THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999

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ARRANGEMENT OF SECTIONS
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CHAPTER I
PRELIMINARY

SECTIONS
1. Short title, extent, application and commencement.
2. Definitions.

CHAPTER II
REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE
3. Dealing in foreign exchange, etc.
4. Holding of foreign exchange, etc.
5. Current account transactions.
6. Capital account transactions.
7. Export of goods and services.
8. Realisation and repatriation of foreign exchange.
9. Exemption from realisation and repatriation in certain cases.

CHAPTER III
AUTHORISED PERSON
10. Authorised person.
11. Reserve Bank’s powers to issue directions to authorised person.
12. Power of Reserve Bank to inspect authorised person.

CHAPTER IV
CONTRAVENTION AND PENALTIES
13. Penalties.
14. Enforcement of the orders of Adjudicating Authority.
14A. Power of recover arrears of penalty.
15. Power to compound contravention.

CHAPTER V
ADJUDICATION AND APPEAL
16. Appointment of Adjudicating Authority.
17. Appeal to Special Director (Appeals).
18. Appellate Tribunal.
19. Appeal to Appellate Tribunal.
20. [Omitted.]
21. Qualifications, for appointment of Special Director (Appeals).
22. [Omitted.]
23. Terms and Conditions of service Special Director (Appeals).
24. [Omitted.]

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SECTIONS
25. [Omitted.]
26. [Omitted.]
27. Staff of Special Director (Appeals).
28. Procedure and powers of Appellate Tribunal and Special Director (Appeals).
29. [Omitted.]
30. [Omitted.]
31. [Omitted.]
32. Right of appellant to take assistance of legal practitioner or chartered accountant and of
Government, to appoint presenting officers.
33. Officers and Employees etc., to be public servant.
34. Civil court not to have jurisdiction.
35. Appeal to High Court.

CHAPTER VI
DIRECTORATE OF ENFORCEMENT
36. Directorate of Enforcement.
37. Power of search, seizure, etc.
37A. Special provisions relating to assets held outside India in contravention of section 4.
38. Empowering other officers.

CHAPTER VII
MISCELLANEOUS
39. Presumption as to documents in certain cases.
40. Suspension of operation of this Act.
41. Power of Central Government to give directions.
42. Contravention by companies.
43. Death or insolvency in certain cases.
44. Bar of legal proceedings.
45. Removal of difficulties.
46. Power to make rules.
47. Power to make regulations.
48. Rules and regulations to be laid before Parliament.
49. Repeal and saving.

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 THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999
ACT NO. 42 OF 1999
[29th December, 1999.]
An Act to consolidate and amend the law relating to foreign exchange with the objective of
facilitating external trade and payments and for promoting the orderly development and
maintenance of foreign exchange market in India.
BE it enacted by Parliament in the Fiftieth Year of the Republic of India as follows:—
CHAPTER I
PRELIMINARY
1. Short title, extent, application and commencement.—(1) This Act may be called the Foreign
Exchange Management Act, 1999.
(2) It extends to the whole of India.
(3) It shall also apply to all branches, offices and agencies outside India owned or controlled by a
person resident in India and also to any contravention thereunder committed outside India by any person
to whom this Act applies.
(4) It shall come into force on such date1 as the Central Government may, by notification in the
Official Gazette, appoint:
Provided that different dates may be appointed for different provisions of this Act and any reference in
any such provision to the commencement of this Act shall be construed as a reference to the coming into
force of that provision.
2. Definitions.—In this Act, unless the context otherwise requires,—
(a) “Adjudicating Authority” means an officer authorised under sub-section (1) of section 16;
2
[(b) “Appellate Tribunal” means the Appellate Tribunal referred to in section 18;]
(c) “authorised person” means an authorised dealer, money changer, off-shore banking unit or
any other person for the time being authorised under sub-section (1) of section 10 to deal in foreign
exchange or foreign securities;
[(cc) “Authorised Officer” means an officer of the Directorate of Enforcement authorised by the
3

Central Government under section 37A;]

(d) “Bench” means a Bench of the Appellate Tribunal;
(e) “capital account transaction” means a transaction which alters the assets or liabilities, including
contingent liabilities, outside India of persons resident in India or assets or liabilities in India of
persons resident outside India, and includes transactions referred to in sub-section (3) of section 6;
(f) “Chairperson” means the Chairperson of the Appellate Tribunal;
(g) “chartered accountant” shall have the meaning assigned to it in clause (b) of sub-section (1) of
section 2 of the Chartered Accountants Act, 1949 (38 of 1949);
3
[(gg) “Competent Authority” means the Authority appointed by the Central Government under
sub-section (2) of section 37A;]
(h) “currency” includes all currency notes, postal notes, postal orders, money orders, cheques,
drafts, travellers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such
other similar instruments, as may be notified by the Reserve Bank;

1. 1st June, 2000, vide notification No. G.S.R. 371(E), dated 1st May, 2000, see Gazette of India, Extraordinary, Part II,
sec. 3(i).
2. Subs. by Act 7 of 2017, s. 165, for clause (b) (w.e.f. 26-5-2017).
3. Ins. by Act 20 of 2015, s. 138 (w.e.f. 9-9-2015).

3
 (i) “currency notes” means and includes cash in the form of coins and bank notes;
(j) “current account transaction” means a transaction other than a capital account transaction and
without prejudice to the generality of the foregoing such transaction includes,—
(i) payments due in connection with foreign trade, other current business, services, and
short-term banking and credit facilities in the ordinary course of business,
(ii) payments due as interest on loans and as net income from investments,
(iii) remittances for living expenses of parents, spouse and children residing abroad, and
(iv) expenses in connection with foreign travel, education and medical care of parents, spouse
and children;
(k) “Director of Enforcement” means the Director of Enforcement appointed under sub-section (1)
of section 36;
(l) “export”, with its grammatical variations and cognate expressions, means—
(i) the taking out of India to a place outside India any goods,
(ii) provision of services from India to any person outside India;
(m) “foreign currency” means any currency other than Indian currency;
(n) “foreign exchange” means foreign currency and includes,—
(i) deposits, credits and balances payable in any foreign currency,
(ii) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian
currency but payable in any foreign currency,
(iii) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions
or persons outside India, but payable in Indian currency;
(o) “foreign security” means any security, in the form of shares, stocks, bonds, debentures or any
other instrument denominated or expressed in foreign currency and includes securities expressed in
foreign currency, but where redemption or any form of return such as interest or dividends is payable in
Indian currency;
(p) “import”, with its grammatical variations and cognate expressions, means bringing into India
any goods or services;
(q) “Indian currency” means currency which is expressed or drawn in Indian rupees but does not
include special bank notes and special one rupee notes issued under section 28A of the Reserve Bank of
India Act, 1934 (2 of 1934);
(r) “legal practitioner” shall have the meaning assigned to it in clause (i) of sub-section (1) of
section 2 of the Advocates Act, 1961 (25 of 1961);
(s) “Member” means a Member of the Appellate Tribunal and includes the Chairperson thereof;
(t) “notify” means to notify in the Official Gazette and the expression “notification” shall be
construed accordingly;
(u) “person” includes—
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) every artificial juridical person, not falling within any of the preceding sub-clauses, and
(vii) any agency, office or branch owned or controlled by such person;

