FDI and FEMA Compliance in India: Checklist for Foreign Companies Entering India

FDI and FEMA compliance in India should be reviewed before a foreign company remits funds, acquires shares or establishes an Indian subsidiary. The compliance process involves determining whether the proposed foreign investment is permitted, identifying the applicable entry route, reviewing sectoral conditions, structuring the investment, complying with pricing rules and completing applicable RBI reporting.

In simple terms, India’s FDI policy determines whether and to what extent foreign investment is permitted, while FEMA and the related rules and regulations govern how the investment is made, held, transferred and reported.

DPIIT states that FDI up to 100% is permitted under the automatic route in most sectors and activities, subject to the applicable policy, sectoral limits and conditions.

Foreign companies planning a wider India expansion can also review our India Market Entry Consulting Services in India and India Market Entry Checklist.

FDI and FEMA Compliance Checklist at a Glance

Before making a foreign investment into India, the investor and Indian company should generally check:

The exact requirements depend on the sector, investor, ownership structure, instrument and nature of the transaction.

1. Check Whether FDI Is Permitted in the Proposed Business

The first FEMA/FDI review should take place before the Indian structure and shareholding are finalised.

Identify the Exact Business Activity

The company should clearly identify the activities proposed to be carried out in India.

This is important because foreign investment conditions can vary significantly across activities such as:

• manufacturing;
• trading;
• e-commerce;
• financial services;
• insurance;
• telecommunications;
• defence;
• pharmaceuticals;
• infrastructure; and
• other regulated businesses.

Foreign companies should not determine FDI eligibility merely from their global industry classification. The actual activities proposed in India should be reviewed.

Check the Applicable Sectoral Cap

Foreign ownership may be permitted up to different limits depending on the sector.

DPIIT’s current FDI framework provides a liberal foreign investment regime and notes that FDI up to 100% is allowed under the automatic route in most sectors and activities. However, sector-specific caps, conditions and restrictions continue to apply.

Foreign investors should verify the current position from the official DPIIT policy before investment.

DPIIT Foreign Direct Investment Policy

Check Whether the Activity Is Restricted or Prohibited

Some activities may be subject to restrictions, specific approval requirements or prohibition on foreign investment.

The investment should therefore not be remitted merely because incorporation of an Indian company is legally possible.

2. Determine the Applicable FDI Entry Route

Once sectoral eligibility is confirmed, the next question is whether prior Government approval is required.

Automatic Route

Under the Automatic Route, prior Government approval is generally not required for foreign investment, subject to the applicable sectoral conditions, limits and other regulatory requirements.

The investment still needs to comply with FEMA, pricing, documentation and reporting obligations.

Government Approval Route

Where the proposed investment falls under the Government Approval Route, the necessary approval should be obtained before implementing the investment.

Government approval may depend on factors including the sector, investment structure and investor profile.

Review Investor-Specific Restrictions

The investor’s jurisdiction, ownership and beneficial ownership should also be examined before finalising the transaction.

This review should be completed at the planning stage rather than after the investment has already been remitted.

For broader assistance with structuring the Indian presence, see our Setting Up a Business in India guide.

3. Select the Appropriate Foreign Investment Structure

Once FDI eligibility is established, the group should decide how the investment will be held in India.

Direct Foreign Parent Investment

A foreign parent may invest directly into an Indian company where the proposed ownership structure, tax position and regulatory framework support such an arrangement.

Foreign groups planning long-term operations frequently consider a Wholly Owned Subsidiary in India, subject to applicable FDI rules.

Joint Venture Investment

Where an Indian strategic partner is involved, the foreign investor may establish a Joint Venture in India.

In addition to FEMA, the parties should consider:

• ownership percentage;
• voting rights;
• board representation;
• reserved matters;
• future funding;
• intellectual property;
• transfer restrictions; and
• exit provisions.

Indirect or Holding Company Structure

Some multinational groups invest through an overseas holding or regional company.

Such structures should be reviewed from the perspectives of:

• FDI eligibility;
• beneficial ownership;
• tax treaties;
• substance;
• governance;
• repatriation; and
• future exit.

The investment route should have a genuine commercial and regulatory basis.

4. Select the Permitted Investment Instrument

Foreign investment into an Indian company may be made through permitted equity instruments subject to applicable conditions.

The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 form an important part of India’s legal framework governing investment in non-debt instruments. The rules have been amended from time to time.

Department of Economic Affairs – FEMA Notifications

Equity Shares

Equity shares are commonly used for foreign investment into an Indian subsidiary.

