In today&rsquo;s global economy, Indian companies frequently leverage international expertise to scale. When it comes to compensating these foreign consultants, many businesses explore the possibility of issuing equity shares in lieu of cash.
While this is a strategic way to manage cash flow and align interests, the regulatory landscape in India makes a clear distinction between different types of services.
<h3 data-path-to-node="5">Can we issue shares to a foreign consultant instead of a fee?</h3>
Generally, yes, but with specific conditions. Under Indian regulatory control guidelines, a company can issue shares against "funds payable" to a non-resident. Essentially, if you have a legal obligation to pay a consultant for services, you may be able to "capitalize" that debt into equity. However, this is primarily reserved for specific high-value contributions like technology transfers.
<h3 data-path-to-node="7">Does the nature of the service matter?</h3>
Absolutely. This is the most critical factor in determining if the transaction is allowed under the "Automatic Route" (without prior regulatory approval).
<ul data-path-to-node="9">
<li>
Lump-sum Technical Know-how &amp; Royalties: If the consultant is providing technical blueprints, specialized technology, or intellectual property, the law generally allows for the issuance of shares against these dues.
</li>
<li>
General Consultancy &amp; Legal Services: If the services are purely advisory, such as marketing strategy, general management, or legal counsel, the direct issuance of shares is typically not allowed without prior permission from the authorities.
</li>
</ul>
<h3 data-path-to-node="10">What are the key tax considerations?</h3>
One cannot simply convert the total invoice value into shares. The transaction must be analyzed net of applicable taxes.
<ul data-path-to-node="12">
<li>
TDS Obligations: The Indian company must satisfy Tax Deducted at Source (TDS) requirements in cash before the equity is allotted.
</li>
<li>
DTAA Analysis: It is vital to review the Double Taxation Avoidance Agreement (DTAA) between India and the consultant's home country. This analysis ensures the correct tax rate is applied and prevents the consultant from being taxed twice on the same income.
</li>
</ul>
<h3 data-path-to-node="13">Is a valuation report mandatory?</h3>
Yes. You cannot decide the share price arbitrarily. To ensure the shares are issued at a fair value, a formal valuation certification from a registered professional (such as a Chartered Accountant or a Merchant Banker) is required. This protects the company from future scrutiny regarding "undervalued" share issuances to non-residents.
<h3 data-path-to-node="15">What about reporting?</h3>
Even though no actual money enters a bank account, the issuance of shares is considered a "deemed" inflow. Therefore, the company must complete formal reporting with the RBI within 30 days of the allotment. This filing must be supported by the underlying service agreements and the valuation certificate.
<h3 data-path-to-node="18">How We Can Assist</h3>
Navigating cross-border equity issuance requires a blend of corporate law expertise and tax precision. We look forward to providing services relating to the above matter, including:
<ul data-path-to-node="20">
<li>
Classifying service agreements to meet "Technical Know-how" standards.
</li>
<li>
Conducting detailed DTAA and tax withholding analysis.
</li>
<li>
Facilitating the valuation and regulatory reporting process.
</li>
</ul>
Please let us know if you would like to schedule a consultation to discuss your specific requirements.

Shares for Services: A Guide to Non-Cash Allotment for Foreign Consultants

Shares for Services: A Guide to Non-Cash Allotment for Foreign Consult

How to Issue Shares for Services to Foreign Consultants in India: FEMA Rules

FDI in India: Guide to Non-Cash Allotments & Shares for Services-2025

FEMA Mode of Payment Rules 2025: Complete Guide to FDI Payment & Remittance Compliance

