FDI Filing with RBI

Report foreign investments right. Stay RBI-compliant Have you received foreign investment in your Indian company? Timely FDI reporting to the Reserve Bank of India (RBI) is critical to stay compliant with FEMA regulations. We offer comprehensive support for filing Form FC-GPR, share valuation reports, and other mandatory disclosures to ensure there are error-free submissions and regulatory adherence. You can manage your FDI compliance with precision and confidence.

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FDI Filing with RBI in India

India’s economic transformation over the past two decades has made it a magnet for global investors. With its growing domestic market, policy reforms, and digital infrastructure, foreign investors see long-term potential in sectors ranging from manufacturing to fintech and e-commerce. As a result, thousands of Indian companies are raising capital through Foreign Direct Investment (FDI). However, receiving FDI isn't just about getting the funds; it initiates a legally binding process under India’s foreign exchange laws.

The moment FDI hits a company’s bank account, regulatory compliance kicks in, especially with respect to filings and disclosures before the Reserve Bank of India (RBI). These filings are not optional, merely symbolic, but are mandatory, time-bound declarations required under the Foreign Exchange Management Act (FEMA). Failure to comply can attract penalties, scrutiny, or even impact future fundraising. Whether the investment is made through equity shares, convertible instruments, or a transfer between residents and non-residents, the process has to be documented, verified, and filed with the RBI through authorized banks.

What is FDI?

Foreign Direct Investment (FDI) refers to an investment made by a foreign individual or entity into the business interests of another country. The investment is done mainly by acquiring equity in a local company, establishing a wholly-owned subsidiary, or entering into a joint venture. FDI brings capital, expertise, and new technologies into the host country. FDI inflow in India has increased 20 times from 2000-01 to 2023-24 and has fostered job creation and overall export growth.

In India, FDI can be routed through two main routes:

Automatic Route: A non-resident or Indian Company does not need the government's or RBI's prior approval. However, post-facto reporting is mandatory.
Government Route: Prior approval from the concerned Ministry/Department is required before investing.

Legal Framework for FDI in India

The process of FDI filing is governed by the following:

Foreign Exchange Management Act (FEMA), 1999
Foreign Exchange Management (Non-Debt Instruments) Rules, 2019
RBI Master Directions on FDI
Consolidated FDI Policy issued by DPIIT
Companies Act, 2013
Income Tax Act, 1961

Types of FDI Instruments Permissible in India

FDI in India can be made using the following instruments:

Equity Shares: Foreign investors can invest in equity shares of Indian companies. The issuance of equity shares to non-residents must comply with the pricing guidelines and sectoral caps prescribed under the FDI policy.
Compulsorily Convertible Preference Shares (CCPS): These are preference shares that must be converted into equity shares within a specified time frame. They are treated as equity instruments under the FDI policy, provided they are fully paid up and mandatorily convertible.
Compulsorily Convertible Debentures (CCD): These are hybrid securities that combine debt and equity. At the beginning, they are treated as debt, with the holder receiving periodic interest payments. Still, they are mandatorily converted into equity shares of the issuing company at a predetermined time.
Share Warrants (only if convertible within 18 months): These are instruments that entitle the holder to acquire equity shares at a future date. They are contracts that give the holder the option to buy stock at a predetermined price.
Convertible Notes: Startups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) can issue convertible notes to foreign investors. It can be either repaid or converted into equity for a specified period. The issuance of convertible notes must adhere to the conditions laid down in the FDI policy.

Note: Instruments such as optionally convertible or non-convertible debentures are treated as debt and do not qualify under FDI.

