Foreign investment in India is governed by the Foreign Exchange Management Act and related rules and RBI directions. FEMA compliance is not limited to getting money into India. It includes pricing discipline, documentation, and timely reporting on the RBI portal through the authorised dealer bank.
For foreign investors and Indian companies receiving investment, FEMA non compliance can lead to late submission fees, compounding, transaction delays in future rounds, and issues during due diligence.
What FEMA Compliance Covers for FDI
A practical FEMA compliance framework covers:
- Confirming whether the investment is under automatic route or government route
- Checking sectoral caps and entry conditions
- Ensuring pricing guidelines and valuation support
- Maintaining correct documentation for remittance and allotment
- Completing RBI reporting on time
- Tracking ongoing reporting such as FLA return
Step 1 Confirm the FDI Route and Entry Conditions
Automatic route vs government route
Most sectors allow FDI under the automatic route subject to conditions. Some sectors require prior government approval.
Sectoral caps and conditionalities
Before accepting investment, confirm:
- Maximum foreign ownership permitted
- Whether there are performance linked conditions
- Whether there are restrictions on downstream investment
Practical tip: Document the policy basis for your route determination and keep it in the compliance file.
Step 2 Get Pricing and Valuation Right
FEMA requires that issue and transfer of shares to non residents follow pricing guidelines.
Issue of shares
For issue of shares to a non resident, pricing should be supported by a valuation report using an accepted methodology.
Transfer of shares
For transfer between resident and non resident, pricing rules apply depending on the direction of transfer.
Maintain:
- Valuation report
- Board approvals
- Share subscription or transfer documents
- Payment evidence
Step 3 Maintain the Core Documentation Pack
A clean documentation pack reduces delays with the authorised dealer bank and future due diligence. Maintain:
- FIRC and bank advice for inward remittance
- KYC report from the remitting bank
- Board and shareholder resolutions
- Share subscription agreement and shareholders agreement where applicable
- Allotment documents and share certificates
- Updated register of members
- Valuation report and pricing working
Step 4 RBI Reporting on FIRMS Portal
Most RBI reporting is done on the FIRMS portal through the single master form.
FC GPR
FC GPR is filed for issue of capital instruments to non residents.
FC TRS
FC TRS is filed for transfer of capital instruments between resident and non resident.
Other common filings
Depending on the transaction, other reporting may apply such as:
- Downstream investment reporting
- ESOP reporting for non resident employees
- Convertible notes reporting
Step 5 Ongoing Reporting FLA Return
Companies with foreign investment or overseas investment typically need to file the annual return on foreign liabilities and assets.
A strong process includes:
- Reconciling foreign shareholding and outstanding instruments
- Reconciling intercompany balances where relevant
- Maintaining supporting schedules for reporting
Common FEMA Compliance Issues
- Delayed FC GPR or FC TRS filing leading to late submission fees
- Missing KYC report or incomplete remittance documentation
- Incorrect valuation methodology or missing valuation support
- Misclassification of instruments such as CCD or CCPS
- Downstream investment reporting missed
- FLA return not filed or filed with inconsistent data
Practical FEMA Compliance Checklist
Before receiving funds
1 Confirm sectoral cap and route 2 Finalise term sheet and instrument type 3 Prepare valuation plan and identify valuer 4 Confirm bank account and remittance instructions
After funds are received
1 Collect FIRC and bank advice 2 Obtain KYC report from remitting bank 3 Pass board resolution for allotment 4 Issue share certificates and update registers 5 File FC GPR within timeline and obtain acknowledgement
Share transfer transactions
1 Execute transfer documents and collect consideration 2 Obtain valuation and pricing support 3 File FC TRS within timeline and obtain acknowledgement
Annual and ongoing
1 Maintain a FEMA compliance file for each investor 2 Track downstream investment and reporting triggers 3 Prepare and file FLA return with reconciled schedules 4 Review delays and evaluate late submission fee or compounding where needed
How Perfect Accounting Can Help
Perfect Accounting and Shared Services supports FEMA and foreign investment compliance:
- Route and sectoral cap review
- Documentation pack preparation and coordination with AD bank
- FC GPR and FC TRS filing support on FIRMS portal
- Valuation coordination and pricing compliance review
- FLA return preparation and filing
- Due diligence support for FEMA compliance