FEMA, FDI and overseas investment compliance

In short

The Foreign Exchange Management Act, 1999 (FEMA) is India's civil law governing all dealings in foreign exchange, inbound foreign investment and Indian investment abroad; it replaced the criminal-law FERA, 1973. Under it, the Central Government frames rules on equity-type flows (the Non-debt Instruments Rules, 2019 and the Overseas Investment Rules, 2022) and the RBI frames regulations on debt, deposits and reporting. For a Company Secretary this is day-to-day work: filing FC-GPR and FC-TRS on the RBI FIRMS portal, the annual FLA return, Form FC for overseas investment, valuation and pricing certificates, and compounding when a deadline is missed. It carries heavy marks in the CS Executive paper on Economic, Commercial and Intellectual Property Laws and is a standard interview area for secretarial, legal, treasury and transaction-advisory roles.

Explained

1. FEMA's architecture and key definitions

• Objective (preamble): to facilitate external trade and payments and to promote the orderly development and maintenance of the foreign exchange market in India. FERA's objective was *conservation* of foreign exchange — the shift from "conserve and prohibit" to "facilitate and manage" is the classic exam point.
• Civil, not criminal: FEMA contraventions attract penalty and compounding; FERA treated them as offences with prosecution. Only wilful non-payment of a penalty can lead to civil imprisonment.
• Person resident in India (s.2(v)): a person residing in India for more than 182 days in the *preceding* financial year, except one who goes abroad for employment, business or an uncertain-duration stay; plus a person who comes to India for employment/business/uncertain stay. It also covers any company, LLP or body corporate registered or incorporated in India, an office/branch/agency in India owned or controlled by a non-resident, and an office abroad owned or controlled by a resident. Residence under FEMA is purpose-driven and differs from residence under income-tax law.
• Capital account transaction (s.2(e)): one that alters assets or liabilities outside India of residents, or assets/liabilities in India of non-residents — equity, borrowing, immovable property, guarantees.
• Current account transaction (s.2(j)): payments for trade, services, interest, dividend, travel, education, medical treatment, and remittances for living expenses — i.e. anything not capital account.
• Section 3: no dealing in or transfer of foreign exchange, no payment to or for the credit of a person resident outside India, and no "financial transaction" settling a foreign asset, except through an Authorised Person or as permitted. Section 3(c) is the provision behind FEMA action in hawala cases.
• Section 4: a resident shall not hold, own, transfer or deal in foreign exchange, foreign security or immovable property outside India except as permitted. Section 5: current account transactions are free, subject to Government restrictions (the Current Account Transactions Rules, 2000 — Schedule I prohibited, Schedule II needing Government approval, Schedule III needing RBI approval beyond limits). Section 6: capital account transactions are permissible only to the extent specified; after the 2015 amendment the Central Government regulates non-debt instruments and the RBI regulates debt instruments.
• Section 7: exporters must declare and realise export value (goods generally within 9 months; the RBI has varied this in crisis periods). Section 8: duty to repatriate and surrender foreign exchange due to a resident. Section 10(5)-(6): an Authorised Dealer must satisfy itself of the declared purpose and the customer must not use the exchange for another purpose.
• Machinery: Authorised Persons licensed under s.10 (AD Category-I banks, AD-II, full-fledged money changers); Directorate of Enforcement (ED) investigates; Adjudicating Authority imposes penalty under s.13; Special Director (Appeals) and the Appellate Tribunal hear appeals; a further appeal on a question of law goes to the High Court within 60 days.
• Penalty (s.13): up to three times the sum involved where quantifiable, or up to ₹2 lakh where not, plus ₹5,000 per day for continuing contravention; confiscation of currency, security or property is possible. Section 14: civil imprisonment for non-payment. Section 15: any contravention (other than those under s.3(a)) may be compounded by the RBI or, for non-debt instrument matters, the Central Government, within 180 days of application — the Foreign Exchange (Compounding Proceedings) Rules, 2024 now govern this, with a prescribed application fee and compounding by designated RBI officers by monetary slab.

