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FDI Compliance and FEMA Advisory in India
Foreign money can enter India freely in most sectors. What is not free is the reporting that follows it. Miss a thirty-day window and the consequence surfaces years later, in a diligence exercise, at the worst possible moment.
- Every inbound filing, with its trigger and deadline
- Regularisation where something has been missed
- India, UAE and Singapore under one practice
FEMA Reporting MappedEvery inbound filing, tracked
- 45+years of cross-border advisory
- 5,000+FEMA filings completed for foreign investors
- 3jurisdictions: India, UAE, Singapore
- 50+countries of investor origin served
Quick Answer
What does FDI compliance in India actually require?
Foreign direct investment into India is reported to the Reserve Bank on the FIRMS portal after the event, not approved before it, in sectors open under the automatic route. The Indian company files Form FC-GPR within 30 days of allotting shares, files an annual FLA return by 15 July, and reports every later transfer or downstream investment on its own form.
The four things FEMA asks of an inbound investment
- Is the investment permitted at all, given the sector, the cap and where the beneficial owner sits.
- Is the price right, because equity issued to a non-resident cannot be below fair market value.
- Has it been reported, on the correct form, inside the window, with the certificates the form requires.
- What follows, meaning the annual return every year and a fresh filing on every later change.
The obligation sits with the Indian company, not with the foreign investor and not with the bank. That single point accounts for a large share of the filings that never get made.
Foreign investment compliance in India divides cleanly along those four lines, and this page follows them in order. It covers FDI compliance for foreign companies investing into India. For outbound investment, external commercial borrowings and the wider FEMA position, see FEMA and RBI compliance services. For setting up the entity in the first place, see company incorporation in India for foreign companies.
Regulatory Framework
The framework, and who administers what
FDI regulations for foreign companies in India sit across three authorities and four instruments. Knowing which one governs a question is most of the work, because the answer to "is this allowed" and the answer to "how is it reported" come from different places.
| Instrument | Who issues it | What it governs |
|---|---|---|
| Foreign Exchange Management Act, 1999 | Parliament | The enabling statute. Section 13 carries the penalty regime for contravention. |
| FEM (Non-Debt Instruments) Rules, 2019 | Ministry of Finance | Who may invest, in what, up to what limit, at what price. The substantive rules for equity investment. |
| FEM (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 | Reserve Bank of India | How the money comes in, and every reporting form and deadline. |
| Consolidated FDI Policy and Press Notes | DPIIT | Sectoral caps, entry routes and conditions. Press Notes amend the policy between consolidations. |
| FIRMS portal and Single Master Form | Reserve Bank of India | The channel through which every inbound filing is actually made. |
Where responsibility sits
The Indian investee company files. Not the foreign investor, not the authorised dealer bank. The bank processes the remittance and issues the inward remittance certificate, and it may flag a missing filing, but it has no obligation to make one and it will not do so. Groups that assume their banker is handling FEMA reporting discover otherwise during diligence, typically several years and several tranches later.
Permissibility Check
Is the investment permitted?
Three checks, in order. Most investments clear all three in an afternoon. The ones that do not are far better identified before the money moves than after.
Sector, cap and entry route
Most of the economy is open to 100 percent foreign investment under the automatic route, meaning no prior approval and reporting after the event. A minority of sectors carry a cap, a condition or an approval requirement, and a short list is prohibited outright.
- Automatic route. No approval. The company reports after allotment.
- Government route. Prior approval from the administrative ministry through the National Single Window System before the investment is made.
- Prohibited. Lottery and gambling, chit funds, nidhi companies, real estate business other than development of townships and construction, tobacco manufacture, and sectors closed to private investment.
The object clause matters here. A widely drafted memorandum can place a company in a capped sector it never intended to enter, and the question is asked at the point of filing rather than at incorporation.
Where the beneficial owner sits Updated 2026
Press Note 3 of 2020 required government approval for any investment where the investor or the beneficial owner was situated in or a citizen of a country sharing a land border with India. It caught a great many transactions with only indirect exposure.