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 (v) “person resident in India” means—
(i) a person residing in India for more than one hundred and eighty-two days during the
course of the preceding financial year but does not include—
(A) a person who has gone out of India or who stays outside India, in either case—
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to
stay outside India for an uncertain period;
(B) a person who has come to or stays in India, in either case, otherwise than—
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to
stay in India for an uncertain period;
(ii) any person or body corporate registered or incorporated in India,
(iii) an office, branch or agency in India owned or controlled by a person resident outside
India,
(iv) an office, branch or agency outside India owned or controlled by a person resident in
India;
(w) “person resident outside India” means a person who is not resident in India;
(x) “prescribed” means prescribed by rules made under this Act;
(y) “repatriate to India” means bringing into India the realised foreign exchange and—
(i) the selling of such foreign exchange to an authorised person in India in exchange for
rupees, or
(ii) the holding of realised amount in an account with an authorised person in India to the
extent notified by the Reserve Bank,
and includes use of the realised amount for discharge of a debt or liability denominated in foreign
exchange and the expression “repatriation” shall be construed accordingly;
(z) “Reserve Bank” means the Reserve Bank of India constituted under sub-section (1) of section 3
of the Reserve Bank of India Act, 1934 (2 of 1934);
(za) “security” means shares, stocks, bonds and debentures, Government securities as defined in the
Public Debt Act, 1944 (18 of 1944), savings certificates to which the Government Savings Certificates
Act, 1959 (46 of 1959) applies, deposit receipts in respect of deposits of securities and units of the Unit
Trust of India established under sub-section (1) of section 3 of the Unit Trust of India Act, 1963
(52 of 1963) or of any mutual fund and includes certificates of title to securities, but does not include
bills of exchange or promissory notes other than Government promissory notes or any other instruments
which may be notified by the Reserve Bank as security for the purposes of this Act;
(zb) “service” means service of any description which is made available to potential users and
includes the provision of facilities in connection with banking, financing, insurance, medical assistance,
legal assistance, chit fund, real estate, transport, processing, supply of electrical or other energy,
boarding or lodging or both, entertainment, amusement or the purveying of news or other information,
but does not include the rendering of any service free of charge or under a contract of personal service ;
(zc) “Special Director (Appeals)” means an officer appointed under 1[section 17];
(zd) “specify” means to specify by regulations made under this Act and the expression “specified”
shall be construed accordingly;

1. Subs. by Act 7 of 2017, s.165, for “section 18” (w.e.f. 26-5-2017).

5
 (ze) “transfer” includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of
transfer of right, title, possession or lien.
CHAPTER II
REGULATION AND MANAGEMENT OF FOREIGN EXCHANGE
3. Dealing in foreign exchange, etc.—Save as otherwise provided in this Act, rules or regulations
made thereunder, or with the general or special permission of the Reserve Bank, no person shall—
(a) deal in or transfer any foreign exchange or foreign security to any person not being an
authorised person;
(b) make any payment to or for the credit of any person resident outside India in any manner;
(c) receive otherwise through an authorised person, any payment by order or on behalf of any
person resident outside India in any manner.
Explanation.—For the purpose of this clause, where any person in, or resident in, India receives
any payment by order or on behalf of any person resident outside India through any other person
(including an authorised person) without a corresponding inward remittance from any place outside
India, then, such person shall be deemed to have received such payment otherwise than through an
authorised person;
(d) enter into any financial transaction in India as consideration for or in association with
acquisition or creation or transfer of a right to acquire, any asset outside India by any person.
Explanation.—For the purpose of this clause, “financial transaction” means making any payment
to, or for the credit of any person, or receiving any payment for, by order or on behalf of any person,
or drawing, issuing or negotiating any bill of exchange or promissory note, or transferring any
security or acknowledging any debt.
4. Holding of foreign exchange, etc.—Save as otherwise provided in this Act, no person resident in
India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any
immovable property situated outside India.
5. Current account transactions.—Any person may sell or draw foreign exchange to or from an
authorised person if such sale or drawal is a current account transaction:
Provided that the Central Government may, in public interest and in consultation with the Reserve
Bank, impose such reasonable restrictions for current account transactions as may be prescribed.
6. Capital account transactions.—(1) Subject to the provisions of sub-section (2), any person may
sell or draw foreign exchange to or from an authorised person for a capital account transaction.
(2) The Reserve Bank may, in consultation with the Central Government, specify—
1
[(a) any class or classes of capital account transactions which are permissible;]
(b) the limit up to which foreign exchange shall be admissible for such transactions:
2
[(c) any conditions which may be placed on such transactions;]
3
[Provided that the Reserve Bank shall not impose any restriction on the drawal of foreign
exchange for payments due on account of amortization of loans or not depreciation of direct
investments in the ordinary course of business.]

1. Clause (a) shall stand substituted (date to be notified) by Act 20 of 2015, s. 139, to read as under:
“(a) any class or classes of capital account transactions, involving debt instruments, which are permissible;".
2. Clause (c) shall stand inserted (date to be notified) by s. 139, ibid.
3. The proviso shall stand substituted (date to be notified) by s. 139, ibid., to read as under:
“Provided that the Reserve Bank or the Central Government shall not impose any restrictions on the drawal of foreign
exchange for payment due on account of amortisation of loans or for depreciation of direct investments in the ordinary
course of business.”.

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 1
[(2A) The Central Government may, in consultation with the Reserve Bank, prescribe—
(a) any class or classes of capital account transactions, not involving debt instruments, which are
permissible;
(b) the limit up to which foreign exchange shall be admissible for such transactions; and
(c) any conditions which may be placed on such transactions.]
2
[(3) Without prejudice to the generality of the provisions of sub-section (2), the Reserve Bank may,
by regulations prohibit, restrict or regulate the following:—
(a) transfer or issue of any foreign security by a person resident in India;
(b) transfer or issue of any security by a person resident outside India;
(c) transfer or issue of any security or foreign security by any branch, office or agency in India of
a person resident outside India;
(d) any borrowing or lending in foreign exchange in whatever form or by whatever name called;
(e) any borrowing or lending in rupees in whatever form or by whatever name called between a
person resident in India and a person resident outside India;
(f) deposits between persons resident in India and persons resident outside India;
(g) export, import or holding of currency or currency notes;
(h) transfer of immovable property outside India, other than a lease not exceeding five years, by a
person resident in India;
(i) acquisition or transfer of immovable property in India, other than a lease not exceeding five
years, by a person resident outside India;
(j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred—
(i) by a person resident in India and owed to a person resident outside India; or
(ii) by a person resident outside India.]

