FEMA & RBI
Our FEMA and RBI practice covers inbound investment (FDI) under the NDI Rules 2019, outbound investment (ODI and OPI) under the OI Rules 2022, external commercial borrowings under the RBI Master Direction, liaison/branch/project office setup, and repatriation — along with every filing that goes with them.
Cross-border transactions now sit at the intersection of the Foreign Exchange Management Act 1999, the NDI Rules 2019, the OI Rules 2022, the Master Direction on ECB, and the relevant RBI Master Directions for AD banks and office setups. We structure the transaction, map it to the correct regulation and form, file through the AD (Authorised Dealer) bank on the FIRMS / ECB / OID portals, and close the loop with the annual returns (FLA, APR, ECB-2) that keep the file clean year after year.
FEMA & RBI
Structuring, filings and ongoing compliance for inbound investment, outbound investment, borrowings, office setup and repatriation.
Foreign Direct Investment (FDI) — structuring, FC-GPR, FC-TRS, FLA
Inbound equity investment into Indian companies is governed by the Foreign Exchange Management (Non-debt Instruments) Rules 2019 (NDI Rules) read with RBI's FDI Master Direction, and every allotment to or transfer from a non-resident has to be reported on the FIRMS portal.
- Issue of shares to a non-resident — price must not be less than the fair value determined by a SEBI-registered Merchant Banker or a Chartered Accountant using internationally accepted methodology.
- Transfer from resident to non-resident — price must not be less than the fair value.
- Transfer from non-resident to resident — price must not exceed the fair value.
- For listed companies, SEBI pricing (ICDR) prevails.
- Form FC-GPR — reporting of equity allotment to a non-resident, on the FIRMS portal, within 30 days of allotment.
- Form FC-TRS — reporting of transfer of shares between a resident and a non-resident, within 60 days of receipt of funds or transfer of shares (whichever is earlier).
- Form LLP-I — capital contribution by a non-resident into an LLP, within 30 days.
- Form LLP-II — disinvestment / transfer of capital contribution, within 60 days.
- Form CN — reporting of Convertible Notes issued by a recognised startup.
- Form DI — reporting of downstream investment by an Indian company owned or controlled by a non-resident, within 30 days.
- Form InVI — reporting of investment in units of an InvIT / REIT / AIF by a non-resident.
- FLA Return — annual return on Foreign Liabilities and Assets to RBI by 15 July every year (covering the previous financial year), mandatory for every Indian company that has received FDI or made ODI in any of the past years.
Overseas Direct Investment (ODI) and Overseas Portfolio Investment (OPI) — OI Rules 2022
The Foreign Exchange Management (Overseas Investment) Rules 2022 and the companion Regulations and Directions — effective 22 August 2022 — replaced the earlier FEMA 120 framework and now draw a clear line between ODI (10% or more of equity, or any stake with control) and OPI (below that threshold, in listed instruments).
- ODI — acquisition of unlisted equity capital of a foreign entity, subscription to the Memorandum as part of incorporation, or investment of 10% or more of the paid-up equity capital of a listed foreign entity, or any investment (irrespective of percentage) that gives control.
- OPI — investment in listed foreign securities other than ODI (typically below 10% and no control), and investment in units of overseas investment funds.
- Indian companies can make OPI up to 50% of net worth as on the last audited balance sheet (new under the 2022 framework).
- Resident individuals can make ODI / OPI under the LRS — total remittance capped at USD 250,000 per financial year, with ODI restricted to operating foreign entities (not financial services) and no writ over layers.
- Total financial commitment (equity + loan + guarantee + non-fund based) by an Indian entity in foreign JVs / WOS is capped at 400% of the net worth as on the last audited balance sheet, under the automatic route.
- Anything above 400% or outside automatic-route conditions requires RBI approval.
- Financial services entities have separate eligibility and regulator-clearance requirements.