Press Note 2 of the 2026 series, issued in March 2026 and given effect through an amendment to the Non-Debt Instruments Rules, moved to a beneficial ownership test set at 10 percent. Aggregate holdings below that threshold, with no control rights, fall outside the approval requirement. The test now looks at the citizenship of the beneficial owner rather than both citizenship and residence, which removes a large category of funds caught only because a manager happened to be resident in a border country. A pre-closing reporting obligation applies even where approval is not needed, and an expedited 60-day track was introduced for a list of strategic sectors.
Any adviser still applying the 2020 position is working from stale material. For structures with a Hong Kong or Singapore holding company in the chain, the change is worth re-examining before the next round.
Is the instrument an equity instrument
FDI is made in equity instruments: equity shares, fully and mandatorily convertible preference shares, fully and mandatorily convertible debentures, and share warrants. Anything that is not fully and mandatorily convertible is debt, and debt from a non-resident is governed by the external commercial borrowing framework rather than the FDI framework.
This distinction traps investors who agree an optionally convertible instrument, or a convertible instrument with an assured return or an exit at a pre-agreed price. Both features can recharacterise the instrument as debt, with a different regime, different reporting and a contravention if it was reported as equity.
Pricing & Valuation
Pricing and valuation
The pricing guidelines exist to stop value leaving India cheaply. They set a floor on issues to non-residents and a ceiling on transfers to them, and they apply to every transaction after the initial subscription at incorporation.
| Transaction | Pricing rule |
|---|---|
| Issue of shares to a non-resident | Not below fair market value. The non-resident may pay more, never less. |
| Transfer from a resident to a non-resident | Not below fair market value. |
| Transfer from a non-resident to a resident | Not above fair market value. The rule runs the other way, for the same reason. |
| Subscription to the memorandum at incorporation | Face value is the ordinary starting position, since there is no business to value. |
| Who certifies | A SEBI-registered merchant banker or a chartered accountant holding a certificate of practice. |
| Method | Any internationally accepted pricing methodology applied on an arm's length basis, commonly discounted cash flow, net asset value or comparable transaction multiples, with the choice justified. |
The tranche that gets priced like the first one
Shares taken at face value at incorporation set an expectation inside the group. Twelve or eighteen months later the parent tops up capital the same way, without a valuation certificate, and the FC-GPR is returned by the bank. By then the money is in India and the 30-day clock has run. The fix costs a valuation and a late submission fee. The prevention costs a diary entry.
Reporting Map
The inbound reporting map
FEMA compliance for foreign investment in India comes down to this table. Every inbound event has a form, a trigger and a window. Most published guidance covers FC-GPR and stops. The filings below are the complete set an Indian company with foreign investment may need, and the ones after FC-GPR are the ones that get missed.
| Form | Trigger | Deadline |
|---|---|---|
| Entity Master | Before any other filing. One-time registration of the Indian company on the FIRMS portal. | Before the first filing |
| Allotment of shares | Receipt of the inward remittance against a subscription. | Allot within 60 days of receipt, or refund within the following 15 days |
| FC-GPR | Issue of equity instruments to a person resident outside India. | 30 days from allotment |
| FC-TRS | Transfer of equity instruments between a resident and a non-resident, either direction. | 60 days from transfer or receipt of consideration, whichever is earlier |
| Form DI | Downstream investment by a foreign owned or controlled company into another Indian company. | 30 days from allotment |
| Form LLP-I | Foreign investment into a limited liability partnership by way of capital contribution or profit share. | 30 days from receipt |
| Form LLP-II | Disinvestment or transfer of capital contribution or profit share in an LLP. | 60 days from receipt of funds |
| Form CN | Issue or transfer of convertible notes by a startup to a person resident outside India. | 30 days |
| Form ESOP | Issue of employee stock options to a person resident outside India. | 30 days from issue |
| Form DRR | Issue or transfer of depository receipts. | 30 days from the close of the issue |
| Form InVi | Investment by a person resident outside India in an investment vehicle such as an AIF, REIT or InvIT. | 30 days from issue of units |
| Annual FLA return | Any company that has received FDI, or holds foreign assets or liabilities, in any year. | On or before 15 July, for the position as at 31 March |
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What goes with an FC-GPR
- Foreign Inward Remittance Certificate from the receiving bank
- KYC report on the investor from the remitting bank, through banking channels
- Valuation certificate, where the issue is not at incorporation
- Board resolution approving the allotment, and the list of allottees
- Company secretary certificate in the prescribed format
- Declaration by the authorised representative of the company
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The three most commonly missed
The FLA return. It is due every year once FDI has been received, whether or not there was any fresh investment, and it is separate from anything filed with the Registrar. Companies that took investment once, five years ago, are often unaware it recurs.