(4) A person resident in India may hold, own, transfer or invest in foreign currency, foreign security
or any immovable property situated outside India if such currency, security or property was acquired, held
or owned by such person when he was resident outside India or inherited from a person who was resident
outside India.

(5) A person resident outside India may hold, own, transfer or invest in Indian currency, security or
any immovable property situated in India if such currency, security or property was acquired, held or
owned by such person when he was resident in India or inherited from a person who was resident in
India.
(6) Without prejudice to the provisions of this section, the Reserve Bank may, by regulation, prohibit,
restrict, or regulate establishment in India of a branch, office or other place of business by a person
resident outside India, for carrying on any activity relating to such branch, office or other place of
business.
3
[(7) For the purposes of this section, the term “debt instruments” shall mean, such instruments as
may be determined by the Central Government in consultation with the Reserve Bank.]
7. Export of goods and services.—(1) Every exporter of goods shall—
(a) furnish to the Reserve Bank or to such other authority a declaration in such form and in such
manner as may be specified, containing true and correct material particulars, including the amount
representing the full export value or, if the full export value of the goods is not ascertainable at the

1. Sub-section (2A) shall stand inserted (date to be notified) by Act 20 of 2015, s. 139.
2. Sub-section (3) shall stand omitted (date to be notified) by s. 139, ibid.
3. Sub-section (7) shall stand inserted (date to be notified) by s. 139, ibid.

7
 time of export, the value which the exporter, having regard to the prevailing market conditions,
expects to receive on the sale of the goods in a market outside India;
(b) furnish to the Reserve Bank such other information as may be required by the Reserve Bank
for the purpose of ensuring the realisation of the export proceeds by such exporter.
(2) The Reserve Bank may, for the purpose of ensuring that the full export value of the goods or such
reduced value of the goods as the Reserve Bank determines, having regard to the prevailing market
conditions, is received without any delay, direct any exporter to comply with such requirements as it
deems fit.
(3) Every exporter of services shall furnish to the Reserve Bank or to such other authorities a
declaration in such form and in such manner as may be specified, containing the true and correct material
particulars in relation to payment for such services.
8. Realisation and repatriation of foreign exchange.—Save as otherwise provided in this Act,
where any amount of foreign exchange is due or has accrued to any person resident in India, such person
shall take all reasonable steps to realise and repatriate to India such foreign exchange within such period
and in such manner as may be specified by the Reserve Bank.
9. Exemption from realisation and repatriation in certain cases.—The provisions of sections 4
and 8 shall not apply to the following, namely:—
(a) possession of foreign currency or foreign coins by any person up to such limit as the Reserve
Bank may specify;
(b) foreign currency account held or operated by such person or class of persons and the limit up
to which the Reserve Bank may specify;
(c) foreign exchange acquired or received before the 8th day of July, 1947 or any income arising
or accruing thereon which is held outside India by any person in pursuance of a general or special
permission granted by the Reserve Bank;
(d) foreign exchange held by a person resident in India up to such limit as the Reserve Bank may
specify, if such foreign exchange was acquired by way of gift or inheritance from a person referred to
in clause (c), including any income arising therefrom;
(e) foreign exchange acquired from employment, business, trade, vocation, services, honorarium,
gifts, inheritance or any other legitimate means up to such limit as the Reserve Bank may specify; and
(f) such other receipts in foreign exchange as the Reserve Bank may specify.
CHAPTER III
AUTHORISED PERSON
10. Authorised person.—(1) The Reserve Bank may, on an application made to it in this behalf,
authorise any person to be known as authorised person to deal in foreign exchange or in foreign
securities, as an authorised dealer, money changer or off-shore banking unit or in any other manner as it
deems fit.
(2) An authorisation under this section shall be in writing and shall be subject to the conditions laid
down therein.
(3) An authorisation granted under sub-section (1) may be revoked by the Reserve Bank at any time if
the Reserve Bank is satisfied that—
(a) it is in public interest so to do; or
(b) the authorised person has failed to comply with the condition subject to which the
authorisation was granted or has contravened any of the provisions of the Act or any rule, regulation,
notification, direction or order made thereunder:
Provided that no such authorisation shall be revoked on any ground referred to in clause (b) unless the
authorised person has been given a reasonable opportunity of making a representation in the matter.

8
 (4) An authorised person shall, in all his dealings in foreign exchange or foreign security, comply
with such general or special directions or orders as the Reserve Bank may, from time to time, think fit to
give, and, except with the previous permission of the Reserve Bank, an authorised person shall not engage
in any transaction involving any foreign exchange or foreign security which is not in conformity with the
terms of his authorisation under this section.
(5) An authorised person shall, before undertaking any transaction in foreign exchange on behalf of
any person, require that person to make such declaration and to give such information as will reasonably
satisfy him that the transaction will not involve, and is not designed for the purpose of any contravention
or evasion of the provisions of this Act or of any rule, regulation, notification, direction or order made
thereunder, and where the said person refuses to comply with any such requirement or makes only
unsatisfactory compliance therewith, the authorised person shall refuse in writing to undertake the
transaction and shall, if he has reason to believe that any such contravention or evasion as aforesaid is
contemplated by the person, report the matter to the Reserve Bank.
(6) Any person, other than an authorised person, who has acquired or purchased foreign exchange for
any purpose mentioned in the declaration made by him to authorised person under sub-section (5) does
not use it for such purpose or does not surrender it to authorised person within the specified period or uses
the foreign exchange so acquired or purchased for any other purpose for which purchase or acquisition of
foreign exchange is not permissible under the provisions of the Act or the rules or regulations or direction
or order made thereunder shall be deemed to have committed contravention of the provisions of the Act
for the purpose of this section.
11. Reserve Bank’s powers to issue directions to authorised person.—(1) The Reserve Bank may,
for the purpose of securing compliance with the provisions of this Act and of any rules, regulations,
notifications or directions made thereunder, give to the authorised persons any direction in regard to
making of payment or the doing or desist from doing any act relating to foreign exchange or foreign
security.
(2) The Reserve Bank may, for the purpose of ensuring the compliance with the provisions of this Act
or of any rule, regulation, notification, direction or order made thereunder, direct any authorised person to
furnish such information, in such manner, as it deems fit.
(3) Where any authorised person contravenes any direction given by the Reserve Bank under this Act
or fails to file any return as directed by the Reserve Bank, the Reserve Bank may, after giving reasonable
opportunity of being heard, impose on the authorised person a penalty which may extend to ten thousand
rupees and in the case of continuing contravention with an additional penalty which may extend to two
thousand rupees for every day during which such contravention continues.
12. Power of Reserve Bank to inspect authorised person.—(1) The Reserve Bank may, at any
time, cause an inspection to be made, by any officer of the Reserve Bank specially authorised in writing
by the Reserve Bank in this behalf, of the business of any authorised person as may appear to it to be
necessary or expedient for the purpose of—
(a) verifying the correctness of any statement, information or particulars furnished to the Reserve
Bank;
(b) obtaining any information or particulars which such authorised person has failed to furnish on
being called upon to do so;
(c) securing compliance with the provisions of this Act or of any rules, regulations, directions or
orders made thereunder.
(2) It shall be the duty of every authorised person, and where such person is a company or a firm,
every director, partner or other officer of such company or firm, as the case may be, to produce to any
officer making an inspection under sub-section (1), such books, accounts and other documents in his
custody or power and to furnish any statement or information relating to the affairs of such person,
company or firm as the said officer may require within such time and in such manner as the said officer
may direct.