- Form FC — reporting of financial commitment (equity, loan or guarantee) at the time of initial or additional investment; filed through the AD bank before remittance.
- Form ODI — integrated form for ODI transactions under the 2022 framework (replaces the earlier Form ODI Parts I / II / III of the FEMA 120 regime).
- Form OPI — reporting of Overseas Portfolio Investment by Indian entities, filed by the AD bank.
- Annual Performance Report (APR) — to be filed for every foreign entity where the Indian party has made ODI, by 31 December every year, based on the foreign entity's audited accounts.
- Form FC (disinvestment) — reporting of disinvestment / transfer / closure within 30 days.
- LRS reporting — for resident individuals making ODI / OPI through the LRS route, with the CA certificate in Form 15CA/15CB at the remittance stage.
External Commercial Borrowings (ECB) — Master Direction, Form ECB, LRN
External Commercial Borrowings — loans raised by eligible Indian borrowers from recognised non-resident lenders — are governed by the RBI Master Direction on ECB, Trade Credits and Structured Obligations, which sets the rules on eligibility, amount, end-use, pricing (all-in-cost) and maturity.
- Foreign currency-denominated ECB (FCY ECB) — minimum average maturity of 3 years (5 years if raised for specified end-uses); all-in-cost capped at a benchmark (SOFR / reference rate) plus a spread prescribed in the Master Direction.
- Rupee-denominated ECB (INR ECB) — including Masala Bonds; minimum average maturity of 3 years.
- Annual cap — each eligible borrower can raise up to USD 750 million or equivalent per financial year under the automatic route; anything more requires RBI approval.
- End-use negative list — real estate (other than affordable housing), capital market, equity investment in companies, and working capital/general corporate purposes from related parties (subject to conditions).
- Loan Agreement — negotiate and execute with the recognised non-resident lender; ensure all-in-cost, hedging and end-use fit within the Master Direction.
- Form ECB — application for loan registration, filed through the AD bank; on approval RBI issues a Loan Registration Number (LRN).
- Drawdown — no drawdown permitted before the LRN is obtained.
- Form ECB-2 — monthly return of actual transactions (drawdown, repayment, hedging) filed through the AD bank by the 7th of the following month.
- Changes / conversion / prepayment — reported through Form ECB or a revised ECB; conversion of ECB into equity reported in Form FC-GPR.
Liaison, branch and project office setup — FEM (BO/LO/PO) Regulations 2016
Foreign companies looking to establish presence in India without incorporating an Indian subsidiary can set up a Liaison Office, a Branch Office or a Project Office under the Foreign Exchange Management (Establishment in India of a Branch Office or a Liaison Office or a Project Office or Any Other Place of Business) Regulations 2016, read with the RBI Master Direction on offices.
| Office type | Permitted activities | Financial criteria (parent) |
|---|---|---|
| Liaison Office (LO) | Communication channel only — representation, promotion, coordination. <strong>No income-earning activity</strong>. Must be funded entirely from remittances from head office. | Profit-making track record of 3 preceding financial years + net worth ≥ USD 50,000. |
| Branch Office (BO) | Export/import of goods, rendering professional or consultancy services, R&D, representing parent as buying/selling agent, IT services, technical collaboration. No retail trading, manufacturing or processing. | Profit-making track record of 5 preceding financial years + net worth ≥ USD 100,000. |
| Project Office (PO) | Execution of a specific project in India secured by the foreign company. Can be set up on general permission if conditions are met (Indian contract, funding tests). | Indian contract awarded by an Indian company + project funded by inward remittance / bilateral / multilateral funding / term loan from PSB or public financial institution. |
- Form FNC — application for establishing BO / LO / PO, filed through the designated AD bank; RBI issues a UIN on approval.
- PAN, TAN, Shops & Establishment, GST registration (if applicable), opening of a single designated AD bank account.
- Registration with the Registrar of Companies (RoC) within 30 days of establishment — Form FC-1 under Section 380 of the Companies Act 2013, along with MoA, list of directors and certificate of incorporation of the parent.