2. Inbound: FDI policy and the NDI Rules, 2019

• Legal source chain: FEMA s.6(2A) and s.46 → Foreign Exchange Management (Non-debt Instruments) Rules, 2019, notified by the Ministry of Finance (these replaced the old FEMA 20(R) regulations) → operational Consolidated FDI Policy issued by DPIIT → Master Direction on Foreign Investment in India and reporting regulations by the RBI.
• Equity instruments = equity shares, fully and mandatorily compulsorily convertible preference shares and debentures, share warrants and (for the purpose of the Rules) units of investment vehicles. Anything optionally convertible or redeemable is debt, and therefore ECB — a very common exam trap. Assured-return instruments are not permitted as FDI.
• Two routes: Automatic route — no prior approval, only post-facto reporting; Government (approval) route — prior approval through the National Single Window System portal, processed by the administrative ministry with DPIIT as the nodal agency, security clearance from MHA where needed.
• Prohibited sectors: lottery and gambling/betting (including casinos), chit funds, Nidhi companies, trading in Transferable Development Rights, real-estate business or construction of farm houses (construction-development projects and REITs are allowed), manufacture of cigars/cigarettes and tobacco substitutes, and sectors not open to private investment — atomic energy and railway operations (barring the permitted railway infrastructure segments). Franchise or licensing arrangements in lottery and gambling are also barred.
• Indicative caps and conditions (verify against the current Consolidated FDI Policy and press notes, which change): 100% automatic in most manufacturing, IT and services; insurance — the policy has moved to allow a higher foreign stake and the Government has announced 100% for insurers committing to invest the premium in India, so quote the current press note rather than an old 74% figure; defence — 74% automatic, beyond that Government route; banking (private) 74% with RBI conditions; telecom 100% automatic subject to security conditions; pharmaceuticals 100% automatic greenfield, 74% automatic for brownfield; single-brand retail 100% automatic with local-sourcing conditions; multi-brand retail 51% Government route; print media 26% Government route; news broadcasting 49% Government route; e-commerce 100% automatic in the marketplace model only, with inventory-based B2C e-commerce barred for foreign-invested entities.
• Press Note 3 of 2020: an entity of a country sharing a land border with India, or where the beneficial owner is situated in or is a citizen of such a country, can invest only under the Government route — and a transfer of ownership that results in such beneficial ownership also needs approval. Pakistan and Bangladesh have further restrictions (Pakistan: Government route and sectors excluding defence, space, atomic energy).
• Pricing guidelines: issue or transfer to a non-resident must be at or above fair value; transfer from a non-resident to a resident must be at or below fair value — i.e. the non-resident may never be favoured. For an unlisted company the price is certified by a SEBI-registered merchant banker or a practising Chartered Accountant or a cost accountant using any internationally accepted pricing methodology on an arm's-length basis; for a listed company the SEBI preferential-allotment pricing applies. Share swaps need a valuation by a merchant banker or an investment banker outside India.
• Downstream investment: investment by an Indian company that is owned or controlled by non-residents into another Indian company is indirect foreign investment and carries the same caps, conditions, pricing and reporting; it must be made out of its own funds (not domestic borrowing) and reported in Form DI within 30 days. "Owned" means more than 50% of the beneficial equity; "controlled" means the right to appoint a majority of directors or to control management or policy decisions.
• Other inbound schedules under the NDI Rules: FPI investment (an individual FPI capped below 10% of paid-up capital, aggregate FPI 24% raisable to the sectoral cap), NRI/OCI investment on repatriation basis (5% individual / 10% aggregate, raisable to 24% by resolution) and on non-repatriation basis under Schedule IV (treated as domestic investment), investment in LLPs (100% automatic only in sectors with 100% automatic FDI and no performance-linked conditions; no FDI in an LLP by an FPI or FVCI), convertible notes of start-ups (minimum ₹25 lakh in a single tranche), investment vehicles (REITs, InvITs, AIFs) and depository receipts.
• Sector-neutral conditions: an issue must comply with the Companies Act, 2013 as well — private placement in Form PAS-4 with PAS-3 return of allotment, share certificates, and MGT-14/board approvals as applicable.