Compulsorily Convertible Instruments

Depending on the proposed transaction and applicable regulations, permitted compulsorily convertible instruments may also be considered.

The rights, conversion terms and pricing should be reviewed before issuance.

Debt Funding Requires Separate Analysis

Foreign shareholder loans or other debt funding should not be treated in the same manner as equity investment.

Debt funding can involve a different FEMA framework, including requirements applicable to external commercial borrowings or other permitted borrowing arrangements.

The funding decision should therefore be made only after comparing the regulatory, tax and commercial implications of equity and debt.

5. Review FEMA Pricing and Valuation Requirements

Pricing is an important FEMA consideration when shares or other equity instruments are issued or transferred involving a person resident outside India.

Issue of Shares to Foreign Investor

Before issuing shares to a foreign investor, the company should determine whether the proposed issue price complies with the applicable pricing framework.

Transfer Between Resident and Non-Resident

A sale or transfer of shares between a resident and non-resident may also be subject to FEMA pricing requirements.

The Reserve Bank’s foreign-investment directions address pricing requirements for investments and transfers involving persons resident outside India.

Obtain Valuation Where Required

Depending on the transaction, valuation may be required under applicable FEMA provisions and may also be relevant under the Companies Act and Income-tax law.

The basis and date of valuation should therefore be planned before signing or completing the transaction.

6. Receive Foreign Investment Through the Permitted Banking Channel

The method by which investment consideration is received is another important FEMA compliance point.

Coordinate With the AD Bank

Foreign investment transactions generally involve an Authorised Dealer Category-I bank, and companies should coordinate with their bank before receiving substantial investment.

The bank may request:

• investor KYC;
• remittance documents;
• beneficial ownership information;
• incorporation documents;
• board approvals;
• valuation documentation; and
• details of the proposed share issue.

Maintain Complete Remittance Records

The company should preserve relevant banking and transaction records because these may be required while completing FEMA reporting.

Avoid Mismatch Between Remittance and Allotment

The investor name, remitter details, amount received, share subscription documents and actual allotment should be consistent.

Differences should be identified and resolved before filing the applicable RBI forms.

7. Issue the Equity Instruments Within the Applicable Period

After receiving the foreign investment, the Indian company should ensure timely allotment.

Under RBI’s amended Mode of Payment and Reporting of Non-Debt Instruments Regulations, equity instruments are generally required to be issued within 60 days from receipt of consideration. Where they are not issued within that period, the consideration is required to be refunded within the prescribed period, subject to the applicable regulations.

Complete Corporate Approvals

The company should complete applicable:

• board approvals;
• shareholder approvals, where required;
• share allotment;
• statutory registers;
• share certificates or dematerialisation requirements; and
• Companies Act filings.

Reconcile FEMA and Companies Act Compliance

The ROC and FEMA processes should be coordinated because differences in dates, share numbers, values or investor details can cause difficulties during foreign-investment reporting.

Foreign companies requiring incorporation and implementation support may review our Foreign Company Registration in India services.

8. File Form FC-GPR for Issue of Equity Instruments

One of the most important post-investment FEMA compliances is Form FC-GPR.

When Is FC-GPR Required?

An Indian company issuing equity instruments to a person resident outside India, where the issue is treated as FDI under the applicable rules, is required to report the issue in Form FC-GPR.

RBI’s reporting regulations provide that FC-GPR is to be filed within 30 days from the date of issue of equity instruments.

Where Is FC-GPR Filed?

Foreign-investment reporting is undertaken electronically through RBI’s FIRMS framework.

RBI FIRMS Portal

Keep Supporting Documents Ready

Depending on the transaction and applicable reporting requirements, supporting documentation may include:

• incorporation details;
• remittance information;
• KYC documentation;
• valuation certificate;
• board resolution;
• allotment details;
• shareholding pattern;
• declarations; and
• other transaction documents.

The filing should be reconciled carefully with the underlying corporate and banking records.

9. File Form FC-TRS for Applicable Share Transfers

Foreign investment compliance does not end after the initial share issue.

Subsequent sale or transfer of equity instruments between residents and non-residents may require Form FC-TRS.

Identify Whether FC-TRS Applies

The reporting requirement depends on:

• identity and residential status of seller;
• identity and residential status of buyer;
• whether the investment is held on a repatriation basis;
• nature of the transfer; and
• applicable exemptions.

Observe the Reporting Timeline

Under RBI’s reporting regulations, where FC-TRS is applicable, it is generally required to be filed within 60 days of transfer of equity instruments or receipt/remittance of funds, whichever is earlier.