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 CHAPTER IV
CONTRAVENTION AND PENALTIES
13. Penalties.—(1) If any person contravenes any provision of this Act, or contravenes any rule,
regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes
any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon
adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such
amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such
contravention is a continuing one, further penalty which may extend to five thousand rupees for every day
after the first day during which the contravention continues.
1
[(1A) If any person is found to have acquired any foreign exchange, foreign security or immovable
property, situated outside India, of the aggregate value exceeding the threshold prescribed under the
proviso to sub-section (1) of section 37A, he shall be liable to a penalty up to three times the sum
involved in such contravention and confiscation of the value equivalent, situated in India, the Foreign
exchange, foreign security or immovable property.
(1B) If the Adjudicating Authority, in a proceeding under sub-section (1A) deems fits, he may, after
recording the reasons in writing, recommend for the initiation of prosecution and if the Director of
Enforcement is satisfied, he may, after recording the reasons in writing, may direct prosecution by filing a
Criminal Complaint against the guilty person by an officer not below the rank of Assistant Director.
(1C) If any person is found to have acquired any foreign exchange, foreign security or immovable
property, situated outside India, of the aggregate value exceeding the threshold prescribed under the
proviso to sub-section (1) of section 37A, he shall be, in addition to the penalty imposed under
sub-section (1A), punishable with imprisonment for a term which may extend to five years and with fine.
(1D) No court shall take cognizance of an offence under sub-section (1C) of section 13 except as on
complaint in writing by an officer not below the rank of Assistant Director referred to in
sub-section (1B).]
(2) Any Adjudicating Authority adjudging any contravention under sub-section (1), may, if he thinks
fit in addition to any penalty which he may impose for such contravention direct that any currency,
security or any other money or property in respect of which the contravention has taken place shall be
confiscated to the Central Government and further direct that the foreign exchange holdings, if any, of the
persons committing the contraventions or any part thereof, shall be brought back into India or shall be
retained outside India in accordance with the directions made in this behalf.
Explanation.—For the purposes of this sub-section, “property” in respect of which contravention has
taken place, shall include—
(a) deposits in a bank, where the said property is converted into such deposits;
(b) Indian currency, where the said property is converted into that currency; and
(c) any other property which has resulted out of the conversion of that property.
14. Enforcement of the orders of Adjudicating Authority.—(1) Subject to the provisions of
sub-section (2) of section 19, if any person fails to make full payment of the penalty imposed on him
under section 13 within a period of ninety days from the date on which the notice for payment of such
penalty is served on him, he shall be liable to civil imprisonment under this section.
(2) No order for the arrest and detention in civil prison of a defaulter shall be made unless the
Adjudicating Authority has issued and served a notice upon the defaulter calling upon him to appear
before him on the date specified in the notice and to show cause why he should not be committed to the
civil prison, and unless the Adjudicating Authority, for reasons in writing, is satisfied—
(a) that the defaulter, with the object or effect of obstructing the recovery of penalty, has after the
issue of notice by the Adjudicating Authority, dishonestly transferred, concealed, or removed any part
of his property, or

1. Ins. by Act 20 of 2015, s. 140 (w.e.f. 9-9-2015).

10
 (b) that the defaulter has, or has had since the issuing of notice by the Adjudicating Authority, the
means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or
neglected to pay the same.
(3) Notwithstanding anything contained in sub-section (1), a warrant for the arrest of the defaulter
may be issued by the Adjudicating Authority if the Adjudicating Authority is satisfied, by affidavit or
otherwise, that with the object or effect of delaying the execution of the certificate the defaulter is likely
to abscond or leave the local limits of the jurisdiction of the Adjudicating Authority.
(4) Where appearance is not made pursuant to a notice issued and served under sub-section (1), the
Adjudicating Authority may issue a warrant for the arrest of the defaulter.
(5) A warrant of arrest issued by the Adjudicating Authority under sub-section (3) or sub-section (4)
may also be executed by any other Adjudicating Authority within whose jurisdiction the defaulter may for
the time being be found.
(6) Every person arrested in pursuance of a warrant of arrest under this section shall be brought
before the Adjudicating Authority issuing the warrant as soon as practicable and in any event within
twenty-four hours of his arrest (exclusive of the time required for the journey):
Provided that, if the defaulter pays the amount entered in the warrant of arrest as due and the costs of
the arrest to the officer arresting him, such officer shall at once release him.
Explanation.—For the purposes of this sub-section, where the defaulter is a Hindu undivided family,
the karta thereof shall be deemed to be the defaulter.
(7) When a defaulter appears before the Adjudicating Authority pursuant to a notice to show cause or
is brought before the Adjudicating Authority under this section, the Adjudicating Authority shall give the
defaulter an opportunity showing cause why he should not be committed to the civil prison.
(8) Pending the conclusion of the inquiry, the Adjudicating Authority may, in his discretion, order the
defaulter to be detained in the custody of such officer as the Adjudicating Authority may think fit or
release him on his furnishing the security to the satisfaction of the Adjudicating Authority for his
appearance as and when required.
(9) Upon the conclusion of the inquiry, the Adjudicating Authority may make an order for the
detention of the defaulter in the civil prison and shall in that event cause him to be arrested if he is not
already under arrest:
Provided that in order to give a defaulter an opportunity of satisfying the arrears, the Adjudicating
Authority may, before making the order of detention, leave the defaulter in the custody of the officer
arresting him or of any other officer for a specified period not exceeding fifteen days, or release him on
his furnishing security to the satisfaction of the Adjudicating Authority for his appearance at the
expiration of the specified period if the arrears are not satisfied.
(10) When the Adjudicating Authority does not make an order of detention under sub-section (9), he
shall, if the defaulter is under arrest, direct his release.
(11) Every person detained in the civil prison in execution of the certificate may be so detained,—
(a) where the certificate is for a demand of an amount exceeding rupees one crore, up to three
years, and
(b) in any other case, up to six months:
Provided that he shall be released from such detention on the amount mentioned in the warrant for his
detention being paid to the officer-in-charge of the civil prison.
(12) A defaulter released from detention under this section shall not, merely by reason of his release,
be discharged from his liability for the arrears, but he shall not be liable to be arrested under the
certificate in execution of which he was detained in the civil prison.
(13) A detention order may be executed at any place in India in the manner provided for the execution
of warrant of arrest under the Code of Criminal Procedure, 1973 (2 of 1974).

