Foreign Direct Investment (FDI) in India – Reporting & Compliance

In this article I will try to give some insights on the Procedural aspects like remittance, issuance of shares and Reporting/Compliance to RBI (Reserve Bank of India), with the help of a case study.

FDI In India – Basics - methods of investment, who can invest  & entry routes available. 

Each subscriber to the Memorandum of Association  (MoA) of the company (Private or Public), after its incorporation shall be required to deposit minimum subscription money (i.e. first subscription money) as specified in the Memorandum of Association (MoA) against share capital in the Company’s bank account. The subscriber may be a body corporate (company incorporated outside India) or foreign national or PIO/NRI/OCI holder.  In that case an Indian Company receiving investment from either of the above parties should report the details of amount of consideration to the Regional office of Reserve Bank of India (RBI) within whose jurisdiction the office is situated and comply with the rules and regulations as specified in Foreign Exchange Management Act (FEMA) under Foreign Direct Investment Policy.

A case study :-

ABC Private Limited, a company incorporated in Mumbai having two shareholders, one is Mr. A, an individual holding 200 equity shares of Rs. 10 each and other is ABC Inc. (a body corporate) situated in USA, holding 9800 equity share of Rs. 10 each. Hence the total paid up capital of ABC Private Limited  is Rs. 1 Lakh. After incorporation, ABC Inc. has remitted Rs.  98000 to ABC Private Limited towards issue of Equity shares to ABC Inc.

I) Information to be provided by ABC Inc. :

ABC Inc.’s bank will provide following information to Authorised dealer * (AD) of ABC Pvt.Ltd. while remitting amount.

a) Name of the beneficiary : e.g. ABC Private Limited

b) Name and place of the remitter : e.g. ABC Inc. USA

c) Name and place of remitter bank : e.g. ABC Inc’s Bank

d) Foreign currency amount : e.g. INR 98000

e) Purpose of remittance : e.g. Foreign Direct Investment in Equity

An authorised dealer after receipt of remittance and above information, will initiate the process of issuing FIRC (Foreign Inward Remittance Certificate) to ABC Pvt. Ltd.

Authorised DealerAuthorised dealer means a Institute/Bank authorized as an authorized dealer under sub-section (1) of section 10 of FEMA.

II) Reporting of advance remittance by ABC Pvt.Ltd. to RBI

After receipt of FIRC, ABC Pvt. Ltd. shall be required to report inward remittance to RBI, Mumbai through an authorized dealer which would involve following activities :

Reporting of Inflow to Reserve Bank of India within 30 days from the date of remittance.

a)      To file FIRC (Foreign Inward Remittance Certificate) to the Reserve Bank of India through an Authorised Dealer. The FIRC must contain the purpose i.e. towards Share application money/ towards FDI in India in Equity.

b)     To submit an Advance reporting form and KYC (Know Your Customer) report.  This can be obtained from an authorized dealer from banker of ABC Inc.

The RBI will allot Unique Identification number to ABC Pvt. ltd which can be used for future transactions with the Bank.

III) Issue of Shares by ABC Pvt. Ltd. to ABC Inc. 

ABC Pvt. Ltd. shall be required to issue equity shares/ Convertible Preference shares/ Debentures within 180 days from the date of remittance. After issue of shares, it shall be required to file Form FC-GPR [Foreign Collaboration-General Permission Route] to RBI (Regional Office : Mumbai) within 30 days from the date of issue of shares. This form is to be signed by Managing Director/ Director/ Secretary of the company and submitted to the Authorised dealer. This FC-GPR shall be filed along with certificate from Company Secretary certifying that all the requirement of the Companies Act, 1956, have been complied with. A certification from Statutory Auditor or Chartered Accountant indicating the manner of arriving at the price of shares issued to the person outside India.

After complying with the provisions of FDI Policy, the RBI will send ABC Pvt. ltd. an acknowledgment towards the same.

IV) Subsequent Remittances

In case of subsequent remittance, an Indian Company shall follow the same procedure of reporting of foreign inward remittance to RBI and also file e-Form 2 (Return of allotment) to the Registrar of Companies (RoC) within 30 days from the date of allotment of equity/ preference/ debenture to any foreign national or body corporate. Before filing e-form 2 with the RoC, the company shall be required to obtain valuation report from a Chartered Accountant who will determine the share valuation price as per discounted cash flow (DCF) method.