Form DI. Triggered when a foreign owned company invests in another Indian company. Groups treat a second Indian entity as an internal reorganisation rather than a reportable downstream investment.
Form ESOP. Triggered by granting options to anyone resident outside India, which happens the moment a group extends its global plan to an employee who has relocated.
Not sure which of these apply to your entity? A health check answers it in a week.
Request a FEMA health checkAnnual Obligation
The annual obligation nobody diarises
FC-GPR is event driven and gets attention because the money has just arrived. The FLA return is calendar driven, recurs forever, and has no transaction to prompt it. That asymmetry is why it is the most frequently missed FEMA filing in India.
| Point | Position |
|---|---|
| Who files | Every Indian company, LLP or other entity that has received foreign direct investment, or made overseas investment, in the current or any previous year. |
| When | On or before 15 July each year, reporting the position as at 31 March. |
| Even with no activity | Yes. The obligation follows the existence of foreign investment on the balance sheet, not any transaction during the year. |
| Unaudited accounts | The return is filed on provisional figures where the accounts are not yet audited, and revised afterwards. |
| Where | The Reserve Bank's FLAIR portal, separately from FIRMS. |
| Consequence of not filing | A contravention of FEMA, addressed through compounding rather than a late fee. |
Two portals, two registrations
FIRMS carries the event-driven filings. FLAIR carries the annual return. They are separate systems with separate registrations, and a company registered on one is not registered on the other. Discovering that in the second week of July is a familiar problem.
Downstream Investment
Downstream investment and FOCC status
Once a company has taken foreign investment, its own investments become regulated. This is the part of FDI compliance that surprises groups most, because nothing about it feels like foreign exchange.
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When a company becomes an FOCC
An Indian company is foreign owned or controlled where non-residents hold more than 50 percent of its equity instruments on a fully diluted basis, or hold the right to appoint a majority of its directors or to direct its management or policy decisions.
A wholly owned subsidiary of a foreign parent is an FOCC by definition. So is a company where a foreign investor holds 40 percent but controls the board.
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What follows
An investment by that company into another Indian company is a downstream investment. It must comply with the sectoral caps and conditions that would apply to a direct foreign investment into the target, and Form DI must be filed within 30 days of allotment.
The funds must come from abroad or from the company's own accruals. Borrowed funds cannot be used for a downstream investment, which is the trap, because domestic borrowing is entirely ordinary for any other purpose.
The reorganisation that becomes a contravention
A profitable Indian subsidiary takes a rupee working capital facility, then incorporates a second entity for a new line of business and subscribes to its shares. Internally this is a reorganisation. Under FEMA it is a downstream investment funded partly by borrowing, which is not permitted, and Form DI was almost certainly not filed. It is discovered when someone runs a health check ahead of a transaction, by which point it has compounded across several years.
Regularisation
If a filing was missed
Most FEMA problems are fixable. Which route applies depends on how late the filing is and whether the contravention is one of timing or of substance. Both routes are better started before a buyer's counsel finds the gap.
For a late filing, within three years
Where the only failure is that a form was filed late, the Late Submission Fee regularises it without any adjudication. It is computed as a fixed component plus a percentage of the amount involved for each year of delay, capped at the amount involved, and it is available for up to three years from the original due date.