3. Inbound reporting: FIRMS, forms and deadlines

• All equity-instrument reporting is on the RBI's FIRMS portal (SMF — Single Master Form) through the AD bank; an Entity Master registration precedes any filing. The system assigns a reference number and the AD bank verifies.
• Form FC-GPR: fresh issue of equity instruments to a non-resident — within 30 days of allotment (not of receipt of money).
• Advance Remittance Form (ARF) functionality is now subsumed: inward remittance details are captured, and the allotment must be made within 60 days of receipt of consideration, failing which the money is refunded within 15 days (or held under the Companies Act deposit rules).
• Form FC-TRS: transfer of equity instruments between a resident and a non-resident (sale or gift, either direction) — within 60 days of transfer or receipt of consideration, whichever is earlier; filed by the resident transferor/transferee or the non-resident acquiring on a non-repatriation basis.
• Form LLP-I (foreign investment into an LLP, 30 days of receipt) and Form LLP-II (disinvestment/transfer, 60 days). Form DI for downstream investment (30 days). Form CN for convertible notes (30 days). Form ESOP (30 days of issue), Form DRR for depository receipts, Form InVi for investment vehicles (30 days).
• FLA return (Foreign Liabilities and Assets): filed on the RBI's FLAIR portal by 15 July every year by any Indian company, LLP or other entity that has outstanding FDI or overseas investment at any time in the financial year — based on audited accounts, or provisional figures revised by 30 September. It is an annual return of positions, not a transaction report; non-filing is a FEMA contravention even if no new transaction took place.
• Late Submission Fee (LSF): the RBI's monetary route to regularise delayed filings — computed by a formula on the amount involved and the period of delay, available generally within three years of the due date; beyond that, compounding. LSF is an administrative cure, not a penalty under s.13.
• Form FC-GPR certification: the filing is supported by a company secretary's certificate and a valuation certificate; a declaration of compliance with the NDI Rules and the sectoral cap is part of the form.

4. Outbound: the Overseas Investment regime of 2022

The FEM (Overseas Investment) Rules, 2022 (Government), FEM (Overseas Investment) Regulations, 2022 (RBI) and the Overseas Investment Directions, 2022 replaced the old ODI/ODI-Part-I framework from 22 August 2022 and simplified it considerably.

• ODI (Overseas Direct Investment): investment by way of equity capital in an unlisted foreign entity, or 10% or more of the paid-up equity of a listed foreign entity, or any investment with control (10% or more of voting rights, or the right to appoint a majority of directors — note the lower control threshold in this regime).
• OPI (Overseas Portfolio Investment): any investment in foreign securities that is not ODI and not in unlisted debt — e.g. under 10% without control in a listed foreign entity, ESOPs of a foreign parent, units of foreign mutual funds. A listed Indian company and a resident individual may make OPI; an unlisted Indian entity's OPI is restricted (ESOP-related and specified routes).
• Financial commitment (FC) = equity + debt (loan) + 100% of the amount of a guarantee issued (50% for a performance guarantee) + the pledge value, as prescribed. The limit is 400% of net worth of the Indian entity (per the latest audited balance sheet, including its holding and subsidiary's eligible contributions) under the automatic route, excluding capitalisation of eligible dues; beyond that, RBI approval. The limit under the LRS for individuals sits within the USD 250,000 per financial year cap.
• Strategic sector (energy, natural resources, and others notified) can be allowed beyond the 400% ceiling with RBI approval.
• Round tripping: the 2022 rules permit investment in a foreign entity that has invested or invests back into India, provided it does not result in a structure with more than two layers of subsidiaries — this liberalised the earlier blanket prohibition. Investment in a foreign entity engaged in financial services by an Indian entity not in financial services is barred, except in the IFSC with conditions; no ODI into a foreign entity dealing in real-estate business, gambling in any form, or dealing in financial products linked to the Indian rupee without RBI approval.
• No Objection Certificate (NOC): a person who is under investigation by the ED/CBI/SFIO, or is a wilful defaulter, or whose account is non-performing, must obtain an NOC from the lender bank/regulator/investigating agency before making a financial commitment or disinvesting; if no reply in 60 days, the applicant may proceed.
• Pricing (outbound): issue or transfer of equity capital of a foreign entity must be at arm's length, taking a valuation into account.
• Forms and timelines: Form FC — reporting of financial commitment, filed through the AD bank before or at the time of remittance (the AD bank allots a Unique Identification Number; no remittance without a UIN). Form APR (Annual Performance Report) — by 31 December each year for every foreign entity where the resident holds control, based on the foreign entity's audited accounts. Form FC also captures restructuring and disinvestment reporting, and disinvestment must be reported within 30 days. Delayed outbound filings also attract LSF.
• Other obligations: repatriate all dues (dividend, royalty, fees, sale proceeds) within 90 days of their falling due; retain and submit share certificates/evidence of investment within 6 months; a resident individual acquiring ODI by way of inheritance or gift is covered by specific carve-outs; Liberalised Remittance Scheme remittances for ODI/OPI by an individual count within USD 250,000 and cannot go to a country identified as non-cooperative by the FATF or to entities engaged in prohibited activity.
• LRS itself: USD 250,000 per financial year per resident individual (including minors) for permitted current and capital account transactions combined — travel, education, medical, gifts, maintenance of relatives, purchase of immovable property and securities abroad; TCS under the income-tax law applies above the threshold on LRS remittances (rates differ for education and medical; confirm the current Finance Act position before quoting).