RBI Compliance Requirements for FDI

The Reserve Bank of India has mandated certain compliances for entities that received foreign direct investment (FDI) under the Foreign Exchange Management Act (FEMA), 1999:

Entity Master Registration: Before receiving any FDI, Indian entities must register on the Foreign Investment Reporting and Management System (FIRMS) portal by filing the Entity Master Form.
Advance Remittance Form (ARF): After receiving foreign investment funds, entities are required to file the Advance Remittance Form (ARF) within 30 days of receipt to notify the RBI about the inflow of funds. The form includes details such as the amount received, the purpose of remittance, and information about the foreign investors. It is pertinent to note that companies are required to file the ARF even if shares have not been issued yet.
Form FC-GPR (Foreign Currency-Gross Provisional Return): When shares are allotted to a foreign investor, the company must file Form FC-GPR online at the FIRMS portal within 30 days of share allotment.
Form FC-TRS (Foreign Currency Transfer of Shares): When shares are transferred between residents and non-residents, Form FC-TRS must be filed within 60 days of the transfer. The form includes the details of the transfer, including the transferor and transferee's information, the number of shares transferred, and the price at which the transfer occurred. It is pertinent to note that the form is mandatory even in the case of a gift or sale of shares.
Annual Return on Foreign Liabilities and Assets (FLA Return): All Indian companies, whether Public Limited or Private Limited, that receive FDI are mandated to file and submit the FLA return annually by July 15 of every year. The return provides the RBI with data on the company's foreign liabilities and assets.
Form LLP(I) and LLP(II): This form is applicable when FDI is received in a Limited Liability Partnership (LLP). LLP(I) is responsible for the receipt of foreign contributions. LLP(II) for disinvestment or transfer.
Downstream Investment Reporting: If an Indian company with foreign investment makes further investments in another Indian entity, it is considered a downstream investment. Such investments must be reported to the RBI within 30 days of the investment.
Pricing Guidelines Compliance: All FDI transactions must adhere to the pricing guidelines set by the RBI. For listed companies, the price should be as per SEBI guidelines, while for unlisted companies, a valuation by a certified valuer is required to determine the fair value of shares.
Sectoral Caps and Entry Routes: FDI must comply with sectoral caps and the prescribed entry routes, whether automatic or government approval.

Benefits of Timely and Correct FDI Filing

Timely and accurate filing of Foreign Direct Investment (FDI) with the Reserve Bank of India (RBI) is important for Indian companies to ensure compliance with the Foreign Exchange Management Act (FEMA), 1999:

Regulatory Compliance and Avoiding Penalties: Adhering to RBI's reporting requirements helps companies comply with FEMA regulations. Any non-compliance can lead to huge penalties for the companies and restrictions on future foreign investments.
Smooth Future Transaction: Timely FDI filings ensure that companies maintain a clean compliance record, which is essential for processing subsequent foreign investment transactions without delays.
Enhance Investor Confidence: Timely FDI filings give investors good signals about corporate governance. The transparency helps boost investors' confidence and makes the company more attractive to potential investors.
Access Government Incentives: Companies that consistently comply with FDI regulations may be better positioned to avail themselves of government incentives and schemes aimed at promoting foreign investment.

List of Prohibited Sectors for FDI

The following are not eligible for FDI in India:

Gambling and betting, including casinos
Lottery Businesses, including government or private lotteries, online lotteries, and any other kind of lotteries.
Chit Funds
Trading in Transferable Development Rights (TDR)
Cigars, cheroots, cigarillos, and cigarettes, tobacco or tobacco substitutes manufacturing.
Nidhi Company
Real Estate Business
Construction of Farm Houses
Development of town shops, construction of residential/ commercial premises, roads or bridges, and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations, 2014
Atomic energy, railway operations

Documentation Required for FDI Filing

The following documents are commonly required during the FDI filing process:

1. For ARF

The form must be submitted within 30 days of receiving the foreign investment. Required documents include:

Advance Reporting Form: Duly filled and signed.
Foreign Inward Remittance Certificate (FIRC): Issued by the authorized dealer bank, evidencing receipt of funds.
Know Your Customer (KYC) Report: From the remitting bank of the non-resident investor.
Board Resolution from the company that approves the receipt of foreign investment

2. Form FC-GPR (Foreign Currency-Gross Provisional Return)

The form must be filed within 30 days of the date the shares are allotted to the foreign investor. The required documents include:

