Overseas Direct Investment (ODI) Rules and Reporting in India

Overseas direct investment allows Indian entities and resident individuals to invest abroad, subject to limits, eligibility conditions and reporting. The framework distinguishes direct investment from portfolio investment, restricts certain structures, and requires an annual performance report by 31 December for as long as the investment subsists.

The framework

The overseas investment rules distinguish overseas direct investment from overseas portfolio investment, with different conditions applying to each. The distinction turns broadly on the extent of stake and control acquired.

Investment may be made under the automatic route within limits, with approval required beyond them or for restricted activities. The limit is expressed as a proportion of net worth, and what counts toward it is broader than the equity investment alone.

Financial commitment includes guarantees and loans, not only equity. Guarantees issued on behalf of the overseas entity and loans extended to it count toward the limit, and this is routinely underestimated.

Structural restrictions

Certain structures are restricted, including investment in entities engaged in specified financial services activities, and structures creating layered ownership beyond permitted levels.

Round-tripping — where an overseas entity in which an Indian party has invested holds an investment back into India — was liberalised and is now permitted subject to conditions, including restrictions on the number of layers. The conditions matter, and this is an area frequently answered incorrectly from outdated sources.

Resident individuals

Resident individuals may make overseas investment within the LRS limit of USD 250,000 per financial year, subject to conditions on the nature of the entity and its activity. Investment in an overseas entity engaged in financial services, or having a subsidiary structure back into India, is subject to restriction.

This matters increasingly for founders establishing overseas holding structures, and it is an area where individual and corporate rules differ in ways that are easy to conflate.

Reporting

Reporting obligations arise at the time of investment, on disinvestment, and annually through the APR, due 31 December while the investment subsists.

Related reading

• FEMA compliance for inbound FDI — FEMA Compliance Checklist for FDI in India
• LRS limits and TCS — Liberalised Remittance Scheme: Limit and TCS Rates
• reporting forms and deadlines — FC-GPR, FC-TRS, FLA and APR: FEMA Filing Deadlines Guide

Sources

• FEM (Overseas Investment) Rules and Regulations, 2022 — rbi.org.in