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FEMA & Cross-Border Transactions

FEMA / FDI Compliance

FEMA & RBI

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SCOPEConfirmed in writing
TYPICAL TIMELINE15–30 days
DOCS REQUIRED6 documents

Overview

FEMA and FDI compliance is the framework governing foreign investment into Indian companies — the Foreign Exchange Management Act 1999, the Foreign Exchange Management (Non-debt Instruments) Rules 2019, and the RBI Master Direction on Foreign Investment in India. The framework regulates how foreign investment enters: the sectors open to foreign investment, the caps in the restricted sectors, the pricing of shares issued to non-residents, the instruments eligible, and the reporting that follows every transaction. Section 6 of FEMA 1999 anchors the RBI's power to regulate the capital account.

The compliance has two phases with different disciplines. At entry, the investment must fit the sectoral and pricing rules — an investment in a sector with a cap, or priced below the floor, is a contravention at the moment it happens. After entry, the reporting runs: FC-GPR for the issue, FC-TRS for transfers, the FLA return annually — each with its form and its timeline. Both phases are the company's obligations, and both are checked by the auditor and the RBI.

The cost of getting either phase wrong is the FEMA penalty framework and the record defects that compound: an issue priced wrong becomes a contravention; an unreported issue becomes a defect at the next round; a missed FLA becomes a default at the next RBI interaction. Each is cheaper to prevent than to regularise.

This service is for companies receiving or planning foreign investment. We structure the investment under the Non-debt Instruments Rules 2019 — sector, pricing, instruments — complete the FC-GPR and FC-TRS reporting within the timelines, file the FLA return, and clean up past gaps, so the company's FDI record matches its actual shareholding.

How It Works

  1. 1

    FDI Structure Advice

    We advise on the investment structure under the Non-debt Instruments Rules 2019 — sector, caps and pricing.

    Harun Raaj & Associates does this3-5 days
  2. 2

    Entry Compliance

    We complete the pricing, KYC and documentation of the investment at entry.

    Harun Raaj & Associates does this1 week
  3. 3

    Reporting Filings

    We file FC-GPR, FC-TRS and the FLA return within the prescribed timelines.

    Harun Raaj & Associates does thisAs due
  4. 4

    Records & Registers

    We maintain the FDI records, registers and the investor documentation.

    Harun Raaj & Associates does thisOngoing
  5. 5

    Audit & Cleanup Support

    We support the auditor's FEMA checks and regularise any past gaps.

    Harun Raaj & Associates does thisOngoing

Frequently Asked Questions

What is FC-GPR and when must it be filed?
Form FC-GPR (Foreign Currency — Gross Provisional Return) must be filed on the RBI FIRMS portal within 30 days of allotment of shares or convertible instruments to a foreign investor under either the Automatic or Government Route. It is filed by the Indian company receiving the FDI. The filing reports: investment details, consideration received, a valuation certificate (from a SEBI-registered Merchant Banker or CA for unlisted companies, under Rule 11UA of the Income Tax Rules), and the FIRC (Foreign Inward Remittance Certificate) from the AD bank. Failure to file within 30 days is a FEMA contravention under Section 13 and attracts compounding proceedings.
What is the difference between the Automatic Route and the Government Route?
Automatic Route: FDI is permitted up to the sectoral cap without prior RBI or Government approval. The AD bank and the Indian company self-certify compliance with DPIIT conditions and sectoral caps. Government Route: prior approval from DPIIT (for most sectors) or RBI (for banks and NBFCs) is mandatory before the Indian company can receive FDI. Key Government Route sectors: defence above 74%, print media, broadcasting, multi-brand retail trading, and satellite services. Prohibited sectors — where FDI is not permitted at all under Schedule I of the FEM (Non-Debt Instruments) Rules 2019 — include lottery businesses, gambling, chit funds, and tobacco manufacturing.
What pricing guidelines apply when issuing shares to a foreign investor?
For unlisted companies: shares cannot be issued below fair market value (FMV) determined by a SEBI-registered Merchant Banker using DCF method, or by a CA using NAV or book value. This is the floor — you can issue at or above it, not below. For listed companies: SEBI ICDR preferential allotment pricing applies (26-week or 2-week VWAP, whichever is higher). Convertible instruments (CCDs, CCPS): the conversion price must also comply with the FMV floor at the time of conversion. The valuation certificate is attached to the FC-GPR filing. The same FMV floor also serves as the ceiling for outbound FDI (ODI) — an Indian company cannot sell shares to a foreign entity below FMV.
What is the Annual Return on Foreign Liabilities and Assets (FLA) and who must file it?
Every Indian company that has received FDI or made overseas direct investment in any preceding year must file the FLA Return with the RBI by July 15 each year via the FLAIR portal (RBI notification dated January 28, 2019). The FLA must be filed every year as long as any outstanding FDI or ODI position appears on the balance sheet — even if no new investment occurred during the year. The return covers: equity capital, reserves, long-term and short-term borrowings from non-residents, and overseas equity investments. Non-filing or late filing attracts FEMA compounding under Section 13 read with the compounding rules.
What downstream investment compliance is required when an FDI-funded company invests in another Indian entity?
Downstream investment by an Indian company that has received FDI is regulated under the FEM (NDI) Rules 2019 — the Indian company is treated as a conduit for the foreign investor. The downstream investment must comply with the sectoral cap and entry route conditions applicable to the ultimate foreign investor, not just the immediate Indian parent. Within 30 days of making a downstream investment, the Indian company must notify DPIIT with a declaration of compliance in the prescribed format. Multi-layered downstream structures are regulated to prevent round-tripping and must be reported in the FLA each year. Indirect foreign ownership through the chain is counted toward the sectoral cap.

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