Form FC-GPR
A certificate from the Company Secretary that confirms compliance with the Companies Act, 2013, and FDI guidelines.
Valuation Certificate: From a Chartered Accountant or SEBI-registered Merchant Banker, as per FEMA regulations.
Board Resolution
Memorandum of Association (MoA) and Articles of Association (AoA) including relevant clauses.
List of Allottees that details the number of shares allotted and the percentage of post-allotment capital

3. For FC-TRS (Foreign Currency-Transfer of Shares)

The form is applicable when shares are transferred between residents and non-residents. The required documents are:

Duly filed Form FC-TRS
Share Purchase Agreement (SPA) or Gift Deed
Consent letter from transferor/transferee
Valuation certificate
Chartered Accountant’s certificate confirming compliance with pricing guidelines
FIRC
KYC Report

4. Annual Return on Foreign Liabilities and Assets (FLA)

The form must be filed by July 15 of each year. The required documents include:

Duly filed FLA Return Form
Audited Financial Statements for the relevant financial year
Details of Foreign Liabilities and Assets

Common Mistakes to Avoid During FDI Filing

Failing to register the entity on the FIRMS portal.
Using incorrect or outdated share valuation reports.
Not linking the Digital Signature (DSC) while filing the SMF.
Delaying filing beyond the prescribed 30/60-day timeline.
Using the wrong form (e.g., filing FC-GPR instead of FC-TRS).
Not attaching mandatory documents like KYC, FIRC, or board resolutions.

Why Choose Kanakkupillai for FDI Filing with RBI?

Filing Foreign Direct Investment (FDI) with the Reserve Bank of India is not just about submitting a form; it is about ensuring that your business complies with the laws of the nation that impact business and global investors directly. At Kanakkupillai, we provide:

In-Depth Knowledge of RBI Regulations: Our professionals have hands-on experience in handling FDI filings in line with FEMA, RBI Master Directions, and sector-specific conditions. Whether you are receiving investment through equity shares, convertible debentures, or preference shares, we ensure the entire filing process meets legal standards.
Comprehensive Support from Start to Finish: We manage the complete filing process, from setting up your FIRMS portal registration and drafting supporting documents to uploading the Single Master Form (SMF) and coordinating post-filing compliance.
Tailored Solutions Based on Investment Nature: We understand that each FDI transaction is different. Our advisory services are tailored to match your specific structure.
Continued Support Even After Filing: Even after the form is filed, we help with RBI responses, clarification letters, ongoing disclosures, and maintaining a complete audit trail for your records.

Frequently Asked Questions

Is RBI approval mandatory for every FDI transaction in India? +

No, not all FDI transactions need prior RBI approval. If the investment is under the Automatic Route, no approval is required, but post-investment reporting to the RBI is mandatory. However, under the Government Route, prior approval from the respective ministry is essential before the investment is made.

What is the first compliance step after receiving foreign investment in India? +

The first step is to register the company on the FIRMS portal by submitting the Entity Master Form. Without this, filings such as ARF or FC-GPR cannot be completed.

What is the timeline for filing Form FC-GPR, and what does it cover? +

Form FC-GPR must be filed within 30 days from the date of allotment of shares to a foreign investor. It documents the issuance of shares to non-residents and must be supported by valuation and compliance certificates.

Can startups raise FDI through instruments other than equity shares? +

Yes, DPIIT-recognized startups can issue convertible notes to foreign investors. These instruments offer flexibility as they can either be repaid or converted into equity within a specified timeframe as per RBI guidelines.

Is it mandatory to file the FLA Return even if there is no fresh FDI in the year? +

Yes. All Indian entities with existing foreign assets or liabilities must file the Annual FLA Return every year by 15 July for the previous financial year, even if there was no new FDI.

What’s the difference between FC-GPR and FC-TRS? +

FC-GPR is filed when a company issue shares to a foreign investor. FC-TRS, on the other hand, is used when existing shares are transferred between a resident and a non-resident, such as in a sale, gift, or buyback scenario.