The fee grows with time, so the arithmetic favours filing today over filing after the next board meeting. Beyond the three-year window the LSF route closes and compounding is the only option.
For a substantive contravention Rules revised 2024
Compounding is a voluntary admission and settlement of a contravention, made to the Reserve Bank. It applies where the failure goes beyond timing: shares allotted outside the 60-day window, an issue below fair value, a downstream investment funded by borrowing, or a filing more than three years late.
The Foreign Exchange (Compounding Proceedings) Rules, 2024 were notified on 12 September 2024, replacing the 2000 rules, and they changed the mechanics materially.
| Point | Position under the 2024 rules |
|---|---|
| Application fee | INR 10,000 plus applicable GST, raised from INR 5,000. |
| Time to an order | Not later than 180 days from receipt of a complete application. |
| Time to pay | Within 15 days of the compounding order. |
| Who compounds | Reserve Bank officers by monetary limit, from Assistant General Manager for amounts under INR 60 lakh up to Chief General Manager above INR 5 crore. |
| Effect | The contravention is settled. Proceedings cannot be reopened for the same contravention. |
Compounding is voluntary, and voluntary disclosure before the contravention is detected is treated more favourably than one made after an enquiry has begun. Waiting does not improve the position.
What sits behind both routes
Section 13 of FEMA carries the penalty regime, and the exposure is calculated on the amount involved rather than on the delay. That is why a small unreported tranche from years ago can carry a number out of all proportion to the transaction, and why a buyer will not close on an entity with an open FEMA position rather than price the risk.
Health Check
The FEMA health check
A structured review of every foreign investment event in an entity's history against what should have been filed. It is the single most useful piece of work for a company that has taken foreign money over several years and never had the position examined end to end.
Build the transaction history
Every inward remittance, allotment, transfer, option grant and downstream investment since incorporation, reconstructed from bank statements, the share register, board minutes and the FIRMS record.
Map each event to the filing it required
Against the reporting map above. Filed, filed late, or not filed, with the acknowledgement for each one that was.
Test the substantive position
Sectoral cap and route at the date of each investment, pricing against fair value, instrument characterisation, FOCC status and any downstream investment, and the funding source for each.
Quantify and route the exposure
Which gaps are curable by Late Submission Fee, which require compounding, and an estimate of the cost of each. This is the output a board or an acquirer actually needs.
Regularise
File what is outstanding, prepare and submit the compounding application where one is needed, and put a filing calendar in place so the position does not drift again.
The right time to do this
Twelve months before a transaction, not during one. Regularisation takes weeks for a late filing and up to 180 days for a compounding order, and a buyer's timetable rarely accommodates either. A health check run early is a cost. The same work run inside a live deal is a discount on the price.
Common Pitfalls
Where FDI compliance fails
Four patterns, and none of them involves anyone deciding to break a rule.
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The bank was assumed to be filing
The remittance arrives, the bank issues an inward remittance certificate, and everyone treats that as the reporting. It is not. The bank's role ends at the certificate. The obligation to file FC-GPR sits with the Indian company and nobody else, and the 30-day clock runs from allotment rather than from receipt of the money.
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The company stopped filing when the funding stopped
A company raises a round, files its FC-GPR correctly, and then hears nothing more from anyone. The FLA return recurs every 15 July regardless, and there is no transaction to prompt it. Five quiet years produce five contraventions.
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The second entity was treated as internal
A foreign owned Indian company sets up a second Indian company and subscribes to its shares. Nothing about it feels like foreign exchange, so Form DI is not filed and the funding source is not checked. Both are contraventions and both compound over time.
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The instrument was not what it was reported as
An investment agreement carries an optional conversion, an assured return or a fixed-price exit. It is reported as equity because that is what the term sheet called it. Under FEMA those features can make it debt, governed by a different framework entirely, and the FC-GPR filed against it was wrong from the start.