- Annual Activity Certificate (AAC) — certified by a Chartered Accountant, filed by 30 September every year with the AD bank and DGIT (International Taxation), confirming that the office has carried out only permitted activities.
- Annual financial statements — Form FC-3 with RoC within 6 months of the close of the parent's financial year.
- Income-tax return — the BO/PO is a tax presence in India; the LO is generally not taxable but must file a return under Section 285 and an annual statement in Form 49C within 60 days of year-end.
- Closure — surrender of approval, repatriation of remaining funds, AAC on closure, tax clearance and winding-up filings.
Repatriation of funds — dividends, royalty, fees, sale proceeds
Repatriation of dividends, royalties, technical fees, interest, sale proceeds and office surplus is freely permitted once tax is paid and the remittance is certified in Form 15CA/15CB under Section 195 read with Rule 37BB of the Income-tax Rules.
- Dividend Distribution Tax (DDT) was abolished with effect from 1 April 2020 (AY 2021-22). Dividends are now taxable in the hands of the shareholder.
- Dividend paid to a non-resident shareholder is subject to withholding under Section 195 at 20% (plus applicable surcharge and cess) or the lower rate under the applicable Double Taxation Avoidance Agreement (DTAA), read with the MLI where relevant.
- The non-resident can claim DTAA relief at source by furnishing a Tax Residency Certificate (TRC) and Form 10F (filed electronically on the income-tax portal).
- Remittance requires Form 15CB (CA certificate) + Form 15CA (remitter declaration).
- For buybacks on or after 1 October 2024, the company-level 20% buyback tax under Section 115QA has been removed.
- The buyback consideration is now treated as a deemed dividend in the hands of the shareholder and taxed at the applicable slab / treaty rate; the cost of acquisition gives rise to a capital loss that can be set off against other capital gains.
- Non-resident shareholders continue to claim DTAA relief via TRC + Form 10F; withholding is under Section 195.
- Royalty and FTS remitted to non-residents — withholding under Section 195 at 10% (under Section 115A) or the DTAA rate, whichever is more beneficial, subject to TRC/10F.
- Interest on ECB — concessional rate under Section 194LC (5% plus cess, on qualifying borrowings) if the conditions are met.
- Sale proceeds of shares by a non-resident — capital gains taxed under Sections 111A / 112 / 112A; remittance via Form 15CA/15CB and, where the transfer is on a stock exchange, via the depository route.
- Resident individuals — remittances abroad under LRS up to USD 250,000 per financial year, with 15CA/15CB for applicable heads.
FEMA advisory, compounding and representation
When a contravention of FEMA is noticed — a late FC-GPR, a missed APR, a drawdown before LRN, a repatriation breach — the statutory remedy is to apply for compounding under Section 15 of FEMA and get the file regularised before it escalates.
- Pre-transaction FEMA opinions and structuring notes — inbound, outbound, borrowing and office setups.
- Review of shareholders' agreements, share purchase agreements and loan agreements for FEMA, pricing and end-use compliance.
- Compounding applications under Section 15 FEMA — quantification of contravention, preparation of the compounding application to the Reserve Bank (or Enforcement Directorate in specified cases), representation at the hearing, and follow-through on the compounding order.
- Representation before the AD bank, RBI's regional offices, and the Enforcement Directorate in FEMA matters.
- Advisory on LRS transactions, NRI account structures (NRE / NRO / FCNR), and inheritance / gift remittances.
- FCRA (Foreign Contribution Regulation Act 2010) advisory — registration, prior permission, annual FC-4 return, and utilisation compliance.
Frequently asked questions
Short answers to the questions we hear most often about fema & rbi.
How long do we have to file FC-GPR after issuing shares to a non-resident?