11
 1
[14A. Power of recover arrears of penalty.—(1) Save as otherwise provided in this Act, the
Adjudicating Authority may, by order in writing, authorise an officer of Enforcement not below the rank
of Assistant Director to recover any arrears of penalty from any person who fails to make full payment of
penalty imposed on him under section 13 within the period of ninety days from the date on which the
notice for payment of such penalty is served on him.
(2) The officer referred to in sub-section (1) shall exercise all the like powers which are conferred on
the income-tax authority in relation to recovery of tax under the Income-tax Act, 1961 (43 of 1961) and
the procedure laid down under the Second Schedule to the said Act shall mutatis mutandis apply in
relation to recovery of arrears of penalty under this Act.]
15. Power to compound contravention.—(1) Any contravention under section 13 may, on an
application made by the person committing such contravention, be compounded within one hundred and
eighty days from the date of receipt of application by the Director of Enforcement or such other officers
of the Directorate of Enforcement and officers of the Reserve Bank as may be authorised in this behalf by
the Central Government in such manner as may be prescribed.
(2) Where a contravention has been compounded under sub-section (1), no proceeding or further
proceeding, as the case may be, shall be initiated or continued, as the case may be, against the person
committing such contravention under that section, in respect of the contravention so compounded.
CHAPTER V
ADJUDICATION AND APPEAL
16. Appointment of Adjudicating Authority.—(1) For the purpose of adjudication under
section 13, the Central Government may, by an order published in the Official Gazette, appoint as many
officers of the Central Government as it may think fit, as the Adjudicating Authorities for holding an
inquiry in the manner prescribed after giving the person alleged to have committed contravention under
section 13, against whom a complaint has been made under sub-section (3) (hereinafter in this section
referred to as the said person) a reasonable opportunity of being heard for the purpose of imposing any
penalty:
Provided that where the Adjudicating Authority is of opinion that the said person is likely to abscond
or is likely to evade in any manner, the payment of penalty, if levied, it may direct the said person to
furnish a bond or guarantee for such amount and subject to such conditions as it may deem fit.
(2) The Central Government shall, while appointing the Adjudicating Authorities under
sub-section (1), also specify in the order published in the Official Gazette, their respective jurisdictions.
(3) No Adjudicating Authority shall hold an enquiry under sub-section (1) except upon a complaint in
writing made by any officer authorised by a general or special order by the Central Government.
(4) The said person may appear either in person or take the assistance of a legal practitioner or a
chartered accountant of his choice for presenting his case before the Adjudicating Authority.
(5) Every Adjudicating Authority shall have the same powers of a civil court which are conferred on
the Appellate Tribunal under sub-section (2) of section 28 and—
(a) all proceedings before it shall be deemed to be judicial proceedings within the meaning of
sections 193 and 228 of the Indian Penal Code (45 of 1860);
(b) shall be deemed to be a civil court for the purposes of sections 345 and 346 of the Code of
Criminal Procedure, 1973 (2 of 1974).
(6) Every Adjudicating Authority shall deal with the complaint under sub-section (2) as expeditiously
as possible and endeavour shall be made to dispose of the complaint finally within one year from the date
of receipt of the complaint:
Provided that where the complaint cannot be disposed of within the said period, the Adjudicating
Authority shall record periodically the reasons in writing for not disposing of the complaint within the
said period.
17. Appeal to Special Director (Appeals).—(1) The Central Government shall, by notification,
appoint one or more Special Directors (Appeals) to hear appeals against the orders of the Adjudicating

1. Section 14A shall stand inserted (date to be notified) by Act 28 of 2016, s. 229.

12
Authorities under this section and shall also specify in the said notification the matter and places in
relation to which the Special Director (Appeals) may exercise jurisdiction.
(2) Any person aggrieved by an order made by the Adjudicating Authority, being an Assistant
Director of Enforcement or a Deputy Director of Enforcement, may prefer an appeal to the Special
Director (Appeals).
(3) Every appeal under sub-section (1) shall be filed within forty-five days from the date on which the
copy of the order made by the Adjudicating Authority is received by the aggrieved person and it shall be
in such form, verified in such manner and be accompanied by such fee as may be prescribed:
Provided that the Special Director (Appeals) may entertain an appeal after the expiry of the said
period of forty-five days, if he is satisfied that there was sufficient cause for not filing it within that
period.
(4) On receipt of an appeal under sub-section (1), the Special Director (Appeals) may after giving the
parties to the appeal an opportunity of being heard, pass such order thereon as he thinks fit, confirming,
modifying or setting aside the order appealed against.
(5) The Special Director (Appeals) shall send a copy of every order made by him to the parties to
appeal and to the concerned Adjudicating Authority.
(6) The Special Director (Appeals) shall have the same powers of a civil court which are conferred on
the Appellate Tribunal under sub-section (2) of section 28 and—
(a) all proceedings before him shall be deemed to be judicial proceedings within the meaning of
sections 193 and 228 of the Indian Penal Code (45 of 1860);
(b) shall be deemed to be a civil court for the purposes of sections 345 and 346 of the Code of
Criminal Procedure, 1973 (2 of 1974).
1
[18. Appellate Tribunal.—The Appellate Tribunal constituted under sub-section (1) of section 12 of
the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (13 of 1976), shall,
on and from the commencement of Part XIV of Chapter VI of the Finance Act, 2017 (7 of 2017), be the
Appellate Tribunal for the purposes of this Act and the said Appellate Tribunal shall exercise the
jurisdiction, powers and authority conferred on it by or under this Act.]
19. Appeal to Appellate Tribunal—(1) Save as provided in sub-section (2), the Central Government
or any person aggrieved by an order made by an Adjudicating Authority, other than those referred to in
sub-section (1) of section 17, or the Special Director (Appeals), may prefer an appeal to the Appellate
Tribunal:
Provided that any person appealing against the order of the Adjudicating Authority or the Special
Director (Appeals) levying any penalty, shall while filing the appeal, deposit the amount of such penalty
with such authority as may be notified by the Central Government:
Provided further that where in any particular case, the Appellate Tribunal is of the opinion that the
deposit of such penalty would cause undue hardship to such person, the Appellate Tribunal may dispense
with such deposit subject to such conditions as it may deem fit to impose so as to safeguard the realisation
of penalty.
(2) Every appeal under sub-section (1) shall be filed within a period of forty-five days from the date
on which a copy of the order made by the Adjudicating Authority or the Special Director (Appeals) is
received by the aggrieved person or by the Central Government and it shall be in such form, verified in
such manner and be accompanied by such fee as may be prescribed:
Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period of
forty-five days if it is satisfied that there was sufficient cause for not filing it within that period.
(3) On receipt of an appeal under sub-section (1), the Appellate Tribunal may, after giving the parties
to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming,
modifying or setting aside the order appealed against.
(4) The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and
to the concerned Adjudicating Authority or the Special Director (Appeals), as the case may be.