Review Pricing Before Transfer

A shareholder should not agree to a transfer price without checking FEMA pricing requirements.

Share purchase agreements should therefore be coordinated with the regulatory and valuation analysis.

10. Complete the Annual FLA Return, Where Applicable

Foreign investment can also create recurring annual reporting obligations.

What Is the FLA Return?

The Foreign Liabilities and Assets return provides RBI with information regarding foreign liabilities and assets of entities covered by the reporting requirement.

FLA Reporting Date

RBI’s current reporting regulations state that an Indian company that has received FDI, or an LLP that has received applicable foreign investment, is required to submit the FLA return on or before 15 July each year, subject to the applicable reporting provisions.

Maintain Foreign Investment Records Throughout the Year

Companies should maintain organised records of:

• foreign shareholders;
• investment received;
• share capital;
• transfers;
• outstanding foreign liabilities;
• overseas assets, where applicable; and
• relevant intercompany balances.

Waiting until July to reconstruct foreign investment data can create avoidable reporting difficulties.

11. Review Downstream Investment Before Investing in Another Indian Entity

A foreign-owned Indian company may itself invest into another Indian company or LLP.

Such investment can raise downstream investment considerations under India’s foreign investment framework.

Determine Whether the Indian Investor Is Foreign Owned or Controlled

The ownership and control position of the investing Indian entity should be reviewed.

Check the Sector of the Downstream Entity

The investee company’s business activity must also be examined for:

• foreign investment restrictions;
• sectoral caps;
• entry route;
• performance conditions; and
• other FDI-linked requirements.

Complete Applicable Reporting

Downstream investment may trigger separate compliance and reporting requirements.

Therefore, an Indian subsidiary should not make an investment into another Indian entity without first reviewing the FEMA consequences.

12. Review FEMA Before Restructuring or Transferring Ownership

Foreign-owned businesses frequently undergo changes after incorporation.

These may include:

• issue of additional shares;
• transfer between group companies;
• introduction of a new shareholder;
• acquisition of an Indian shareholder’s stake;
• merger or restructuring;
• ESOP issue to non-residents;
• rights issue;
• bonus issue; or
• exit by an overseas investor.

Do Not Treat Group Transfers as Automatically Exempt

A transfer within the same multinational group can still require regulatory review.

Check Pricing and Reporting Before Closing

The transaction team should identify FEMA requirements before executing the transfer rather than trying to regularise the position after closing.

Businesses considering acquisitions or corporate restructuring may also review our Corporate Finance Advisory Services.

13. Plan Repatriation and Cross-Border Payments

Foreign investors should consider from the beginning how funds may eventually be received from their Indian operations.

Dividend Repatriation

Dividend payments are generally subject to applicable corporate, tax and FEMA requirements.

Sale Proceeds

On sale of an investment, the investor should review:

• pricing;
• taxes;
• reporting;
• banking documentation; and
• repatriation eligibility.

Intercompany Payments

Payments such as:

• royalty;
• technical service fees;
• management charges;
• interest;
• reimbursements; and
• service fees

may involve FEMA, withholding-tax, GST and transfer-pricing considerations.

Our Tax and Regulatory Advisory Services in India can assist with the tax and regulatory aspects of cross-border transactions.

FDI and FEMA Compliance Timeline

A simplified foreign-investment compliance sequence may look as follows:

Before Investment

Check business activity, FDI eligibility, sectoral cap, entry route, investor eligibility, instrument and pricing requirements.

Before Remittance

Finalise share subscription terms, valuation, banking documentation and corporate approvals.

On Receipt of Funds

Maintain remittance and investor KYC records and coordinate with the AD bank.

Within Applicable Allotment Period

Issue equity instruments and complete the related corporate records and filings.

After Share Allotment

File FC-GPR within the applicable reporting timeline where required.

On Future Share Transfer

Check pricing, payment and FC-TRS reporting requirements before completing the transfer.

Every Financial Year

Review annual FEMA reporting requirements, including the FLA return where applicable.

Common FDI and FEMA Compliance Mistakes

Checking FDI Eligibility After Incorporation

The foreign investment position should be reviewed before the final ownership structure is selected.

Receiving Funds Before Confirming the Investment Structure

Investment instruments, pricing and documentation should ideally be finalised before remittance.

Delaying Share Allotment

The allotment timeline should be monitored from the date investment consideration is received.

Missing FC-GPR Reporting

Corporate filings with MCA do not replace FEMA reporting obligations.