<strong>Form FC-GPR must be filed within 30 days of the date of allotment</strong> of shares to the non-resident, on RBI's FIRMS portal through the AD bank. The Indian company must first register on the <strong>Entity Master</strong> before any FC-GPR can be filed; all subsequent filings (FC-GPR, FC-TRS, LLP-I/II, DI, CN) flow through the Single Master Form (SMF) tagged to the Entity Master. Late filing attracts a <strong>Late Submission Fee (LSF)</strong> under RBI's framework; persistent delay pushes the matter into compounding under Section 13/15 of FEMA.
What's the difference between ODI and OPI under the OI Rules 2022?
The Foreign Exchange Management (Overseas Investment) Rules 2022 drew a clean line between the two. <strong>ODI</strong> (Overseas Direct Investment) is an investment in unlisted equity of a foreign entity, subscription at incorporation, <strong>10% or more of the paid-up equity of a listed foreign entity</strong>, or any investment that gives control. <strong>OPI</strong> (Overseas Portfolio Investment) is investment in <strong>listed</strong> foreign securities below the 10% threshold with no control, and investment in units of overseas funds. The distinction matters because ODI triggers Form FC at remittance, a UIN, and an annual APR by 31 December; OPI is lighter — reported by the AD bank, subject to the 50%-of-net-worth cap for Indian entities.
Who has to file the FLA Return and when?
Every <strong>Indian company, LLP or AIF that has received FDI or made ODI</strong> in any previous year (and continues to hold that foreign investment on its books) must file the <strong>Annual Return on Foreign Liabilities and Assets (FLA) with RBI by 15 July every year</strong>, based on audited accounts — or on provisional / unaudited numbers with a later revision if the audit isn't done by 15 July. The return is filed on RBI's FLAIR portal. Non-filing is a FEMA contravention and blocks subsequent FDI / ODI filings until regularised.
What does the process for raising an ECB look like?
We first check eligibility — borrower category, lender category, all-in-cost ceiling and end-use against the RBI Master Direction on ECB. Once the loan agreement is negotiated, <strong>Form ECB</strong> is filed through the designated AD bank for loan registration; RBI issues a <strong>Loan Registration Number (LRN)</strong>. <strong>Drawdown is not permitted before the LRN is obtained.</strong> Each month thereafter, <strong>Form ECB-2</strong> — the monthly return of actual transactions (drawdown, repayment, hedging) — is filed with the AD bank by the 7th of the following month. Conversion of ECB into equity is reported in Form FC-GPR.
How are dividends and share buybacks taxed for a foreign shareholder today?
The position has changed substantively. <strong>Dividend Distribution Tax (DDT) was abolished by the Finance Act 2020</strong> — dividends are now taxable in the shareholder's hands. For a non-resident, the Indian company withholds tax under <strong>Section 195</strong> at 20% plus surcharge and cess, or the lower DTAA rate on furnishing a TRC and Form 10F. For <strong>buybacks on or after 1 October 2024</strong>, the Finance (No. 2) Act 2024 removed the company-level 20% tax under Section 115QA and made the buyback consideration a <strong>deemed dividend</strong> taxed in the shareholder's hands, with the cost of acquisition giving rise to a capital loss. Every such remittance goes out with <strong>Form 15CB + Form 15CA</strong>.
Do we need RBI approval to open a Liaison Office in India?
Yes — a Liaison Office (LO) is established under the <strong>FEM (BO/LO/PO) Regulations 2016</strong>, on application in <strong>Form FNC</strong> filed through a designated AD bank Category-I, which forwards it to RBI. The parent must show a profit-making track record of <strong>3 preceding financial years</strong> and net worth of at least USD 50,000. Certain sectors (defence, telecom, private security, information and broadcasting) also require prior Government of India / security clearance. On approval the LO gets a UIN, must register with the RoC in Form FC-1 within 30 days, and must file an <strong>Annual Activity Certificate (AAC) by 30 September every year</strong>. An LO cannot earn income in India — it's a communication channel only.
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