5. Debt side: ECB, trade credit and other flows

• ECB framework (RBI Master Direction): two tracks — FCY-denominated ECB and INR-denominated ECB (including masala bonds). Eligible borrowers are all entities eligible to receive FDI, plus specified others; recognised lenders must be residents of FATF/IOSCO-compliant countries (foreign branches of Indian banks, multilateral institutions, and equity holders also qualify).
• Automatic route ceiling: up to USD 750 million or equivalent per financial year; minimum average maturity (MAM) generally 3 years (shorter/longer for specified end-uses and manufacturing); all-in-cost ceiling benchmark rate plus a spread notified by the RBI (the spread has been revised, so quote it as "the RBI-notified spread over the benchmark" unless certain).
• Negative end-use list: real-estate activities, investment in capital markets, equity investment, on-lending for these purposes, and (except for specified lenders) working capital, general corporate purposes and repayment of rupee loans.
• Reporting: a Loan Registration Number (LRN) is obtained in Form ECB before drawdown, and monthly Form ECB-2 returns are filed through the AD bank by the 7th of the following month.
• Trade credit (buyers' credit/suppliers' credit) for import of goods and services — up to USD 150 million per import transaction for oil/gas and specified imports and USD 50 million otherwise, with maturity caps; reported in Form TC.
• Other RBI debt regulations: deposits (NRE/NRO/FCNR accounts), borrowing and lending in rupees, guarantees, export-import of currency, and remittance of assets. NRO balances are non-repatriable beyond USD 1 million per financial year; NRE and FCNR(B) are fully repatriable.
• Branch/liaison/project office of a foreign entity: RBI/AD approval under the FEMA (Establishment in India of a Branch Office or Office or Other Place of Business) Regulations, 2016; a liaison office may not earn income in India and must file an Annual Activity Certificate from a chartered accountant; applicants from land-border countries need prior Government approval.

6. Enforcement, compounding and interface with other laws

• Compounding steps: apply (prescribed format and fee) to the RBI's Regional Office / Central Office or the Government for non-debt matters → acknowledgement → personal hearing (optional) → compounding order within 180 days → pay within 15 days → certificate. Compounding is not available where the contravention involves money laundering, national security or a serious ED investigation; those go to adjudication.
• Deemed contravention before compounding: the applicant must first make the transaction compliant (file the pending FC-GPR, unwind an impermissible instrument, obtain post-facto approval).
• PMLA interface: a FEMA contravention is civil, but the underlying conduct can be a scheduled offence under the Prevention of Money Laundering Act, 2002 or attract the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 for undisclosed foreign assets; FCRA, 2010 governs foreign *contribution* (donations) and is a separate regime from FEMA foreign *investment*.
• Companies Act, 2013 interface: issue procedure, SBO (significant beneficial ownership) declarations in BEN-1/BEN-2, and board/shareholder approvals. SEBI interface: takeover code and ICDR pricing where the investee is listed. Competition Act: a large share acquisition may need CCI approval in parallel. Income-tax: withholding on dividends and capital gains, treaty benefits and transfer pricing on the same transaction.