FEMA Mode of Payment Rules 2025: Complete Guide to FDI Payment & Remit

Foreign Direct Investment (FDI) in India is governed by the Foreign Exchange Management Act (FEMA), and entities receiving FDI must adhere to strict reporting and compliance requirements. Non-compliance can result in penalties, making it crucial for businesses to be aware of their obligations. Below is a detailed breakdown of the reporting requirements under FEMA.
<h2>1. Form Foreign Currency-Gross Provisional Return (FC-GPR)</h2>
Indian companies issuing equity instruments to non-resident investors must report such transactions in Form FC-GPR within 30 days from the date of issue. This also applies to participating interest/rights in oil fields.
<h2>2. Annual Return on Foreign Liabilities and Assets (FLA)</h2>
Entities that have received FDI, including Limited Liability Partnerships (LLPs) receiving capital contributions, must submit Form FLA to the Reserve Bank of India (RBI) on or before July 15 each year. The financial year for this reporting runs from April to March.
<h2>3. Form Foreign Currency-Transfer of Shares (FC-TRS)</h2>
This form is required for the transfer of equity instruments under the following conditions:
<ul data-spread="false">
<li>
Between a non-resident on a repatriable basis and another non-resident on a non-repatriable basis.
</li>
<li>
Between a non-resident on a repatriable basis and a resident Indian.
</li>
<li>
Transfers on recognized stock exchanges.
</li>
<li>
Transfers related to participating interest/rights in oil fields.
</li>
</ul>
Deadline: Form FC-TRS must be filed within 60 days from the date of transfer or receipt/remittance of funds, whichever is earlier.
<h2>4. Form Employees' Stock Option (ESOP)</h2>
If an Indian company issues stock options to non-resident employees/directors, including those of its holding, joint venture, or wholly owned subsidiary, it must file Form ESOP within 30 days from the date of issue.
<h2>5. Form Depository Receipt Return (DRR)</h2>
Domestic custodians must report the issue or transfer of depository receipts under the Depository Receipt Scheme, 2014 in Form DRR within 30 days from the closure of the issue.
<h2>6. Form LLP (I) and Form LLP (II)</h2>
<ul data-spread="false">
<li>
Form LLP (I): Filed within 30 days of receiving FDI in the form of capital contribution.
</li>
<li>
Form LLP (II): Required for the transfer of capital contribution/profit shares between a resident and a non-resident within 60 days from receipt of funds.
</li>
</ul>
<h2>7. LEC (FII) and LEC (NRI)</h2>
<ul data-spread="false">
<li>
LEC (FII): Authorized Dealer Category I banks must report Foreign Portfolio Investment (FPI) transactions.
</li>
<li>
LEC (NRI): Reports the purchase/transfer of equity instruments by Non-Resident Indians (NRIs) or Overseas Citizens of India (OCIs).
</li>
</ul>
<h2>8. Form InVI</h2>
Investment vehicles issuing units to non-residents must file Form InVI within 30 days from the date of issue.
<h2>9. Downstream Investment Reporting</h2>
<ul data-spread="false">
<li>
DPIIT Notification: Entities making downstream investments must notify the Secretariat for Industrial Assistance (DPIIT) within 30 days.
</li>
<li>
Form DI: Required when downstream investment results in indirect foreign investment, to be filed within 30 days from allotment of equity instruments.
</li>
</ul>
<h2>10. Form Convertible Notes (CN)</h2>
<ul data-spread="false">
<li>
Startups issuing Convertible Notes to non-residents must file Form CN within 30 days.
</li>
<li>
Transfers of Convertible Notes between residents and non-residents must also be reported within 30 days.
</li>
</ul>
<h2>11. Late Submission Fee (LSF) for Delayed Reporting</h2>
Entities failing to comply with these reporting requirements may be subject Late Submission Fee (LSF) determined by the RBI in consultation with the Central Government from time to time.
<h2>Final Thoughts</h2>
Ensuring timely compliance with FEMA reporting obligations is critical for businesses receiving FDI in India. Engaging with an experienced legal or financial advisor can help avoid regulatory penalties and streamline compliance processes.