1. Subs. by Act 7 of 2017, s. 165, for section 18 (w.e.f. 26-5-2017).

13
 (5) The appeal filed before the Appellate Tribunal under sub-section (1) shall be dealt with by it as
expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within one
hundred and eighty days from the date of receipt of the appeal:
Provided that where any appeal could not be disposed of within the said period of one hundred and
eighty days, the Appellate Tribunal shall record its reasons in writing for not disposing off the appeal
within the said period.
(6) The Appellate Tribunal may, for the purpose of examining the legality, propriety or correctness of
any order made by the Adjudicating Authority under section 16 in relation to any proceeding, on its own
motion or otherwise, call for the records of such proceedings and make such order in the case as it thinks
fit.
20. [Composition of Appellate Tribunal.] Omitted by the finance Act, 2017 (7 of 2017), s. 165
(w.e.f. 26-5-2017).
1
[21. Qualifications, for appointment of Special Director (Appeals).—A person shall not be
qualified for appointment as a Special Director (Appeals) unless he—
(a) has been a member of the Indian Legal Service and has held a post in Grade I of that Service; or
(b) has been a member of the Indian Revenue Service and has held a post equivalent to a Joint
Secretary to the Government of India.]
22. [Term of office.] Omitted by the Finance Act, 2017 (7 of 2017), s. 165 (w.e.f. 26-5-2017).
2
[23. Terms and Condition of service of Special Director of (Appeals).—The salary and
allowances payable to and the other terms and conditions of service of the Special Director (Appeals)
shall be such as may be prescribed.]
24. [Vacancies.] Omitted by the Finance Act, 2017 (7 of 2017), s. 165 (w.e.f. 26-5-2017).
25. [Resignation and removal.] Omitted by s. 165, ibid. (w.e.f. 26-5-2017).
26. [Member to act as Chairperson in certain circumstances.] Omitted by s. 165, ibid.
(w.e.f. 26-5-2017).
3
[27. Staff of Special Director (Appeal).—(1) The Central Government shall provide the office of
the Special Director (Appeals) with such officers and employees as it may deem fit.
(2) The officers and employees of the office of the Special Director (Appeals) shall discharge their
functions under the general superintendence of the Special Director (Appeals).
(3) The salaries and allowances and other terms and conditions of service of the officers and
employees of the office of the Special Director (Appeals) shall be such as may be prescribed.]
28. Procedure and powers of Appellate Tribunal and Special Director (Appeals).—(1) The
Appellate Tribunal and the Special Director (Appeals) shall not be bound by the procedure laid down by
the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and,
subject to the other provisions of this Act, the Appellate Tribunal and the Special Director (Appeals) shall
have powers to regulate its own procedure.
(2) The Appellate Tribunal and the Special Director (Appeals) shall have, for the purposes of
discharging its functions under this Act, the same powers as are vested in a civil court under the Code of
Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely:—
(a) summoning and enforcing the attendance of any person and examining him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavits;

1. Subs. by Act 7 of 2017, s. 165, for section 21 (w.e.f. 26-5-2017).

2. Subs. by s. 165, ibid., for section 23 (w.e.f. 26-5-2017).
3. Subs. by s. 165, ibid., for section 27 (w.e.f. 26-5-2017).

14
 (d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act,
1872 (1 of 1872), requisitioning any public record or document or copy of such record or document
from any office;
(e) issuing commissions for the examination of witnesses or documents;
(f) reviewing its decisions;
(g) dismissing a representation of default or deciding it ex parte;
(h) setting aside any order of dismissal of any representation for default or any order passed by it
ex parte; and
(i) any other matter which may be prescribed by the Central Government.
(3) An order made by the Appellate Tribunal or the Special Director (Appeals) under this Act shall be
executable by the Appellate Tribunal or the Special Director (Appeals) as a decree of civil court and, for
this purpose, the Appellate Tribunal and the Special Director (Appeals) shall have all the powers of a civil
court.
(4) Notwithstanding anything contained in sub-section (3), the Appellate Tribunal or the Special
Director (Appeals) may transmit any order made by it to a civil court having local jurisdiction and such
civil court shall execute the order as if it were a decree made by that court.
(5) All proceedings before the Appellate Tribunal and the Special Director (Appeals) shall be deemed
to be judicial proceedings within the meaning of sections 193 and 228 of the Indian
Penal Code (45 of 1860) and the Appellate Tribunal shall be deemed to be a civil court for the purposes
of sections 345 and 346 of the Code of Criminal Procedure, 1973 (2 of 1974).
29. [Distribution of business amongst Benches.] Omitted by the Finance Act, 2017 (7 of 2017),
s. 165 (w.e.f. 26-5-2017).
30. [Power of Chairperson to transfer cases.] Omitted by s. 165, ibid. (w.e.f. 26-5-2017).
31. [Decision to be by majority.] Omitted by s. 165, ibid. (w.e.f. 26-5-2017).
32. Right of appellant to take assistance of legal practitioner or chartered accountant and of
Government, to appoint presenting officers.—(1) A person preferring an appeal to the 1[Special
Director (Appeals)] under this Act may either appear in person or take the assistance of a legal
practitioner or a chartered accountant of his choice to present his case before the 2[Special Director
(Appeals)].
(2) The Central Government may authorise one or more legal practitioners or chartered accountants
or any of its officers to act as presenting officers and every person so authorised may present the case
with respect to any appeal before the 2[Special Director (Appeals)].
[33. Officers and employees etc., to be public servant. — The Adjudicating Authority, Competent
3

Authority and the Special Director (Appeals) and other officers and employees of the Special Director
(Appeals) shall be deemed to be public servants within the meaning of section 21 of the Indian Penal
Code, 1860 (45 of 1860).]
34. Civil court not to have jurisdiction.—No civil court shall have jurisdiction to entertain any suit
or proceeding in respect of any matter which an Adjudicating Authority or the Appellate Tribunal or the
Special Director (Appeals) is empowered by or under this Act to determine and no injunction shall be
granted by any court or other authority in respect of any action taken or to be taken in pursuance of any
power conferred by or under this Act.
35. Appeal to High Court.—Any person aggrieved by any decision or order of the Appellate
Tribunal may file an appeal to the High Court within sixty days from the date of communication of the
decision or order of the Appellate Tribunal to him on any question of law arising out of such order:

1. Subs by Act 7 of 2017, s. 165, for “Appellate Tribunal or the Special Director (Appeals” (w.e.f. 26-5-2017).
2. Subs. by s. 165, ibid., for “Appellate Tribunal or the Special Director (Appeals), as the case may be” (w.e.f. 26-5-2017).
3. Subs. by Act 7 of 2017, s. 165, for section 33 (w.e.f. 26-5-2017).