Key points

• FEMA vs FERA - FEMA (1999) is a civil, facilitative law with penalty and compounding; FERA (1973) was criminal and conservation-oriented.
• Section 5 vs Section 6 - current account transactions are free subject to restrictions; capital account transactions are permitted only as specified.
• Resident (s.2(v)) - more than 182 days in the *preceding* financial year, overridden by the purpose of departure or arrival; different from income-tax residence.
• Rule-maker split - the Central Government makes rules for non-debt instruments (NDI Rules 2019, OI Rules 2022); the RBI regulates debt and all reporting.
• Equity instrument - equity shares and compulsorily convertible preference shares/debentures; optionally convertible or redeemable instruments are ECB.
• Automatic vs Government route - no prior approval with post-facto filing, versus prior approval on the National Single Window System through DPIIT.
• Press Note 3 (2020) - any investment from a land-bordering country, or with a beneficial owner there, needs Government approval, including on transfer.
• Pricing rule - the non-resident never gets a better price: entry at or above fair value, exit at or below fair value.
• FC-GPR 30 days / FC-TRS 60 days - fresh issue versus transfer; both on the FIRMS SMF portal after Entity Master registration.
• FLA return by 15 July - annual position of foreign liabilities and assets on the FLAIR portal, mandatory even with no new transaction.
• Late Submission Fee - monetary regularisation of delayed filings, generally within three years; beyond that compounding under s.15.
• Downstream investment - investment by a non-resident owned or controlled Indian company is indirect FDI; Form DI in 30 days, no use of domestic borrowings.
• ODI vs OPI - ODI is unlisted equity, or 10%+ of a listed foreign entity, or any stake with control; OPI is everything else in foreign securities.
• Financial commitment cap 400% of net worth - equity + loan + 100% of guarantees (50% performance guarantee), automatic route; higher needs RBI approval.
• Form FC before remittance, APR by 31 December - UIN is issued on Form FC; APR is required where control exists.
• Round tripping allowed with a two-layer cap - the 2022 rules permit investment back into India if the structure does not exceed two subsidiary layers.
• ECB automatic route - up to USD 750 million a year, MAM generally 3 years, LRN in Form ECB and monthly ECB-2 returns.
• Penalty s.13 - up to three times the amount involved, or ₹2 lakh if unquantifiable, plus ₹5,000 per day of continuation.

Formulas and examples

Example 1 — Automatic route, sectoral cap and FC-GPR. An Indian IT services private company has 10,00,000 equity shares, of which 2,00,000 are held by a Singapore investor. It allots 3,00,000 fresh shares to the same investor at ₹250 (merchant-banker fair value ₹240) on 10 June.

• Post-issue capital = 10,00,000 + 3,00,000 = 13,00,000 shares; non-resident holding = 2,00,000 + 3,00,000 = 5,00,000.
• Foreign holding = 5,00,000 ÷ 13,00,000 = 38.46%, within the 100% automatic cap for IT services.
• Pricing: issue price ₹250 ≥ fair value ₹240 — compliant (the reverse, ₹200, would be a contravention).
• Inflow = 3,00,000 × ₹250 = ₹7.50 crore; FC-GPR due within 30 days of allotment, i.e. by 10 July.
• If the investor were from a land-bordering country, prior Government approval would be needed however small the amount.

Example 2 — FC-TRS and exit pricing. The Singapore investor later sells 1,00,000 of those shares to an Indian promoter at ₹300 when the fair value certified is ₹280; consideration is received on 5 September and the transfer is executed on 2 September.