Why IMC
How IMC handles FDI and FEMA work
What the engagement covers
Pre-investment: sector, route and beneficial ownership check, instrument structuring, and pricing and valuation coordination. At the transaction: Entity Master registration, FC-GPR, FC-TRS and every other applicable form, with the certificates each requires. Ongoing: the annual FLA return, event-driven filings as they arise, and a filing calendar held on the client's behalf.
Where something has already been missed: a FEMA health check, Late Submission Fee filings, and preparation and conduct of compounding applications.
What to have ready before the first call
The date and amount of every inward remittance, the shareholding pattern before and after each one, whether the Indian company holds shares in any other Indian company, whether options have been granted to anyone outside India, and whether an FLA return has ever been filed. Those five answers size the problem in an hour.
Meet The Team
Experts behind this service
The people who will actually run your branch or liaison office approval, end to end.
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Shriya Mandal
Director - Compliance
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Deepakshi Sukhwani
Senior Associate - Corporate Services
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Mudita Gehlot
Senior Associate - Corporate Services
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Poornima J
Director - Strategic Partnerships & Business Development
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Ninad Parkar
Director
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Aishwarya Shiva
Director - Strategic Partnerships & Business Development
FAQs
The Indian investee company. Not the foreign investor and not the authorised dealer bank. The bank issues the inward remittance certificate and may flag a missing filing, but it has no obligation to make one. This is the most consequential misunderstanding in inbound FEMA compliance.
Form FC-GPR reports the issue of equity instruments to a person resident outside India. It is filed on the Reserve Bank’s FIRMS portal within 30 days of allotment, not within 30 days of receiving the money, with the inward remittance certificate, investor KYC, a valuation certificate where required, the board resolution and a company secretary certificate.
Yes. The annual Foreign Liabilities and Assets return is due by 15 July each year, reporting the position as at 31 March, for as long as foreign investment sits on the balance sheet. It is due even in years with no fresh investment and no activity, and it is filed on the FLAIR portal rather than FIRMS.
A filing that is merely late can be regularised by paying a Late Submission Fee, available for up to three years from the due date. A substantive contravention, or one more than three years old, is regularised by compounding with the Reserve Bank under the Foreign Exchange (Compounding Proceedings) Rules, 2024.
Only at incorporation, where subscribers take shares at face value because there is no business to value. Every issue after that must be priced at or above fair market value, certified by a SEBI-registered merchant banker or a chartered accountant in practice using an internationally accepted methodology.
An investment by a foreign owned or controlled Indian company into another Indian company. Form DI is filed within 30 days of allotment, the target’s sectoral cap and conditions apply as if the investment were direct foreign investment, and the funds must come from abroad or from the company’s own accruals rather than from borrowing.
The Reserve Bank must issue a compounding order no later than 180 days from receipt of a complete application, and the amount is payable within 15 days of the order. The application fee is INR 10,000 plus GST. Voluntary disclosure before detection is treated more favourably than disclosure after an enquiry has begun.
Yes. Press Note 2 of the 2026 series replaced the blanket approval requirement of Press Note 3 of 2020 with a beneficial ownership test set at 10 percent. Aggregate holdings below that threshold, without control rights, fall outside the approval requirement, though a pre-closing reporting obligation still applies.
Only if it is fully and mandatorily convertible. Optionally convertible instruments, and instruments carrying an assured return or a pre-agreed exit price, can be treated as debt and fall under the external commercial borrowing framework instead, with different reporting. Reporting such an instrument as equity is itself a contravention.
Reconstructing every foreign investment event since incorporation, mapping each to the filing it required, testing the substantive position on sector, pricing, instrument and downstream investment, then quantifying the exposure and routing each gap to either a Late Submission Fee or compounding. Typically two to three weeks.
Get Started
Find out where the position stands
Send the date and amount of each inward remittance, the shareholding before and after, and whether an FLA return has ever been filed. We will tell you what is outstanding, what it will cost to regularise, and how long it will take.
Response within one working day. Initial position review at no cost.
IMC