15
 Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause
from filing the appeal within the said period, allow it to be filed within a further period not exceeding
sixty days.
Explanation.—In this section “High Court” means—
(a) the High Court within the jurisdiction of which the aggrieved party ordinarily resides or
carries on business or personally works for gain; and
(b) where the Central Government is the aggrieved party, the High Court within the jurisdiction
of which the respondent, or in a case where there are more than one respondent, any of the
respondents, ordinarily resides or carries on business or personally works for gain.
CHAPTER VI
DIRECTORATE OF ENFORCEMENT
36. Directorate of Enforcement.—(1) The Central Government shall establish a Directorate of
Enforcement with a Director and such other officers or class of officers as it thinks fit, who shall be called
officers of Enforcement, for the purposes of this Act.
(2) Without prejudice to the provisions of sub-section (1), the Central Government may authorise the
Director of Enforcement or an Additional Director of Enforcement or a Special Director of Enforcement
or a Deputy Director of Enforcement to appoint officers of Enforcement below the rank of an Assistant
Director of Enforcement.
(3) Subject to such conditions and limitations as the Central Government may impose, an officer of
Enforcement may exercise the powers and discharge the duties conferred or imposed on him under this
Act.
37. Power of search, seizure, etc.—(1) The Director of Enforcement and other officers of
Enforcement, not below the rank of an Assistant Director, shall take up for investigation the contravention
referred to in section 13.
(2) Without prejudice to the provisions of sub-section (1), the Central Government may also, by
notification, authorise any officer or class of officers in the Central Government, State Government or the
Reserve Bank, not below the rank of an Under Secretary to the Government of India to investigate any
contravention referred to in section 13.
(3) The officers referred to in sub-section (1) shall exercise the like powers which are conferred on
income-tax authorities under the Income-tax Act, 1961 (43 of 1961) and shall exercise such powers,
subject to such limitations laid down under that Act.
1
[37A. Special provisions relating to assets held outside India in contravention of
section 4.—(1) Upon receipt of any information or otherwise, if the Authorised Officer prescribed by the
Central Government has reason to believe that any foreign exchange, foreign security, or any immovable
property, situated outside India, is suspected to have been held in contravention of section 4, he may after
recording the reasons in writing, by an order, seize value equivalent, situated within India, of such foreign
exchange, foreign security or immovable property:
Provided that no such seizure shall be made in case where the aggregate value of such foreign
exchange, foreign security or any immovable property, situated outside India, is less than the value as
may be prescribed.
(2) The order of seizure along with relevant material shall be placed before the Competent Authority,
appointed by the Central Government, who shall be an officer not below the rank of Joint Secretary to the
Government of India by the Authorised Officer within a period of thirty days from the date of such
seizure.
(3) The Competent Authority shall dispose of the petition within a period of one hundred eighty days
from the date of seizure by either confirming or by setting aside such order, after giving an opportunity of
being heard to the representatives of the Directorate of Enforcement and the aggrieved person.

1. Ins. by Act 20 of 2015, s. 142 (w.e.f. 9-9-2015).

16
 Explanation.—While computing the period of one hundred eighty days, the period of stay granted by
court shall be excluded and a further period of at least thirty days shall be granted from the date of
communication of vacation of such stay order.
(4) The order of the Competent Authority confirming seizure of equivalent asset shall continue till the
disposal of adjudication proceedings and thereafter, the Adjudicating Authority shall pass appropriate
directions in the adjudication order with regard to further action as regards the seizure made under
sub-section (1):
Provided that if, at any stage of the proceedings under this Act, the aggrieved person discloses the
fact of such foreign exchange, foreign security or immovable property and brings back the same into
India, then the Competent Authority or the Adjudicating Authority, as the case may be, on receipt of an
application in this regard from the aggrieved person, and after affording an opportunity of being heard to
the aggrieved person and representatives of the Directorate of Enforcement, shall pass an appropriate
order as it deems fit, including setting aside of the seizure made under sub-section (1).
(5) Any person aggrieved by any order passed by the Competent Authority may prefer an appeal to
the Appellate Tribunal.
(6) Nothing contained in section 15 shall apply to this section.]
38. Empowering other officers.—(1) The Central Government may, by order and subject to such
conditions and limitations as it thinks fit to impose, authorise any officer of customs or any central excise
officer or any police officer or any other officer of the Central Government or a State Government to
exercise such of the powers and discharge such of the duties of the Director of Enforcement or any other
officer of Enforcement under this Act as may be stated in the order.
(2) The officers referred to in sub-section (1) shall exercise the like powers which are conferred on
the income-tax authorities under the Income-tax Act, 1961 (43 of 1961), subject to such conditions and
limitations as the Central Government may impose.
CHAPTER VII
MISCELLANEOUS
39. Presumption as to documents in certain cases.—Where any document—
(i) is produced or furnished by any person or has been seized from the custody or control of any
person, in either case, under this Act or under any other law; or
(ii) has been received from any place outside India (duly authenticated by such authority or
person and in such manner as may be prescribed) in the course of investigation of any contravention
under this Act alleged to have been committed by any person,
and such document is tendered in any proceeding under this Act in evidence against him, or against him
and any other person who is proceeded against jointly with him, the court or the Adjudicating Authority,
as the case may be, shall—
(a) presume, unless the contrary is proved, that the signature and every other part of such
document which purports to be in the handwriting of any particular person or which the court may
reasonably assume to have been signed by, or to be in the handwriting of, any particular person, is in
that person’s handwriting, and in the case of a document executed or attested, that it was executed or
attested by the person by whom it purports to have been so executed or attested;
(b) admit the document in evidence notwithstanding that it is not duly stamped, if such document
is otherwise admissible in evidence;
(c) in a case falling under clause (i), also presume, unless the contrary is proved, the truth of the
contents of such document.
40. Suspension of operation of this Act.—(1) If the Central Government is satisfied that
circumstances have arisen rendering it necessary that any permission granted or restriction imposed by
this Act should cease to be granted or imposed, or if it considers necessary or expedient so to do in public