Note :

1.  Depending upon the nature of activity of Indian company, one should check whether approval of RBI is needed (i.e. approval route) before investment or it is not required  (i.e. under Automatic route).

2. The latest/updated FEMA Forms can be found on the RBI Website here.



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Legal Disclaimer:
The information / articles & any replies to the comments on this blog are provided purely for informational and educational purposes only & are purely based on my understanding / knowledge. They do not constitute legal advice or legal opinions. The information / articles & any replies to the comments are intended but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as a legal advice or an indication of future results. Therefore, I can not take any responsibility for the results or consequences of any attempt to use or adopt any of the information presented on this blog. You are advised not to act or rely on any information/article contained without first seeking the advice of a Practicing Professional.

33 thoughts on “Foreign Direct Investment (FDI) in India – Reporting & Compliance

  1. My Query is:

    ** M/s ABC Pvt. Ltd. (Indian Co.) engaged in the business of manufacturing of Machinery & Equipment.

    **Mr. A(99.9%) & Mr. B (0.1%) (Both resident) are the Share holders of the company.

    **Mr. A wants to transfer his all shares to Foreign Company.

    ** In such case as an individual (Mr. A) and as Company (M/s ABC Pvt Ltd), how to proceed to complete the transaction.

    **what are the procedurial, compliance and reporting requirement to be done with ROC and RBI.

    **If M/s ABC has shown that it had already transfer the shares to Foreign co. in its books and in its Board meetings (say, share transfered in Oct-2013), but the consideration is still not received from Foreign company. In such case what will be the consequenses.

    Thanks in advance.

  2. MAAM

    I APPRECIATE YOUR SOCIAL WORK WITH REGARD TO PROFESSIONALISM.

    I HAVE TWO QUERIES.

    1. AS PER NEW COMPANIES ACT , IS THERE A REQUIREMENT FOR PRIVATE LIMITED COMPANY FOR OPENING THE SEPERATE ESCROW ACCOUNT FOR FDI.

    2. IS SCHEDULE V , SECTION 197 IS APPLICABLE TO PRIVATE LIMITED COMPANIES.ALSO IS THERE ANY RESTRICTIONS ON PAYING SALARY TO KMP OF PRIVATE LIMITED COMPANY.

  3. Dear Madam,

    I have one query relating to FDI. Our company is sole subsidiary of US based company. Whether such investment of US Based parent company is treated as FDI under RBI regulation?
    Please clarify the same.
    Thanks.

  4. Madam,

    Your blogs are useful for new learners.Very useful blog

  5. Hii madam, your blogs are really appreciable.

  6. Hi Mam
    Much appreciate your presentation.
    I have a query, there is a telecom company which is 100% subsidiary of a foreign company. The parent co. has remitted the amount in INR itself. Please guide me if FEMA Act is applicable on the same as amount is recieved in Indian Currency and not in forex.
    Also, please tell what procedures can need followed for the same.

    • As per Foreign Direct Investment, remittance received from country outside India from NRI/ Foreign national/ body corporate towards equity capital, shall follow the FDI Policy and report advance reporting within 30 days to Reserve Bank of India. As per Companies Act 2013, pursuant to section 56(4)(a), every company shall, deliver the certificates of all securities allotted, transferred or transmitted within a period of two months from the date of incorporation , in the case of subscribers to the memorandum.

      Here FEMA as well as New Companies Act 2013 shall be applicable. To know more details please call me.

  7. due to exchange rate fluctuations, the company has received Rs. 1,00580/- towards share application money, instead of Rs. 1,00,000/-. (intended allotment)

    What needs to be done with the remaining Rs.580/- after allotment?

    Whether to be refunded? what is the procedure?

    If not to be refunded, what is the treatment in the books of accounts?

    • Extra amount shall be refunded to the remitter within 180 days from the date of receipt of remittance. If the amount has been received extra due to foreign exchange fluctuation, the company shall specify the reason in FC-GPR and in the books of account it will be treated as foreign exchange inflow.