• Non-resident to resident transfer: price must be at or below fair value. ₹300 > ₹280 — contravention; the permissible maximum is ₹280 (₹2.80 crore for 1,00,000 shares).
• At ₹280 the filing is FC-TRS within 60 days of the earlier of transfer or receipt of consideration = 2 September + 60 days = 1 November.
• Remedy if overpriced: either refund the excess ₹20 per share (₹20 lakh) and file, or apply for compounding — the amount involved for penalty purposes is the excess of ₹20 lakh, so the s.13 ceiling is 3 × ₹20 lakh = ₹60 lakh.

Example 3 — Overseas financial commitment against net worth. An Indian manufacturing company's audited balance sheet shows paid-up capital ₹60 crore and free reserves ₹140 crore. It proposes equity of USD 10 million, a loan of USD 5 million and a corporate (non-fund) guarantee of USD 12 million for its new Vietnam subsidiary; take USD 1 = ₹88.

• Net worth = 60 + 140 = ₹200 crore; automatic-route ceiling = 4 × 200 = ₹800 crore (≈ USD 90.9 million at ₹88).
• FC = 10 + 5 + 100% of 12 = USD 27 million; at ₹88 (USD 1 million = ₹8.8 crore) that is ₹237.6 crore, which is 29.7% of the ₹800 crore ceiling — well within the automatic route.
• Compliance: NOC check (not a wilful defaulter, no ED investigation), Form FC filed through the AD bank before remittance to obtain the UIN, share certificates within 6 months, APR by 31 December of the following reporting year since there is control, and dues repatriated within 90 days.
• If the guarantee were a performance guarantee, only 50% × 12 = USD 6 million would count, bringing FC to USD 21 million (= ₹184.8 crore, 23.1% of the ceiling).

Example 4 — Late filing: LSF and penalty exposure. A company allots shares worth ₹5 crore to a US investor on 1 April and files FC-GPR on 1 December — a delay of about 7 months beyond the 30-day due date (due 1 May).

• The contravention is of the reporting regulation, not of the investment itself, so the LSF route applies (available generally up to three years from the due date). LSF is computed by the RBI's published formula on the amount involved and the months of delay, paid to the RBI, after which the filing is accepted.
• Had the delay exceeded three years, the route would be compounding under s.15: the sum involved is ₹5 crore, so the s.13 ceiling is 3 × ₹5 crore = ₹15 crore, plus ₹5,000 per day of continuation — in practice compounding amounts for pure delay are far lower and follow the RBI's slab-based matrix.

Example 5 — ODI or OPI? A resident individual buys 4% of a NASDAQ-listed company with no board rights; an Indian listed company buys 12% of a listed Singapore company; an Indian private company subscribes to 100% of an unlisted Dubai entity.

Where it is used

• Secretarial and legal teams of companies with foreign shareholders — Infosys, TCS, Wipro, HUL, Maruti Suzuki, Hyundai India — filing FC-GPR/FC-TRS, FLA and maintaining the Entity Master.
• Transaction and PE/VC advisory at Big Four firms and law firms — structuring rounds for start-ups (CCPS, convertible notes), Press Note 3 diligence on investor beneficial ownership, downstream-investment mapping.
• Practising Company Secretaries issuing FC-GPR certificates, compounding applications to RBI Regional Offices, and FEMA due-diligence certificates in M&A.
• Treasury and banking — AD Category-I banks' trade-finance and FEMA desks processing remittances, LRN/ECB-2 returns, LRS remittances and NRE/NRO/FCNR account operations.
• Indian multinationals investing abroad — Tata, Mahindra, Sun Pharma, Infosys BPM — Form FC, UIN tracking, APR for every overseas step-down entity, two-layer structure checks.
• GIFT City / IFSC work — overseas investment through IFSC entities, family-office structures and the special carve-outs available there.

