Overseas Direct Investment (ODI) Compliance

Under Rule 19 of the Foreign Exchange Management (Overseas Investment) Rules 2022, a resident individual may make overseas direct investment (ODI) in a foreign entity engaged in a bona fide business activity. The aggregate outward remittance under the Liberalised Remittance Scheme (LRS) — which is the channel through which individual ODI flows — is capped at USD 2,50,000 per financial year as per the current RBI Master Direction on Liberalised Remittance Scheme. However, LRS remittances attract Tax Collected at Source (TCS) at 20% under Sec 206C(1G), IT Act 1961 (≡ §394, IT Act 2025) of the Income Tax Act 1961 (as amended by Finance Act 2023) for amounts exceeding ₹7 lakh per year, which is creditable against your tax liability. The overseas entity must not be engaged in real estate or gambling, and the investment must be reported to the AD (Authorised Dealer) bank.

An Indian company making Overseas Direct Investment must file Form ODI (now subsumed into the FIRMS portal reporting under the Foreign Exchange Management (Overseas Investment) Rules 2022 and the RBI Master Direction on Overseas Investment 2022) through its Authorised Dealer bank before the remittance or within 30 days of transfer of shares or assets. The company must also file an Annual Performance Report (APR) in Form APR by December 31 each year for every foreign entity in which it holds a stake, certifying financial performance of the overseas entity. Any change in the shareholding structure, winding-up, or disinvestment must be reported to the AD bank within 30 days. Non-filing of APR or ODI forms is a compoundable offence under Section 13 of FEMA 1999, and the Compounding Authority at RBI levies penalties under the FEMA Compounding Rules 2024.

Under Rule 19(2) of the Foreign Exchange Management (Overseas Investment) Rules 2022, a person resident in India making ODI must ensure the overseas entity is a going concern engaged in a bona fide business. However, the rules do not explicitly prohibit a loss-making Indian entity from making ODI — the critical requirement is that the Indian entity must be compliant with all RBI/FEMA filings and must not be on the RBI's caution list or defaulter list. The erstwhile restriction that the Indian entity's net worth must be at least equal to the ODI amount (under the old FEMA Notification No. 120) has been rationalised under the 2022 Rules, and the financial commitment is now assessed more holistically. Your AD bank will conduct due diligence, and the investment requires prior RBI approval under the approval route if the structure is complex (e.g., investing through a step-down subsidiary in an FATF non-compliant jurisdiction).

Yes. Under the Foreign Exchange Management (Overseas Investment) Rules 2022 and the RBI Master Direction on Overseas Investment (September 2022), every Indian entity that has made ODI must submit an Annual Performance Report (APR) through the FIRMS portal by December 31 each year for every foreign entity in which it holds a stake — failure to file by the deadline is a violation under Section 13 of FEMA 1999. Additionally, if the foreign entity declares a dividend, the Indian investor must repatriate the dividend proceeds within 90 days of declaration and report the receipt to the AD bank. Any increase in investment, pledge of shares, or guarantee given to a foreign lender on behalf of the overseas entity must also be reported in the prescribed form within 30 days. FEMA contraventions are compounded by the RBI under the Foreign Exchange (Compounding Proceedings) Rules 2024, so timely reporting is critical.

Yes, a corporate guarantee given by an Indian entity to a foreign lender on behalf of its overseas subsidiary is treated as a 'financial commitment' under Rule 2(k) of the Foreign Exchange Management (Overseas Investment) Rules 2022 and is included in the total financial commitment cap. The aggregate financial commitment (ODI plus loans plus guarantees) by an Indian entity must not exceed 400% of its net worth as per the last audited balance sheet (the individual LRS cap applies for resident individuals). The guarantee must be reported to the AD bank at the time of issuance, and any invocation of the guarantee must be reported within 30 days. Guarantees given in favour of a step-down subsidiary (i.e., the subsidiary of the overseas entity rather than the direct subsidiary) may require prior RBI approval under the approval route depending on the jurisdiction and structure.