Reporting and Compliance under FEMA for Entities Receiving FDI

Revised Master Direction on Risk Management and Inter-Bank Dealings: Key Updates, FAQs, and Compliance Guide
The Reserve Bank of India (RBI) has issued the Revised Master Direction on Risk Management and Inter-Bank Dealings through A.P. (DIR Series) Circular No. 13, dated January 5, 2024. This revised direction, effective April 5, 2024, aims to streamline foreign exchange risk management practices by consolidating various regulations and incorporating stakeholder feedback.
<h2>Key Highlights of the Revised Directions</h2>
<h3>1. Consolidation of Regulatory Framework</h3>
The revised framework consolidates the regulations from the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000, and various amendments made since then. It integrates provisions from the Currency Futures and Exchange Traded Currency Options Directions, ensuring a comprehensive approach to risk management.
<h3>2. Expansion of Hedging Facilities</h3>
The updated guidelines provide enhanced hedging options for foreign exchange risks. Key changes include:
<ul data-spread="false">
<li>
Inclusion of Non-Deliverable Foreign Exchange Derivative Contracts (NDDCs) in hedging instruments.
</li>
<li>
Classification of users into retail and non-retail categories based on financial exposure and net worth.
</li>
<li>
Introduction of specific eligibility criteria for different market participants, including NBFCs, mutual funds, pension funds, and foreign investors.
</li>
</ul>
<h3>3. Eligibility and User Classification</h3>
Under the new classification:
<ul data-spread="false">
<li>
Non-retail users include entities such as banks, financial institutions, and large corporations with a minimum net worth of ₹500 crore or turnover of ₹1000 crore.
</li>
<li>
Retail users encompass smaller market participants who do not meet the above criteria but are still eligible to access risk management tools.
</li>
</ul>
<h3>4. Permitted Foreign Exchange Contracts</h3>
The revised Master Direction allows various foreign exchange and interest rate derivative contracts, including:
<ul data-spread="false">
<li>
Foreign exchange forward, swap, and currency swaps.
</li>
<li>
Foreign exchange options (European), including call and put options.
</li>
<li>
Interest rate derivatives, such as forward rate agreements and interest rate swaps.
</li>
</ul>
<h3>5. Free Cancellation and Rebooking of Contracts</h3>
A major relief for businesses, the RBI now permits free cancellation and rebooking of derivative contracts. Additionally:
<ul data-spread="false">
<li>
Net gains from anticipated exposure hedging contracts will be passed on only at the time of cash flow realization.
</li>
<li>
In exceptional cases where the underlying cash flow does not materialize, RBI allows gains to be passed on, subject to bank approval.
</li>
</ul>
<h3>6. Compliance and Reporting Requirements</h3>
To ensure regulatory compliance:
<ul data-spread="false">
<li>
Authorized Dealers (AD Category-I Banks) must report foreign exchange transactions and ensure transparency in derivative pricing.
</li>
<li>
Recognized stock exchanges must monitor user exposure and compliance with underlying exposure limits.
</li>
<li>
Financial Benchmark India Pvt. Ltd. (FBIL) Reference Rates will be used for settlement of INR-denominated contracts.
</li>
</ul>
<h2>Frequently Asked Questions (FAQs) on Forex Transactions by Residents</h2>
<h3>1. Can a resident person undertake forex transactions?</h3>
Yes, residents are permitted to undertake forex transactions only with authorized persons and for permitted purposes as defined under FEMA. Engaging in transactions with unauthorized persons or for unauthorized purposes can lead to penal action.
<h3>2. Who are authorized persons?</h3>
Authorized persons are entities authorized by the RBI to deal in forex. This includes authorized dealers, money changers, offshore banking units, or any other entities authorized under Section 10(1) of FEMA.
<h3>3. Can a resident person undertake forex transactions on internet/electronic trading portals?</h3>
Permitted forex transactions executed electronically should be conducted only on Electronic Trading Platforms (ETPs) authorized by the RBI or on recognized stock exchanges such as NSE, BSE, and MSE. Engaging on unauthorized ETPs is prohibited and may result in penal action.
<h3>4. What is an Electronic Trading Platform (ETP)? Do they require authorization from RBI to operate in India?</h3>
An ETP is any electronic system where transactions in securities, forex instruments, derivatives, etc., are conducted. Operating an ETP in India requires prior authorization from the RBI under the Electronic Trading Platforms (Reserve Bank) Directions, 2018.
<h3>5. Is there information available about entities not authorized to deal in forex?</h3>
Yes, the RBI has published an Alert List containing names of entities neither authorized to deal in forex under FEMA nor authorized to operate ETPs.
<h3>6. Can a resident individual remit margin overseas under the Liberalised Remittance Scheme (LRS) for online forex trading?</h3>
No, remittances under LRS can only be made for permissible current and capital account transactions. Remitting funds for margins or margin calls to overseas exchanges is not allowed under the scheme.
<h2>Can Residents Trade in Foreign Currency Derivatives Through Overseas Entities?</h2>
As per RBI regulations, Indian residents are not permitted to trade in foreign currency derivatives through overseas entities in which they have invested via Overseas Direct Investment (ODI). This would be considered a violation of FEMA guidelines.
<h2>Implications for Businesses and Investors</h2>
<h3>1. Enhanced Risk Management Tools</h3>
Corporates and financial institutions can now access a wider range of hedging instruments, allowing better risk mitigation strategies against foreign exchange volatility.
<h3>2. Increased Market Liquidity</h3>
The inclusion of NDDCs and the consolidation of exchange-traded currency derivatives into the Master Direction are expected to boost market liquidity and efficiency.
<h3>3. Greater Flexibility in FX Transactions</h3>
With relaxed rebooking norms and higher exposure limits without prior approvals, businesses have greater flexibility in managing their foreign exchange exposure.
<h2>Conclusion</h2>
The Revised Master Direction on Risk Management and Inter-Bank Dealings marks a significant step in enhancing India&rsquo;s foreign exchange market regulations. Businesses, financial institutions, and investors must familiarize themselves with these updates to effectively leverage new opportunities and mitigate risks in the evolving global financial landscape.
<h3>Stay Updated!</h3>
For more insights into RBI regulations and their impact on businesses, subscribe to our newsletter or follow us for the latest updates on foreign exchange management.
For further information, visit the official RBI FAQs on Foreign Exchange Transactions <a href="https://www.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=3347">here</a>.
&nbsp;

