Foreign investment into an Indian company is not a single transaction. It is a sequence of steps with dates attached, and the dates are the part that most first-time investors underestimate. The money arriving is the easy half.
This note sets out the sequence for the ordinary case — a foreign investor subscribing to equity in an unlisted Indian company under the automatic route.
1. Before the money moves
Two questions must be answered before an inward remittance is accepted, and answering them afterwards is considerably more difficult.
- Is the sector open, and on what route? Foreign investment is either automatic — no prior approval — or requires government approval, and some activities are prohibited entirely. The applicable position, any sectoral cap and any conditions attached must be established for the specific activity, not the broad industry.
- Does the investor attract the land-border restriction? 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, may invest only under the government route. Beneficial ownership, not merely the immediate shareholder, is what is examined.
2. The Entity Master, before any filing can be made
Reporting is made through the Reserve Bank's Foreign Investment Reporting and Management System. Before any transaction can be reported, the Indian company must be registered on the portal through the Entity Master Form, with an authorised representative nominated by the board.
This is administrative and is invariably left until the filing is due — at which point the registration itself takes time the thirty-day clock does not allow for.
3. The two clocks
| Step | Period | Running from |
|---|---|---|
| Allotment of shares | 60 days | Date of receipt of the consideration |
| Refund, if not allotted | 15 days | Expiry of the 60-day period |
| Reporting in Form FC-GPR | 30 days | Date of allotment |
| Form FC-TRS (transfer of shares) | 60 days | Date of transfer or receipt of consideration, whichever is earlier |
| Annual Return on Foreign Liabilities and Assets | Annual | By 15 July, for the year ended 31 March |
4. Pricing
The price is not a matter of agreement alone. Under the exchange control framework, the price of shares issued to a person resident outside India must not be less than the fair value, determined by an internationally accepted pricing methodology for valuation on an arm's length basis, and certified by a chartered accountant, a merchant banker registered with the Securities and Exchange Board of India, or a practising cost accountant.
For transfers, the guideline runs in the direction that protects the resident:
- Resident to non-resident — the price must not be less than the fair value
- Non-resident to resident — the price must not exceed the fair value
The same issue also engages the valuation rules under the Companies Act and, historically, under the Income-tax Rules. Where two valuations are required, they should be planned together — obtaining one, and discovering later that the other was needed on a different basis, is a common and avoidable expense.
5. What Form FC-GPR requires
- The Foreign Inward Remittance Certificate and the Know Your Customer report on the remitter, obtained from the authorised dealer bank
- A valuation certificate supporting the issue price
- A certificate from the company secretary or an authorised representative confirming compliance with the applicable regulations and the Companies Act
- The board resolution and the list of allottees
- Details of the activity, the sector and the route relied upon
The remittance certificate should be requested from the bank as soon as the funds are credited. Obtaining it a month later, when the filing is already late, is a recurring cause of further delay.
In exchange control, a good transaction reported late is a compliance failure. The quality of the transaction does not repair the date.The AKV working rule
6. When a date is missed
Delayed reporting is regularised by payment of a late submission fee, computed by reference to the amount involved and the period of delay. This is a mechanism for curing a reporting default; it is not available to cure a substantive contravention — an investment made in a prohibited activity, or under the automatic route where approval was required, is a different matter and is dealt with under the compounding provisions of the Foreign Exchange Management Act, 1999.
The distinction matters when planning. A late FC-GPR is an administrative cost. An investment in the wrong sector under the wrong route is a proceeding.
7. The annual obligation nobody diarises
Every Indian company that has received foreign direct investment, or made overseas investment, must file the annual return on Foreign Liabilities and Assets by 15 July each year, for the position as at 31 March. It is filed even in a year with no fresh investment, so long as the foreign investment remains on the books.
Because it is annual and unconnected to any transaction, it is the filing most often missed — usually discovered years later, during diligence on a subsequent round.
8. A workable sequence
Confirm the sector, the route and the investor's beneficial ownership. Register the Entity Master. Obtain the valuation. Receive the funds and immediately request the remittance certificate and Know Your Customer report. Allot within sixty days and file PAS-3 under the Companies Act within thirty days of allotment. File FC-GPR within thirty days of allotment. Diarise the annual return for 15 July. Where any of these has already slipped, the position should be assessed before the next transaction rather than after it.
Scope of advice. This firm advises on the Indian tax, exchange-control and regulatory position. Where a matter also turns on the law of the country in which you are resident or in which an entity is incorporated, we set out the Indian position and coordinate with your adviser in that jurisdiction; we do not render advice on foreign law.
Discussing your position. If any part of this affects a transaction you are contemplating, the useful conversation is the one that happens before it is executed. A scoping call is the appropriate first step.
This article is general commentary on the law as it stands and is not advice on any specific facts. Positions in tax, corporate and exchange-control law change with amendments, notifications and judicial decisions; please confirm the current position with the firm before acting.