In plain words: raising money from a foreign investor into your Indian company? That is FDI, governed by FEMA — and getting the route, cap and reporting right is essential.
What FDI is
Foreign Direct Investment is investment by a non-resident into the equity of an Indian company (or an LLP), governed by the FEMA Non-Debt Instruments Rules. It is a capital account transaction, so it must fit the rules.
Two routes
- Automatic route — no prior government approval needed; most sectors, up to the sectoral cap.
- Government (approval) route — prior approval required for certain sensitive sectors or above certain limits.
Sectoral caps and prohibited sectors
- Each sector has a cap (often up to 100%, sometimes lower) and conditions.
- Some sectors are prohibited for FDI — for example, lottery and gambling, chit funds, nidhi companies, real-estate business (trading in land), and certain others.
Pricing and instruments
Shares issued to a non-resident must follow pricing guidelines (a floor based on valuation), and only eligible instruments (equity shares, compulsorily convertible instruments, etc.) qualify as FDI.
The reporting you must not miss
- FC-GPR — report the allotment of shares to the foreign investor, on the RBI's FIRMS portal, within the prescribed time (generally 30 days).
- FC-TRS — report a transfer of shares between a resident and a non-resident.
- Annual FLA return — report foreign liabilities and assets each year.
Late or missed reporting is a common contravention — usually fixable by compounding, but better avoided.
Frequently asked questions
Do I always need government approval for FDI? No — most sectors are on the automatic route within the cap.
What is FC-GPR? The filing that reports issuing shares to a foreign investor.
What if I miss the reporting deadline? It is usually a compoundable contravention — regularise it.
How Vakil Help Desk helps
Vakil Help Desk advises on FEMA compliance, remittances, NRI matters, foreign investment and compounding — and represents clients in ED FEMA proceedings. If you have a cross-border transaction or a FEMA notice, we can help you get it right.
This article is for general legal awareness, not individual legal advice. FEMA rules, limits and forms are revised by the RBI and the Government from time to time, and the right treatment depends on your facts and the current position. Please consult a professional before acting on a cross-border transaction.