RBI’s Revised Master Direction on Risk Management & Forex Trading: Key Updates & FAQs

RBI’s Revised Master Direction on Risk Management & Forex Trading

The RBI has rationalised the FIRMS portal in order auto acknowledge the Forms and to process the same for determining any violation involved therein.
Following are the salient features of the changes made on the FIRMS portal:
- All forms submitted with the requisite documents will be auto-acknowledged on the FIRMS portal with a time stamp and an auto-generated e-mail will be sent to the applicant.
- The forms submitted within prescribed timelines, will be verified by the AD banks based on the uploaded mandatory documents and ensure that the same are in compliance with the extant guidelines.
- The system would identify the delay in reporting, if any.
- For forms filed with a delay less than or equal to three years, the AD banks will approve the same, subject to payment of LSF.
- The LSF will be computed by the system and an e-mail will be sent to the applicant and the concerned Regional Office (RO) of RBI specifying the amount and the timeline within which it is to be paid to the concerned RO of RBI.
- Once the LSF amount is realised, the concerned RO will update the status in the FIRMS portal and the updated status will be communicated to the applicant through a system generated e-mail, which can also be viewed in the FIRMS portal.
- The AD bank will approve the forms filed with a delay greater than three years, subject to compounding of contravention. The applicant may thereafter approach RBI with their application for compounding.
- The remarks of the AD Bank for rejection of forms, if any, will be communicated to the applicant through a system generated e-mail and the same can also be viewed in the FIRMS portal.
Conclusions:
These changes are welcomed steps which are intended to improve transparency and better implementation of the reporting requirements. Earlier, the AD Banks had to process these forms within three working days, however, now they have to process these forms within five working days. It is also important here to state that the relevant date for the compliance is date of reporting to the RBI by the AD Bank and not the date of uploading. So, it is advisable to the user to file the relevant forms much before the due date to avoid any delay which may result in Late Submission Fees or Compounding Fees.

Foreign Direct Investment in India - Update on Reporting and Compliances

FDI Foreign Direct Investment Reporting Compliances Update

<h2>Introduction of the One Person Company</h2>
One Person Company (OPC) in India is a new concept that has been introduced with the Companies Act 2013. This form of company is mainly designed for an individual who are not willing to enter in partnership with others but want a corporate structure. OPC can be termed as Organized / Corporate Structure of the Proprietorship along-with a feature of limited liability.
Section 2(62) of the Act provides that the &ldquo;One Person Company means a company which has only one person as a member.&rdquo; That means the 100% of shareholding being held by the single individual.
However, it is important to note that no individual shall be eligible to incorporate more than one OPC or become a nominee in more than one such company. However, if an individual, being a member in OPC becomes a member in another OPC by virtue of his being a nominee in that OPC within a period of 180 days then he shall withdraw his membership from either of the OPCs within 180 days.
<h2>Whether FDI in OPC is allowed?</h2>
In OPC, the whole shares are held by single individual i.e. a natural person and not by any legal entity. Therefore, FDI by the Foreign Company in the OPC will not be permissible as per the provisions of Companies Act however, FDI by non-resident Indian who is citizen of India may form an OPC.
NRIs can invest in OPC on non-repatriation basis as well as repatriation basis in OPC.
<h2>Investment on Non-Repatriation basis</h2>
Investment on Non-Repatriation basis is treated at par with domestic investment. Therefore, FEMA pricing guidelines and reporting compliances are not applicable at the time of investment. &nbsp;The disinvestment / sales proceeds shall be credited only to the NRO account of the person concerned, irrespective of the type of account from which the consideration was paid.
There are certain businesses in which investment is prohibited under this route such as a Nidhi company or a company engaged in agricultural or plantation activities or real estate business or construction of farm houses or dealing in transfer of development rights.
The amount of consideration shall be paid as inward remittance from abroad through banking channels or out of funds held in NRE/FCNR(B)/NRO account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.
<h2>Investment on Repatriation basis</h2>
Investment on Repatriation basis will require compliance with sectoral caps and conditions, FEMA pricing guidelines and reporting compliance such as FCGPR, FCTRS, FLA etc. The Sales proceed can either be credit to the NRE account or can be transfer to the foreign bank account (subject to deduction of applicable taxes)
In this route, the prohibited sectors are: (a) Lottery business including Government or private lottery, online lotteries, etc. (b) Gambling and betting including casinos, etc. (c) Chit funds (d) Nidhi company (e) Trading in Transferable Development Rights (f) Real estate business or construction of farm houses (g) Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes. (h) Activities or sectors not open to private sector investment e.g. (I) Atomic energy and (II) Railway operations (other than permitted activities mentioned in paragraph (3) of Schedule I) (i) Foreign technology collaborations in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for lottery business and gambling and betting activities.
The amount of consideration shall be paid as inward remittance from abroad through banking channels or out of funds held in NRE/FCNR(B)/Escrow account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.
Disclaimer
The information contained in this article is for general informational purposes only and is not intended as legal advice or to create an professional-client relationship. The contents of this article should not be relied upon as a substitute for obtaining legal advice from a qualified attorney. No professional-client relationship is formed by the use of this information, and no reader should act on this information without seeking professional / legal counsel. Hence, we recommend that professional advice is sought before taking any action on specific issues before entering into any investment or financial obligation based on this Content