Interview questions

• Q: What is the single biggest difference between FEMA and FERA? A: FEMA is a civil law aimed at facilitating external trade and managing the forex market, with penalties and compounding; FERA was criminal law aimed at conserving foreign exchange, with prosecution and arrest.
• Q: Who regulates debt and who regulates equity flows under FEMA? A: Since the 2015 amendment to s.6, the Central Government regulates non-debt instruments (NDI Rules, 2019) and the RBI regulates debt instruments, deposits, guarantees and all reporting.
• Q: Is a compulsorily convertible debenture FDI or ECB? A: FDI — it is an equity instrument. An optionally convertible or redeemable debenture is debt and falls under the ECB framework.
• Q: What does Press Note 3 of 2020 require? A: Any investment by an entity of a land-bordering country, or where the beneficial owner is situated in or is a citizen of such a country, needs prior Government approval — and so does a transfer that creates such beneficial ownership.
• Q: A non-resident wants to exit an unlisted Indian company at ₹500 when fair value is ₹400. Allowed? A: No — on a transfer from a non-resident to a resident the price must be at or below fair value, so ₹400 is the maximum.
• Q: What is FC-GPR and when is it due? A: The FIRMS filing for a fresh issue of equity instruments to a non-resident, due within 30 days of allotment, supported by a valuation certificate and a company secretary's certificate.
• Q: Who must file the FLA return and by when? A: Every Indian company, LLP or other entity with outstanding inbound FDI or outbound investment at any point in the financial year, by 15 July on the FLAIR portal — even if there was no transaction that year.
• Q: Distinguish ODI from OPI. A: ODI is investment in an unlisted foreign entity, or 10% or more of a listed foreign entity, or any investment carrying control; everything else in foreign securities is OPI.
• Q: What is included in "financial commitment" for the 400% limit? A: Equity plus loans plus 100% of non-fund guarantees (50% of performance guarantees) and pledge values, measured against net worth from the latest audited balance sheet.
• Q: Is round tripping permitted now? A: Yes, within limits — the 2022 rules allow investment in a foreign entity that invests back into India provided the structure does not exceed two layers of subsidiaries, subject to the other prohibitions.
• Q: A filing is six months late. What is the remedy? A: Pay the Late Submission Fee computed under the RBI formula and complete the filing; LSF is generally available up to three years from the due date, after which compounding under s.15 is required.
• Q: Can every FEMA contravention be compounded? A: No — contraventions under s.3(a) and matters involving money laundering, national security or a serious ED investigation go to adjudication rather than compounding.
• Q: What is downstream investment and why does it matter? A: Investment by a non-resident owned or controlled Indian company into another Indian company; it counts as indirect foreign investment, so sectoral caps, pricing and Form DI reporting apply, and it cannot be funded by domestic borrowing.

Common mistakes

• Using income-tax residence (182 days in the *current* year) instead of the FEMA test (182 days in the *preceding* year, overridden by purpose of travel).
• Counting the 30 days for FC-GPR from receipt of money rather than from the date of allotment, and the 60 days for FC-TRS from the later rather than the earlier of transfer and consideration.
• Treating optionally convertible or redeemable instruments as FDI — they are ECB, with its own eligibility, maturity and end-use rules.
• Getting the pricing direction backwards: the non-resident may pay at or above fair value on entry and receive at or below fair value on exit.
• Forgetting the FLA return when there was no new transaction in the year, and forgetting APR for overseas entities where control exists.
• Quoting stale sectoral caps or the repealed FEMA 20(R) and old ODI regulations instead of the NDI Rules, 2019 and the Overseas Investment regime of 2022.
• Omitting 100% of a corporate guarantee from financial commitment, or testing the 400% limit against the current year's unaudited net worth.
• Skipping the parallel Companies Act, 2013 steps (PAS-4/PAS-3, SBO declarations) and the Press Note 3 beneficial-ownership check on the investor's chain.

Related topics

Foreign Trade Policy and export-import procedures · SEBI (ICDR) and takeover regulations · Prevention of Money Laundering Act, 2002 · Companies Act, 2013 — share capital and SBO · Competition Act 2002 and the CCI · Transfer pricing and treaty benefits.