FEMA Compliance Checklist for FDI in India

FEMA compliance for inbound FDI runs in a fixed sequence: confirm the sector is eligible and whether approval is required, ensure pricing meets the valuation floor, receive funds through banking channels, allot shares within the prescribed period, and report the allotment in Form FC-GPR within 30 days. Missing a reporting deadline is a contravention.

Step one: eligibility and route

Determine whether the sector permits foreign investment, up to what percentage, and whether it falls under the automatic route or requires prior government approval. Certain sectors are prohibited entirely.

Investment from countries sharing a land border with India requires government approval regardless of sector or amount, and this extends to beneficial ownership rather than just the immediate investor. This catches structures where an intermediate holding company sits in a permitted jurisdiction but beneficial ownership traces to a restricted one.

Step two: pricing

Shares issued to a non-resident must be at or above fair value determined by a qualified valuer using an internationally accepted methodology. Transfers from a resident to a non-resident must be at or above fair value; transfers from a non-resident to a resident must be at or below it.

The valuation report is a gating document for the banking channel and should be obtained before, not after, the transaction.

Step three: receipt of funds and allotment

Consideration must be received through banking channels, with the authorised dealer bank issuing confirmation of receipt. Funds received and not allotted against within the prescribed period must be refunded.

Step four: reporting

The recurring failures

Late filing. The most common contravention and entirely avoidable. Deadlines run from the date of allotment or transfer, not from when the company gets around to it.

Missed FLA return. An annual obligation for any Indian entity with foreign investment, frequently overlooked because it is not tied to a transaction. It is due even in a year with no new investment.

Downstream investment reporting. Where a foreign-owned Indian company invests in another Indian company, the downstream investment carries its own reporting obligation — one of the most consistently missed items.

Valuation obtained after the fact. A report dated after the allotment invites challenge.

Consequences and remediation

Late filings can be regularised through the Late Submission Fee route, with fees accruing daily. Beyond three years, LSF is not available and compounding with the RBI becomes mandatory.

Compounding requires an application disclosing the contravention and payment of a compounding amount, computed on a published basis considering the nature and duration of the contravention. Voluntary disclosure before detection is treated more favourably.

Related reading

• form-by-form filing deadlines — FC-GPR, FC-TRS, FLA and APR: FEMA Filing Deadlines Guide
• overseas direct investment — Overseas Direct Investment (ODI) Rules and Reporting in India
• contraventions and compounding — FEMA Contraventions and RBI Compounding: What Triggers Action
• structuring the India entry — Structuring Inbound Investment into India: Entity Selection

Sources

• RBI Master Direction on Foreign Investment in India; FEM (Non-debt Instruments) Rules — rbi.org.in