Foreign Direct Investment (FDI) in One Person Company (OPC)

What is late submission fees (LSF) under FEMA as provided by the RBI?
LSF is simple process of paying a prescribed late fee to regularise reporting delays of various complianes applicable under the FEMA such as delay in reporting of Form ODI Part-II/ APR, FCGPR (B), FLA Returns, Form OPI, FC-GPR, FCTRS, Form ESOP, Form LLP(I), Form LLP(II), Form CN, Form DI, Form InVi, Form ODI-Part I, Form ODI-Part III, Form FC, Form ECB, Form ECB-2, Revised Form ECB or any other return which captures flows or returns which capture reporting of non-fund transactions or any other transactional reporting.
LSF payment is an additional facility for regularizing reporting delays without undergoing the lenghthy compounding procedure. LSF is voluntary and advisable. However, reporting party may still opt for compounding by not paying LSF.
&nbsp;
What is the process to LSF?
Belated reporting or cmpliances received by the AD Bank are forwarded to the RBI. The RBI shall then condone the delay and issue a conditional acknowledgment subject to payment of LSF within a stipulated timeframe.
LSF is levied as per the computation matrix. Final acknowledgment of reporting shall be issued only upon payment of LSF by the reporting party.
LSF is not refundable.
LSF Matrix
<table>
<tbody>
<tr>
<td width="312">
Type of Reporting delays
</td>
<td width="312">
LSF in Rs
</td>
</tr>
<tr>
<td width="312">
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form ODI Part-II
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; APR
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; FCGPR (B)
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; FLA Returns
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form OPI,
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; evidence of investment or any other return which does not capture flows or any other periodical reporting
</td>
<td width="312">
Rs. 7,500/-
</td>
</tr>
<tr>
<td width="312">
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; FC-GPR
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; FCTRS
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form ESOP
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form LLP(I)
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form LLP(II)
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form CN
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form DI
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form InVi
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form ODI-Part I,
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form ODI-Part III,
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form FC,
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form ECB,
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Form ECB-2,
&middot;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Revised Form ECB or any other return which captures flows or returns which capture reporting of non-fund transactions or any other transactional reporting
</td>
<td width="312">
[ Rs. 7,500/- + (0.025% &times; A &times; n) ]
&nbsp;
&nbsp;
&nbsp;
</td>
</tr>
</tbody>
</table>
&nbsp;
Notes:
<ul>
<li>&ldquo;A&rdquo; is the amount involved in the delayed reporting.</li>
</ul>
&nbsp;
<ul>
<li>&ldquo;n&rdquo; is the number of years of delay in submission rounded-upwards to the nearest month and expressed up to 2 decimal points.</li>
</ul>
&nbsp;
<ul>
<li>LSF amount is per return. However, for any number of Form ECB-2 returns, delayed submission for each LRN will be treated as one instance for the fixed component. Further, &lsquo;A&rsquo; for any ECB-2 return will be the gross inflow or outflow (including interest and other charges), whichever is more.</li>
</ul>
&nbsp;
<ul>
<li>Maximum LSF amount will be limited to 100 per cent of &lsquo;A&rsquo; and will be rounded upwards to the nearest hundred.</li>
</ul>
&nbsp;
<ul>
<li>Where an advice has been issued for payment of LSF and such LSF is not paid within 30 days, such advice shall be considered as null and void and any LSF received beyond this period shall not be accepted. If the applicant subsequently approaches for payment of LSF for the same delayed reporting, the date of receipt of such application shall be treated as the reference date for the purpose of calculation of &ldquo;n&rdquo;.</li>
</ul>
&nbsp;
<ul>
<li>The facility for opting for LSF shall be available up to three years from the due date of reporting/ submission. The option of LSF shall also be available for delayed reporting/submissions under the Notification No. FEMA 120/2004-RB and earlier corresponding regulations, up to three years from the date of notification of Foreign Exchange Management (Overseas Investment) Regulations, 2022.</li>
</ul>
&nbsp;
<ul>
<li>In case a person responsible for any submission or filing under the provisions of FEMA, neither makes such submission/filing within the specified time nor makes such submission/filing along with LSF, such person shall be liable for penal action under the provisions of FEMA, 1999.</li>
</ul>
&nbsp;
Concluding Remarks:
LSF is business friendly approach which bypass the lenghthy process of compounding under the FEMA. This initiative can be viewed from the perspective of ease of doing business.&nbsp;

