FEMA & Regulatory
FEMA is a civil statute, not a criminal one — but its reporting deadlines are short, they run from the transaction rather than the year end, and a contravention persists until it is compounded. Most FEMA problems are late filings rather than prohibited transactions.
How FEMA Regulates Cross-Border Money
The Foreign Exchange Management Act 1999 replaced a prohibitive regime with a regulatory one. Current account transactions are generally permitted subject to reasonable restrictions, while capital account transactions are permitted only to the extent specified in the rules and regulations made under the Act. The consequence for practice is that the question is rarely whether a transaction is legal — it is whether it has been correctly routed, reported and documented within the window.
Inbound investment runs through the FDI policy, which sets sector-specific caps, entry routes and conditions. Most sectors are on the automatic route, requiring no prior approval but full reporting; sensitive sectors require government approval. Investment from countries sharing a land border with India requires government approval regardless of sector, and the beneficial ownership test for that restriction reaches through intermediate holding structures.
The reporting deadlines are the operative constraint. Form FC-GPR must be filed within thirty days of allotment of shares to a non-resident. Form FC-TRS covers transfer of shares between a resident and a non-resident and must be filed within sixty days of receipt of consideration. Both run on the single master form on the RBI's FIRMS portal, and both are missed routinely because the commercial team completes the transaction without telling finance.
Outbound investment is governed by the Overseas Investment Rules and Regulations of 2022, which consolidated a fragmented framework. The distinction between overseas direct investment and overseas portfolio investment now determines the route, the limits and the reporting. Form FC is filed for the investment itself, and an Annual Performance Report is due each year for as long as the overseas entity is held.
External commercial borrowings are subject to a framework governing eligible borrowers and lenders, minimum average maturity, all-in-cost ceilings and end-use restrictions. A Loan Registration Number must be obtained before drawdown, and monthly ECB-2 returns run for the life of the facility.
Individuals remit under the Liberalised Remittance Scheme, currently up to USD 250,000 per financial year for permitted current and capital account transactions. Remittances under the scheme attract TCS at rates that vary by purpose, with concessional treatment for education and medical remittances.
Where a contravention has occurred, compounding under Section 13 provides a route to regularise it. The application is made to the Reserve Bank, the contravention is quantified and a compounding amount is levied. Voluntary disclosure before detection is treated more favourably, and the contravention continues to subsist — with the amount continuing to build — until the application is made.
What We Handle
FDI structuring & reporting
Sector cap and entry route analysis, pricing guidelines compliance, and FC-GPR and FC-TRS filings on the FIRMS portal within the statutory windows.
Overseas investment
ODI versus OPI classification under the 2022 rules, Form FC filing, Unique Identification Number, and the Annual Performance Report for each overseas entity.
External commercial borrowings
Eligibility, minimum average maturity and all-in-cost testing, Loan Registration Number applications, end-use compliance and monthly ECB-2 returns.
Annual returns
The FLA return to the Reserve Bank each July for every entity holding or having issued foreign investment, including in years with no fresh transaction.
Compounding
Quantifying a contravention, preparing the compounding application, and representing before the compounding authority — with voluntary disclosure ahead of detection wherever possible.
Valuation & pricing
Pricing guideline compliance on issue and transfer of shares to and from non-residents, and the valuation certification the guidelines require.
FEMA Reporting Calendar
| Form | What it covers | Due |
|---|---|---|
| Form FC-GPR | Issue of shares to a person resident outside India | Within 30 days of allotment |
| Form FC-TRS | Transfer of shares between a resident and a non-resident | Within 60 days of receipt of consideration |
| FLA Return | Annual return on foreign liabilities and assets | 15 July each year |
| Form ODI / FC | Overseas direct investment reporting | At the time of the remittance or investment |
| Annual Performance Report | Annual report for each overseas entity held | 31 December each year |
| Form ECB-2 | Monthly return on external commercial borrowings | Within 7 working days of month end |
Dates are the ordinary statutory positions and are frequently extended by notification. Confirm the current position before relying on any of them.
Where FEMA Compliance Slips
Completing an allotment or share transfer commercially and reporting it only at year end, by which time the 30 or 60 day window has long closed.
Skipping the FLA return in a year with no fresh transaction — it is due from every entity holding foreign investment, not only those that transacted.
Missing the land-border approval requirement because the immediate investor is elsewhere, without testing beneficial ownership up the chain.
Pricing an issue or transfer without the valuation the pricing guidelines require, which cannot be cured retrospectively.
Letting a contravention run unaddressed on the assumption it is minor — it subsists until compounded, and voluntary disclosure is treated far more favourably than detection.
Overlooking the Annual Performance Report for a dormant overseas subsidiary that is still held.
Frequently Asked Questions
What is the difference between FC-GPR and FC-TRS?
FC-GPR reports a fresh issue of shares by an Indian company to a person resident outside India, and is due within thirty days of allotment. FC-TRS reports a transfer of existing shares between a resident and a non-resident, and is due within sixty days of receipt of consideration. Issue and transfer are distinct events with different forms and different windows.
Who has to file the FLA return?
Every Indian company, LLP or other entity that has received foreign direct investment or made overseas direct investment in any prior year, and still holds it. The obligation does not depend on activity during the year — an entity with foreign investment on its books must file by 15 July even if nothing happened that year. This is the single most commonly missed FEMA filing.
What happens if a FEMA filing is late?
It is a contravention that continues to subsist until regularised. The route is compounding under Section 13: the contravention is quantified and a compounding amount is levied by the Reserve Bank. Because the amount is influenced by the duration and by whether disclosure was voluntary, a late filing addressed promptly and voluntarily costs materially less than one discovered on inspection.
What is the LRS limit?
Currently USD 250,000 per financial year per individual, for permitted current and capital account transactions. Remittances attract TCS at rates that vary by purpose, with concessional treatment for education funded by an education loan and for medical remittances. The limit applies per individual, so family members have separate entitlements.
Do I need government approval for foreign investment?
Most sectors are on the automatic route and need no prior approval, though reporting remains mandatory. Sensitive sectors require government approval, and any investment from an entity of a country sharing a land border with India — or where the beneficial owner is situated in such a country — requires approval regardless of sector. The beneficial ownership test looks through intermediate holding structures.
Is a FEMA contravention a criminal offence?
No. FEMA is a civil statute and contraventions are dealt with by penalty and compounding rather than prosecution, which was the significant change from the earlier FERA regime. That said, penalties can be substantial, and specified serious matters can attract action under other statutes, so the civil character should not be mistaken for a low-consequence one.
What is an Annual Performance Report?
An annual filing required for every overseas entity in which an Indian party holds an overseas direct investment, based on the audited accounts of that entity. It is due by 31 December each year and continues for as long as the investment is held — including for dormant or loss-making entities, which is where it is most often forgotten.
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General guidance only, current to the Income-tax Act 1961 numbering that governs assessment years up to and including the year ending 31 March 2026. The Income-tax Act 2025 applies from 1 April 2026. Thresholds, rates and due dates change frequently — verify the position and take advice before acting.