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 Dealer – Authorised 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.

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

  1. Hi Meenal, in this case he is saying that money recd in May and August’2014.when the full amount received in August how can the allotment took place in June?

  2. thanks Maam!!
    If Pvt Ltd Co received money (40%) in May 2014 & 60% in Aug 2014 towards issue of equity share and Filed return with ROC in Dec 2014 and in Return shown Share Allotted in June 2014.
    whether any non- compliance under FEMA/RBI?
    since above shows that part money received in May and Balance in Aug but shares allotted in May 2014 but Return filed with ROC in Dec 2014..Please advise

    • AS per FEMA, Indian company shall report advance reporting within 30 days of receipt of funds and file FCGPR within 30 days of issue of share certificate. If the company fails to comply,it shall be liable for penalty for late filing of ARF and FCGPR. In this case, the company not filed ARF and FCGPR, then RBI will take action and issue show cause notice to company’s director.

      • Hello ma’am,

        We have filled AFR on time,but GC-GPR is yet to be filled as ebiz show error of not matching shareholding.

        My question is do we need to show whole inflow by IPO, Or only Foreign investment is need to be shown.

        Please guide, we are already running late.

        • In ARF shareholding of foreign remittance is to be specified. in FCGPR whole shareholding ( means Indian +Foreign remittance) shall be mentioned. It should match as per MOA AOA Subscription pages. Otherwise RBI normally raises query.

  3. Where would i get NIC code for bussiness to fill in FCGPR E-form?

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