FEMA & Cross-Border Compliance — Overview

A company receiving FDI must file Form FC-GPR on the RBI FIRMS portal within 30 days of issuing equity instruments to a non-resident, under Regulation 4 of the Foreign Exchange Management (Non-Debt Instruments) Rules 2019. Additionally, an Annual Return on Foreign Liabilities and Assets (FLA Return) must be filed with RBI by July 15 each year under the Foreign Exchange Management Act 1999 read with the RBI's A.P. (DIR Series) Circular No. 145 dated June 18, 2014. Any downstream investment made by an Indian entity with foreign investment must comply with the conditions under Press Note 2 of 2015 and Regulation 16 of the NDI Rules 2019. Failure to file FC-GPR or the FLA Return within the stipulated deadlines constitutes a contravention under Section 13 of FEMA 1999 and attracts a penalty up to three times the amount involved.

Outbound direct investment (ODI) by an Indian entity is governed by the Foreign Exchange Management (Overseas Investment) Rules 2022 and the Foreign Exchange Management (Overseas Investment) Regulations 2022, which replaced the earlier ODI framework from August 22, 2022. Under the automatic route, an Indian entity may invest up to 400% of its net worth as per the last audited balance sheet, subject to the entity being compliant with all tax and FEMA obligations. Before each ODI tranche, Form OI must be filed on the RBI FIRMS portal, and annual performance reports (APR) must be submitted for each foreign entity using Form APR by December 31 of each year. If the overseas entity is in the financial services sector, prior approval from RBI is required under Regulation 19 of the OI Regulations 2022, regardless of the investment amount.

An NRI can make a gift of foreign currency to an Indian company only if it qualifies as an FDI inflow under the Foreign Exchange Management (Non-Debt Instruments) Rules 2019 — meaning the amount must be received as equity consideration for shares, not as a gratuitous cash transfer directly into the company's account. A direct gift of foreign currency to an Indian company's bank account without share allotment is not a permissible capital account transaction under Section 6(3) of FEMA 1999 and would constitute a contravention. If the intention is to infuse capital, the proper route is to issue equity shares to the NRI under the automatic or approval route of FDI, followed by FC-GPR filing within 30 days. The remittance must be received through normal banking channels into the company's designated account as required by Regulation 4 of the NDI Rules 2019.

Compounding of FEMA contraventions is a voluntary process under Section 15 of FEMA 1999 read with the Foreign Exchange (Compounding Proceedings) Rules 2000, through which a person can regularise a past violation by paying a compounding amount to RBI. Common contraventions include delay in filing FC-GPR or FC-TRS, failure to submit the Annual Return on FLA, or delay in repatriation of export proceeds beyond the timeline permitted under the Foreign Exchange Management (Export of Goods & Services) Regulations 2015. The application is made to the Compounding Authority at the relevant RBI regional office and must include a full disclosure of the contravention, computation of the penalty, and all supporting documents. Once the compounding order is issued and the amount is paid, the contravention is treated as regularised and no further penal proceedings are initiated for that specific violation.

An NRI (as defined under the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations 2018) may purchase residential or commercial property in India without RBI approval, but may not purchase agricultural land, plantation property, or farmhouse. Sale proceeds of such property may be repatriated outside India subject to the limits under Schedule 3 of the NDI Rules 2019 — repatriation of the original purchase price is permitted up to the amount originally remitted through banking channels, and capital gains are separately dealt with under the Income Tax Act 1961. The amount eligible for repatriation from the sale of a maximum of two residential properties is capped and must be remitted through an NRO account via a Chartered Accountant's certificate in Form 15CA/15CB under Rule 37BB of the Income Tax Rules 1962. Amounts in excess of USD 1 million per financial year require prior RBI approval under Schedule 3 of the NDI Rules.