RBI Revised a matrix of late submission fees / penalty under FEMA vide RBI/2022-23/122 A.P. (DIR Series) Circular No. 16 dated September 30, 2022 

Late filing penalty under FEMA

New Overseas Direct Investment (ODI) / Overseas Investment (OI) Regime under the FEMA

FEMA ODI New Rules, Regulations Overseas Investment OI ODI new rules

<h2>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Introduction</h2>
 
<ol type="1">
<li>This article provides the complete insight of the Acquisition and transfer of immovable property in India by-</li>
<li>Non-Resident Indian (NRI),</li>
<li>Overseas Citizen of India Card Holders (OCI) and</li>
</ol>
 
as per the provisions of the Foreign Exchange Management Act, 1999 (FEMA) and rules / regulations made thereunder.
 
<ol type="1">
<li>The acquisition and transfer of immovable property in India by PROI (Person Resident of India) and by some other specified persons (such as Long Term Visa (LTV) Holders, Foreign Embassies or Diplomats or Consulate Generals etc.) is not discussed in this article and the same will be discussed in upcoming article. Further, the conceptual clarity and difference between NRI, OCI, PROI, PRI, Citizen etc. is separate topic. This requires in depth understanding, therefore, the same will be discussed in separate article. The link of upcoming relevant articles will be shared in comment section for ease of reference.</li>
</ol>
 
<h2>2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Historical Background</h2>
 
<ul>
<li>[Before the enactment of FEMA] As we know, before the enactment of FEMA, there was Foreign Exchange Regulation Act, 1973 (Repealed by FEMA) and section 31(1) of said Act provided that &ldquo;No person who is not a citizen of India and no company (other than a banking company) which is not incorporated under any law in force in India shall, except with the previous general or special permission of the Reserve Bank, acquire or hold or transfer or dispose of by sale, mortgage, lease, gift, settlement or otherwise an immovable property situate in India.&rdquo;</li>
<li>[After the enactment of FEMA] The FEMA classifies each foreign transaction in two categories viz: Current Account Transaction and Capital Account Transaction. The Current account transactions are generally permitted unless prohibited and capital account transactions are generally prohibited unless specifically permitted. The Central Government has an exclusive jurisdiction to regulate current account transactions and Reserve Bank of India (RBI) had exclusive jurisdiction to regulate capital account transactions. Accordingly, as per the provisions of section 6(3)(i) (now omitted), the RBI had exclusive jurisdiction to prohibit, restrict or regulate the acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India</li>
<li>[Amendment by Finance Act 2015 in FEMA] Later on,the Finance Act, 2015 amended the section 6 of the FEMA and classifies the capital account transactions in two categories: viz capital account transactions, involving debt instruments and capital account transactions, not involving debt instruments. Further, it has been provided that the term &ldquo;debt instruments&rdquo; shall mean, such instruments as may be determined by the Central Government in consultation with the Reserve Bank.</li>
<li>[Current Position] As discussed above, by the Finance Act 2015, the capital account transactions were further classified in two categories: viz capital account transactions, involving debt instruments and capital account transactions, not involving debt instruments. The power to regulate the capital account transactions, involving debt instruments is with the RBI and the power to regulate the capital account transactions, not involving debt instruments is with Central Government.</li>
<li>Summary of Above Discussion: The above discussion is summarized as under:</li>
</ul>
 
<figure class="wp-block-image size-large"><img class="wp-image-362" src="https://harchandanica.files.wordpress.com/2021/06/fema-1.png?w=625" alt="" /></figure>
 
<h2>3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Important Terms</h2>
 
<ul>
<li>[Immovable Property]The term Immovable Property neither has been defined in the FEMA nor in rules / regulations. Therefore, the meaning of same can be borrowed from the General Clause Act, 1897. Section 3(26) of the said Act provides that &ldquo;immovable property&rdquo; shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth;Apart from the above, the Transfer of Property Act, 1882, Registration Act, 1908 and Real Estate (Regulation and Development) Act, 2016 also contain the definition of immovable property. However, in substance, all these enacts highlight similar view while defining &ldquo;immovable property&rdquo;.</li>
</ul>
 
