |
| Downstream investment by a foreign-owned company | DI | 30 days from allotment | Investing Indian company |
| Foreign liabilities and assets for the year | FLA return | 15 July each year | Every company with inward or outward investment |
Foreign investment in LLPs has its own forms (LLP-I and LLP-II). Board resolutions, share certificates and Companies Act filings such as the return of allotment run in parallel and should match the FIRMS entries.
Late filings, penalties and compounding
A reporting delay is a contravention, but it is usually curable. Where the RBI's framework allows, a late filing is accepted on payment of a late submission fee calculated on the amount involved and the period of delay. That route closes the matter without a compounding order.
Other breaches, such as issuing shares below fair value, allotting late, accepting investment in a prohibited sector or ignoring Press Note 3, need compounding under section 15 of FEMA. The company or person applies to the RBI with the facts, documents and a fee; the RBI computes a compounding amount under its published guidelines, and once it is paid the contravention is settled without adjudication. The RBI aims to decide complete applications within 180 days. Some breaches, especially those involving money laundering concerns or serious violations, go to the Directorate of Enforcement instead.
If a contravention is adjudicated rather than compounded, section 13 of FEMA allows a penalty of up to three times the sum involved where it can be quantified, or up to two lakh rupees where it cannot, with a further penalty for each day the default continues. Voluntary disclosure before the regulator finds the problem is almost always cheaper.
NRIs and OCI cardholders: repatriable or not
NRIs and OCI cardholders can invest in Indian companies in two ways. Investment on a repatriation basis is treated as FDI, with the same pricing and FC-GPR reporting as any foreign investor. Investment on a non-repatriation basis under Schedule IV of the NDI Rules is treated as domestic investment, so pricing guidelines and FDI reporting do not apply, but the sale proceeds can only be credited to an NRO account and moved abroad within the NRO repatriation limit of USD 1 million per financial year, with Forms 15CA and 15CB.
The choice should be made deliberately and recorded in the subscription documents. Family companies often receive money from relatives abroad without anyone deciding which route applies, which later blocks a clean exit. Our FEMA compliance for NRIs page covers personal accounts and holdings.
Mistakes we are asked to fix
- Money received before the company is ready. Remittances parked for months without allotment breach the 60-day rule.
- No valuation report on file, or a report dated long before the allotment.
- Founders' loans from abroad treated as share capital without the documents the AD bank needs.
- Secondary transfers between founders and foreign investors never reported in FC-TRS.
- FLA returns skipped because the company made a loss or had no new investment that year. The return is still due.
- Ignoring indirect investment rules when a foreign-owned Indian company invests in another Indian company.
For new ventures we fold these steps into incorporation; see company registration for foreigners and investing in Indian startups.
Documents you need
To check or complete FDI reporting we usually ask for:
- Certificate of incorporation, MoA and AoA of the Indian company
- Foreign inward remittance certificates and KYC reports from the AD bank
- Valuation certificate used for the issue or transfer
- Board and shareholder resolutions and the return of allotment
- Share purchase or subscription agreements
- Investor KYC and beneficial ownership chain to individuals
- Previous FIRMS filings, acknowledgements and FLA returns
- Any RBI or bank correspondence about delays
How we handle it for you
Route check
We confirm the sector cap, route, any Press Note 3 issue and sector conditions.
Pricing and documents
Valuation, resolutions and agreements prepared so the numbers match.
Remittance and allotment
Funds received through the AD bank and shares allotted inside 60 days.
FIRMS filing
FC-GPR, FC-TRS or other forms filed and bank queries answered.
Annual and remedial work
FLA returns each July, and late fee or compounding applications for past gaps.
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Frequently asked questions
Do I need RBI approval to invest in an Indian company?
Not under the automatic route. The investment is reported to the RBI after the event. Government approval is needed only for approval-route sectors, investments above the automatic limit and investors covered by Press Note 3.
What is the deadline for FC-GPR?
30 days from the date the shares are allotted. The Indian company files it on the FIRMS portal through its AD bank.
Who files FC-TRS when a foreign investor buys shares from an Indian founder?
The resident party, here the Indian founder, within 60 days of the transfer or receipt of funds, whichever is earlier.
Does Press Note 3 apply to a US fund with a Chinese investor?
It can. If a beneficial owner of the investing entity is situated in or is a citizen of China, the investment needs government approval. The test looks through to the individuals behind the investor.
Is the FLA return needed if nothing changed this year?
Yes. Every Indian company that has received FDI or made overseas investment and holds it at year end must file the FLA return by 15 July.
Can late FEMA filings be regularised?
Yes. Delays are usually cured by a late submission fee, and other breaches by compounding with the RBI. Disclosing early is cheaper than waiting for a notice.
Can shares be issued to a foreign investor at face value?
Only if face value is not below fair value. At incorporation subscription is normally at face value; later issues need a current valuation.
Can an NRI invest without FDI reporting?
Yes, on a non-repatriation basis under Schedule IV of the NDI Rules, which is treated as domestic investment. The trade-off is that sale proceeds go to an NRO account with repatriation limits.