  8. Great Help Mam..!! keep it up

  9. Hello,

    My query is if a NRI transfers the subscription amount from an NRE account to the Company for subscription of shares, do we have to do the procedure of advance reporting and FCGPR as the funds to be transferred would be in Indian Rupees from an NRE account maintained in India.

  10. Madam,

    Pls guide: Shares are issued to subscibers to memorandum, and the remittance from outside India w.r.t that received after the company’s bank account got opened. So while filing FC-GPR we have mentioned date of issue of shares as same as the date of incorporation, but AD bank has objected the same by saying that we cannot issue shares before receiving remittance from subscribers. So how to deal with this case, since, till the bank account of the company is not opened how can an indian company receive funds.

  11. Well presentation. i must appreciate. the blog is very well in the way everything is presented.

  12. dear mam
    i have a FDI in my private ltd company
    due to the delay which is done by RBI to give UIN no. to us we didnt issue share to Investor in 180 days. now days goes out more than that.
    nd one que. is also that about share valuation that is DCF method but i cant get it that what amount is used for share premium when F.V. is 10 and F.M.V is 5188 as on 31 dec 2012. compny incorp in 2012 aprail.
    so what should be do now

    • Actually if you have not received UIN, you could submit FC-GPR saying pending UIN allotment by RBI, because share certificates should be issued to investor within 180 days. After expiry of 180 days, the company shall be required to refund the remittance to investor as per FDI Policy.Regarding DCF method please consult your Chartered Accountant and get pricing.

  13. I want to Form One Pvt Ltd company under CA 2013. Both the Director and Shareholder are NRI. Also Appointing one Indian Resident as Director. Shareholder are having NRE Account and subscriber to MOA & AOA is thru there NRE Account

    Whether RBI Approval is required?
    Whether we hv to file FCGPR?
    Whether co. after incorporation requied to issue FIRC

    • As per Section 149 of Companies Act, every company shall appoint one Indian resident director who has stayed for more than 182 days in previous calender year. As per FDI policy, remittance by investor is allowed from NRE/FCNR account. Regarding RBI approval, it would depend upon the nature of business of Indian company. Accordingly you will have to check the route ( whether automatic or approval). IF the nature of business falls under automatic route then no RBI permission shall be required. But if the nature of business does not fall under automatic route, then prior permission of RBI shall be required. You will have to file FIRC, FC-GPR to RBI. please visit my blog to know FDI reporting and compliance.

  14. Madam,

    We have incorporated a company with two members.It is basically into development of application softwares.
    Now we want to transfer the shares to three foreigners (not indian citizens),,,can u guide us regarding the compliances with RBI or any other compliances,if any

    Thanks in advance

    • Following would be the steps for transfer of share from resident to non resident individual

      1) the Buyer will remit the amount to the seller
      2) the Company’s bank will issue FIRC to it
      3) the company shall report FIRC to RBI through Authorised dealer
      4) the company shall pass board resolution for giving authority to director to sign documents for filing FC-TRS with RBI.
      4) the buyer will sign FC-TRS form and hand over to company
      5) the company shall file FC-TRS to RBI through authorised dealer within 60 days from the date of receipt of the amount towards transfer
      6) the company give effect of transfer on the back side of share certificate and make entry in the Register of transfer of the company.

  15. Madam,

    Please clarify on the following:

    a) Indian Company, which is an associate of a Foreign company, received funds from Singapore towards meeting operational / administrative expenditure.

    b) Indian company did not obtain any FIRC nor did it inform RBI through AD about the inward remittances for the past 2 years.

    What are the legal implications of the violation and is there any remedy available to get relief from the violations?

    • The purpose of remittance is very important and to be consider while reporting to RBI. If it is towards equity then, as per FEMA, company should file FIRC and FC GPR with RBI. If the purpose is just advance for meeting operational or administrative expenses, no need to follow the compliance under FDI policy.

  16. Hi Meenal,

    Must appreciate . your website and blog has come up very well. Will talk to you sometime. It was wonderful to see your efforts and the way everything is presented

    Regards
    Nilesh

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