<ul>
<li>[Acquire]The term acquire is not defined in the Rules or Act. Generally, it means &ldquo;to gain possession or control of; to get or obtain.&rdquo;</li>
</ul>
 
<ul>
<li>[Transfer]Transfer is Defined in FEMA. Section 2(ze) define [&ldquo;transfer&rdquo; includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien.]</li>
</ul>
 
<h2>4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; FEMA Provisions &amp; Relevant Rules</h2>
 
<ul>
<li>Section 6(2A) and 46(2)(ab) empower the Central Government to notify or make rules with respect to the permissible classes of capital account transactions (not involving debt instrument), the limits of admissibility of foreign exchange, and the prohibition, restriction or regulation of such transactions.</li>
</ul>
 
<ul>
<li>Therefore, in Oct. 2019, the Central Government notifies <a>Foreign Exchange Management (Non-debt Instruments) Rules, 2019</a> by suppressing the previous regulations made by RBI viz: Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2017 and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018.</li>
</ul>
 
<ul>
<li>Chapter IX of Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (&ldquo;Rules&rdquo;) contain the provisions regarding acquisition and transfer of immovable property in India.</li>
</ul>
 
<h2>5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; General (Rules applicable in all cases)</h2>
 
<ul>
<li>[All transactions should be done only through banking channel in India and subject to payment of applicable tax]
<ul>
<li>Any transaction involving acquisition or transfer of immovable property shall be undertaken through banking channels in India and subject to payment of applicable taxes and other duties or levies in India (e.g. Stamp Duty, Registration Fees, Applicable Income Tax etc.)</li>
</ul>
</li>
</ul>
 
<ul>
<li>[Prior approval of RBI required by citizens of certain countries]
<ul>
<li>Prior permission of the RBI required to acquire or transfer of immovable property in India (other than lease not exceeding five years) by the person who is citizen or legal person (company, LLP, Firm, Trust etc.) of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Hong Kong or Macau or Democratic People&rsquo;s Republic of Korea (DPRK).</li>
<li>Please note that this rule links the condition of prior approval of the RBI with the citizenship (including legal person incorporated in those countries), therefore, even if such citizens become Person Resident in India by virtue of provisions of Section 2(v), then still, they must obtain the prior approval of the RBI.</li>
<li>Now suppose, there are two persons being husband and wife and any of them is citizen of above country and another is citizen of India and both desires to purchase the property in joint name, then, in the opinion of author, still prior approval of RBI is must.</li>
<li>However, this prohibition is not applicable to OCI card holder (i.e. a person who is holding OCI card and is citizen of any of above mentioned country)</li>
</ul>
</li>
</ul>
 
<ul>
<li>[Prior approval of RBI is must in case of any deviation or non fulfilment of any condition]
<ul>
<li>Any transaction, which is not specified in Chapter IX of Rules or in case of any deviation or non fulfilment of any conditions, requires prior approval of RBI before the execution of such transaction.</li>
</ul>
<ul>
<li>In case if person fails to obtain prior approval, wherever required, and execute the transaction, then this may attract the adjudication or person have to file compounding application for compounding of offence before the RBI.</li>
</ul>
</li>
</ul>
 
<h2>6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Rules for NRI and OCI</h2>
 
<ul>
<li>[Acquisition other than gift or inheritance]
<ul>
<li>NRI and OCI can acquire any immovable property other than an agricultural land or farm house or plantation property</li>
</ul>
<ul>
<li>Permitted mode of payment: (i) funds received in India through banking channels by way of inward remittance from any place outside India or (ii) funds held in any non-resident account maintained in accordance with the provisions of the Act, rules or regulations framed thereunder (such as NRE / FCNR / NRO account). However, property acquired by utilizing funds of NRO account cannot be repatriate outside India (see para 7 of this article).</li>
</ul>
<ul>
<li>Prohibited mode of payment: payment made through traveller&rsquo;s cheque or by foreign currency notes or by any other mode other than those specifically permitted.</li>
</ul>
</li>
</ul>
 
<ul>
<li>[Acquisition by way of gift]
<ul>
<li>NRI and OCI can acquire any immovable property in India (other than agricultural land or farm house or plantation property) by way of gift from a person who is either person resident in India or NRI or OCI.</li>
</ul>
<ul>
<li>Further, such donor (who is giving gift of immovable property) should be relative of such NRI / OCI with the meaning of section 2(77) of the Companies Act, 2013.</li>
</ul>
<ul>
<li>Section 2(77) of Companies Act, 2013 define relative as under;</li>
</ul>
</li>
</ul>
 
