What is FDI (Foreign Direct Investment)?

How it works

FDI is permitted under the automatic or government route depending on the sector, with reporting in Form FC-GPR to the RBI through an authorised dealer bank.

Routes, caps and the prohibited list

FDI enters either through the automatic route, needing no prior approval, or the government route, requiring clearance from the administrative ministry. Sectoral caps sit on top: most manufacturing and services are at 100% automatic, while defence, insurance, banking, broadcasting, print media and multi-brand retail carry lower caps or approval conditions. A short prohibited list stands outside both routes — lottery and gambling, chit funds, nidhi companies, real estate business and farm houses, tobacco manufacturing, and sectors closed to private investment. Press Note 3 of 2020 adds a separate gate: investment from an entity in a country sharing a land border with India, or with beneficial ownership there, needs government approval regardless of sector.

Pricing and the reporting calendar

FEMA pricing guidelines run in one direction — a non-resident may never be favoured. Shares issued to a non-resident must be priced at or above fair value computed by an internationally accepted methodology; a transfer from a non-resident to a resident must be at or below it. The filings follow: Form FC-GPR within 30 days of allotment, Form FC-TRS within 60 days of a transfer between resident and non-resident, and the annual FLA return by 15 July for every entity holding foreign investment.

Worked example

A US investor subscribes to Rs.10 crore of equity in an Indian services company. Funds arrive through banking channels, shares are allotted within 60 days of receipt, and FC-GPR is filed on the FIRMS portal within 30 days of allotment. A delay is not fatal but is not free either — it is regularised through a Late Submission Fee, and an unregularised filing history routinely stalls the next round of diligence. Verify current caps and conditions at dpiit.gov.in before structuring.

This content is for general guidance only and does not constitute professional advice. Tax law changes frequently — verify the current position and consult a qualified Chartered Accountant before acting. Last reviewed: June 2026.