Treating FC-TRS as Only a Buyer Responsibility

The reporting responsibility should be identified based on the nature of the transfer and the residential status of the parties.

Ignoring Annual FLA Reporting

Foreign-investment compliance can continue even where no fresh capital is received during the year.

Making Downstream Investments Without FEMA Review

Foreign-owned Indian companies should review downstream investment rules before acquiring interests in other Indian businesses.

Not Reconciling Bank, ROC and FEMA Records

Investor names, remittance amounts, share numbers, dates and valuation information should be consistent across records.

How EzyBiz India Can Help

EzyBiz India assists foreign companies, multinational groups and overseas investors with FDI and FEMA compliance in India as part of their India establishment and ongoing operations.

Our support can include:

• FDI eligibility and entry-route review;
• foreign ownership structuring;
• FEMA advisory;
• share subscription and investment planning;
• valuation coordination;
• FC-GPR support;
• FC-TRS support;
• annual FLA reporting;
• downstream investment review;
• foreign shareholder restructuring;
• repatriation-related regulatory assistance; and
• coordination with authorised dealer banks and other professionals.

Foreign businesses requiring broader strategy and implementation support can explore our India Market Entry Consulting Services in India.

They may also use our India Market Entry Strategy Guide and India Market Entry Checklist when planning the complete India expansion.

Frequently Asked Questions

What is the difference between FDI and FEMA compliance in India?

FDI policy primarily determines whether foreign investment is permitted in a particular business activity, the permissible ownership level and whether the investment is under the Automatic or Government Approval Route. FEMA and the related rules and regulations govern matters such as investment instruments, pricing, receipt of funds, issue or transfer of equity instruments and regulatory reporting.

Is RBI approval required for every foreign investment in India?

No. Prior RBI approval is not required for every foreign investment. Many investments are permitted under the Automatic Route, subject to sectoral conditions and compliance with the applicable foreign investment and FEMA framework. The position should be reviewed for each proposed investment.

What is Form FC-GPR?

Form FC-GPR is a foreign-investment reporting form used where an Indian company issues equity instruments to a person resident outside India and the issue constitutes FDI. Under RBI’s reporting regulations, the form is generally required within 30 days from the date of issue of the equity instruments.

What is Form FC-TRS?

Form FC-TRS is used for reporting specified transfers of equity instruments involving residents and non-residents. Where applicable, RBI’s reporting framework generally requires filing within 60 days of the transfer or receipt/remittance of funds, whichever is earlier.

What is the FLA return?

The Foreign Liabilities and Assets return is an annual RBI reporting requirement applicable to specified Indian companies and LLPs with foreign investment. RBI’s reporting regulations prescribe 15 July as the annual filing date for entities covered by the requirement.

Can a foreign-owned Indian company invest in another Indian company?

Yes, subject to applicable laws. However, such investment may constitute downstream investment and should be reviewed for FDI eligibility, sectoral conditions, ownership/control requirements and applicable reporting before investment.

Is FEMA compliance required after the Indian company has been incorporated?

Yes. FEMA compliance may continue throughout the investment lifecycle, including capital infusion, share allotment, shareholder transfers, downstream investments, annual reporting, restructuring and repatriation.

Official Regulatory Resources

• DPIIT – Foreign Direct Investment Policy
• RBI – Mode of Payment and Reporting of Non-Debt Instruments Regulations
• RBI FIRMS – Foreign Investment Reporting Portal
• Department of Economic Affairs – FEMA Gazette Notifications

Related Services

• India Market Entry Consulting Services in India
• India Market Entry Strategy
• Foreign Company Registration in India
• Wholly Owned Subsidiary in India
• Setting Up a Business in India
• Joint Venture Registration in India
• Tax and Regulatory Advisory Services in India

Prepared and Reviewed By

CA Anil Agrawal, Founder, EzyBiz India Consulting LLP
Chartered Accountant with 20+ years of experience in taxation, regulatory compliance, FEMA, India market entry and business advisory.

Last Updated: 5 September 2026

Disclaimer

The information provided in this article is for general informational purposes only and should not be construed as legal, tax, investment, FEMA or regulatory advice.

India’s FDI policy, FEMA rules, RBI regulations, sectoral conditions, pricing requirements and reporting procedures may change from time to time and may vary according to the investor, business activity, ownership structure and nature of the transaction.

Foreign investors and Indian companies should verify the latest requirements from DPIIT, RBI, the Department of Economic Affairs and other relevant regulators and obtain professional advice based on the specific facts and circumstances before making or restructuring any foreign investment in India.