<blockquote class="wp-block-quote">
(77) "relative", with reference to any person, means any one who is related to another, if&mdash;
(i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed (following relations are prescribed)
(1) Father (includes step-father)
(2) Mother (includes the step-mother)
(3) Son (includes step son)
(4) Son&rsquo;s wife.
(5) Daughter.
(6) Daughter&rsquo;s husband.
(7) Brother (includes step brother)
(8) Sister (includes the step-sister)
</blockquote>
 
<ul>
<li>[Acquisition by way of inheritance]
<ul>
<li>Sub-section (5) of section 6 of FEMA provides that</li>
<li>A person resident outside India</li>
<li>may hold, own, transfer or invest</li>
<li>in Indian currency, security or any immovable property situated in India</li>
<li>if such currency, security or property was acquired, held or owned by such person</li>
<li>when he was resident in India or inherited from a person who was resident in India.</li>
</ul>
</li>
<li>Section 6(5) of FEMA allows the PROI to hold any immovable property situated in India property if such property was acquired by such person when he was resident in India or inherited from a person who was resident in India. However, this section does not allow to acquire new property by PROI out of fund accumulated during the period when he was resident or funds received in inheritance and this can be appreciated from the reading of the part of the provision (may hold, own, transfer or invest) which does not contain acquire.</li>
<li>NRI and OCI can acquire any property (including agricultural land or farm house or plantation property) by way of inheritance from a person resident outside India who has</li>
</ul>
 
(a.) acquired such immovable property in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these rules; or
 
(b.) from a person resident in India.
 
<ul>
<li>[Transfer of any property by NRI and OCI]
<ul>
<li>NRI and OCI can transfer any property (including agricultural land or farm house or plantation property) to a person resident in India.</li>
</ul>
</li>
</ul>
 
<ul>
<li>[Joint acquisition by the spouse of a NRI / OCI]
<ul>
<li>PROI, not being an NRI / OCI, who is a spouse of an NRI or OCI may acquire ONE immovable property (other than agricultural land or farm house or plantation property), jointly with his or her NRI or OCI spouse subject to following conditions:</li>
<li>Consideration for transfer, shall be made out of (i) funds received in India through banking channels by way of inward remittance from any place outside India; or (ii) funds held in any non-resident account maintained in accordance with the provisions of the Act and the regulations made by the RBI</li>
<li>No payment for any transfer of immovable property shall be made either by traveller&rsquo;s cheque or by foreign currency notes or by any other mode other than those specifically permitted as above</li>
<li>The marriage has been registered and subsisted for a continuous period of not less than two years immediately preceding the acquisition of such property</li>
<li>Such non-resident spouse is not otherwise prohibited from such acquisition (e.g. suppose if the Spouse is Citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Hong Kong or Macau or Democratic People&rsquo;s Republic of Korea (DPRK), then prior approval of RBI is mandatory)</li>
</ul>
</li>
</ul>
 
<ul>
<li>[Summary]
<ul>
<li>The above discussion is summarized as under:</li>
</ul>
</li>
</ul>
 
<figure class="wp-block-image size-large"><img class="wp-image-363" src="https://harchandanica.files.wordpress.com/2021/06/fema-2.png?w=626" alt="" /></figure>
 
<ul>
<li>Repatriation of sale proceed
<ul>
<li>[Repatriation by person referred in Section 6(5)] PROI or his successor (who acquired immovable property when he was resident in India or inherited from a person who was resident in India) shall not, except with the general or specific permission of the RBI, repatriate outside India the sale proceeds of any immovable property referred to in that sub-section.</li>
</ul>
<ul>
<li>[Repatriation by NRI / OCI] Subject to fulfilment of following conditions NRI / OCI may repatriate the sale proceed outside:</li>
<li>Sale proceed does not relates to agricultural land or farm house or plantation property in India</li>
<li>Such immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition or the provisions of these rules</li>
<li>In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties</li>
<li>The amount for acquisition of the immovable property was paid in foreign exchange received through banking channels or out of funds held in Foreign Currency Non-Resident Account or out of funds held in Non-Resident External Account. (it is apparent that, while acquiring, if funds were utilized from NRO account, then such proceed cannot be repatriate outside India. If funds were utilized partially from the NRO and partially from NRE account? In such case, in the opinion of the author, the prior permission of RBI is must.)</li>
</ul>
</li>
</ul>
 
<ul>
<li>Disclaimer</li>
</ul>
 
The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor the publisher or its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.
 
<ul>
<li>About Author</li>
</ul>
 
The author, Manish Harchandani (founder of Harchandani &amp; Associates, Chartered Accountants) is practicing Chartered Accountant and he can be reached at <a href="mailto:harchandanimanish@gmail.com">harchandanimanish@gmail.com</a> and at M. +91 9909880111

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