17
interest, the Central Government may, by notification, suspend or relax to such extent either indefinitely
or for such period as may be notified, the operation of all or any of the provisions of this Act.
(2) Where the operation of any provision of this Act has under sub-section (1) been suspended or
relaxed indefinitely, such suspension or relaxation may, at any time while this Act remains in force, be
removed by the Central Government by notification.
(3) Every notification issued under this section shall be laid, as soon as may be after it is issued,
before each House of Parliament, while it is in session, for a total period of thirty days which may be
comprised in one session or in two or more successive sessions, and if, before the expiry of the session
immediately following the session or the successive sessions aforesaid, both Houses agree in making any
modification in the notification or both Houses agree that the notification should not be issued, the
notification shall thereafter have effect only in such modified form or be of no effect, as the case may be;
so, however, that any such modification or annulment shall be without prejudice to the validity of
anything previously done under that notification.
41. Power of Central Government to give directions.—For the purposes of this Act, the Central
Government may, from time to time, give to the Reserve Bank such general or special directions as it
thinks fit, and the Reserve Bank shall, in the discharge of its functions under this Act, comply with any
such directions.
42. Contravention by companies.—(1) Where a person committing a contravention of any of the
provisions of this Act or of any rule, direction or order made thereunder is a company, every person who,
at the time the contravention was committed, was in charge of, and was responsible to, the company for
the conduct of the business of the company as well as the company, shall be deemed to be guilty of the
contravention and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any such person liable to punishment
if he proves that the contravention took place without his knowledge or that he exercised due diligence to
prevent such contravention.
(2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the
provisions of this Act or of any rule, direction or order made thereunder has been committed by a
company and it is proved that the contravention has taken place with the consent or connivance of, or is
attributable to any neglect on the part of, any director, manager, secretary or other officer of the company,
such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention
and shall be liable to be proceeded against and punished accordingly.
Explanation.—For the purposes of this section—
(i) “company” means any body corporate and includes a firm or other association of individuals;
and
(ii) “director”, in relation to a firm, means a partner in the firm.
43. Death or insolvency in certain cases.—Any right, obligation, liability, proceeding or appeal
arising in relation to the provisions of section 13 shall not abate by reason of death or insolvency of the
person liable under that section and upon such death or insolvency such rights and obligations shall
devolve on the legal representative of such person or the official receiver or the official assignee, as the
case may be:
Provided that a legal representative of the deceased shall be liable only to the extent of the inheritance
or estate of the deceased.
44. Bar of legal proceedings.—No suit, prosecution or other legal proceeding shall lie against the
Central Government or the Reserve Bank or any officer of that Government or of the Reserve Bank or
any other person exercising any power or discharging any functions or performing any duties under this
Act, for anything in good faith done or intended to be done under this Act or any rule, regulation,
notification, direction or order made thereunder.
45. Removal of difficulties.—(1) If any difficulty arises in giving effect to the provisions of this Act,
the Central Government may, by order, do anything not inconsistent with the provisions of this Act for
the purpose of removing the difficulty:

18
 Provided that no such order shall be made under this section after the expiry of two years from the
commencement of this Act.
(2) Every order made under this section shall be laid, as soon as may be after it is made, before each
House of Parliament.
46. Power to make rules.—(1) The Central Government may, by notification, make rules to carry
out the provisions of this Act.
(2) Without prejudice to the generality of the foregoing power, such rules may provide for,—
(a) the imposition of reasonable restrictions on current account transactions under section 5;
1
[(aa) the instruments which are determined to be debt instruments under sub-section (7) of
section 6;
(ab) the permissible classes of capital account transactions in accordance with
sub-section (2A) of section 6, the limits of admissibility of foreign exchange, and the prohibition,
restriction or regulation of such transactions;]
(b) the manner in which the contravention may be compounded under sub-section (1) of
section 15;
(c) the manner of holding an inquiry by the Adjudicating Authority under sub-section (1) of
section 16;
(d) the form of appeal and fee for filing such appeal under sections 17 and 19;
(e) the salary and allowances payable to and the other terms and conditions of service of the
2
[Special Director (Appeals)] under section 23;
(f) the salaries and allowances and other conditions of service of the officers and employees of the
3
[office of the Special Director (Appeals)] under sub-section (3) of section 27;
(g) the additional matters in respect of which the Appellate Tribunal and the Special Director
(Appeals) may exercise the powers of a civil court under clause (i) of sub-section (2) of section 28;
4
[(gg) the aggregate value of foreign exchange referred to in sub-section (1) of section 37A;]
(h) the authority or person and the manner in which any document may be authenticated under
clause (ii) of section 39; and
(i) any other matter which is required to be, or may be, prescribed.
47. Power to make regulations.—(1) The Reserve Bank may, by notification, make regulations to
carry out the provisions of this Act and the rules made thereunder.
(2) Without prejudice to the generality of the foregoing power, such regulations may provide for,—
5
[(a) the permissible classes of capital account transactions, the limits of admissibility of foreign
exchange for such transactions, and the prohibition, restriction or regulation of certain capital account
transactions under section 6;]
(b) the manner and the form in which the declaration is to be furnished under clause (a) of
sub-section (1) of section 7;

1. Clauses (aa) and (ab) shall stand inserted (date to be notified) by Act 20 of 2015, s. 143.
2. Subs. by Act 7 of 2017, s. 165, for “Chairperson and other Member of the Appellate Tribunal and the Special Director
(Appeals) (w.e.f. 26-5-2017).
3. Subs. by s. 165, ibid., for “Appellate Tribunal and the office of the Special Director (Appeals)” (w.e.f. 26-5-2017).
4. Ins. by Act 20 of 2015, s. 143 (w.e.f. 9-9-2015).
5. Clause (a) shall stand substituted (date to be notified) by s. 144, ibid., to read as under:
“(a) the permissible classes of capital account transactions involving debt instruments determined under sub-section (7)
of section 6, the limits of admissibility of foreign exchange for such transactions, and the prohibition, restriction or
regulation of such capital account transactions under section 6;”.

19
 (c) the period within which and the manner of repatriation of foreign exchange under section 8;
(d) the limit up to which any person may possess foreign currency or foreign coins under
clause (a) of section 9;
(e) the class of persons and the limit up to which foreign currency account may be held or
operated under clause (b) of section 9;
(f) the limit up to which foreign exchange acquired may be exempted under clause (d) of
section 9;
(g) the limit up to which foreign exchange acquired may be retained under clause (e) of section 9;
1
[(ga) export, import or holding of currency or currency notes;]
(h) any other matter which is required to be, or may be, specified.
2
[(3) All regulations made by the Reserve Bank before the date on which the provisions of this section
are notified under section 6 and section 47 of this Act on capital account transactions, the regulation
making power in respect of which now vests with the Central Government, shall continue to be valid,
until amended or rescinded by the Central Government.]
48. Rules and regulations to be laid before Parliament.—Every rule and regulation made under this
Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in
session for a total period of thirty days which may be comprised in one session or in two or more
successive sessions, and if, before the expiry of the session immediately following the session or the
successive sessions aforesaid, both Houses agree in making any modification in the rule or regulation, or
both Houses agree that the rule or regulation should not be made, the rule or regulation shall thereafter
have effect only in such modified form or be of no effect, as the case may be; so, however, that any such
modification or annulment shall be without prejudice to the validity of anything previously done under
that rule or regulation.
49. Repeal and saving.—(1) The Foreign Exchange Regulation Act, 1973 (46 of 1973) is hereby
repealed and the Appellate Board constituted under sub-section (1) of section 52 of the said Act
(hereinafter referred to as the repealed Act) shall stand dissolved.
(2) On the dissolution of the said Appellate Board, the person appointed as Chairman of the Appellate
Board and every other person appointed as Member and holding office as such immediately before such
date shall vacate their respective offices and no such Chairman or other person shall be entitled to claim
any compensation for the premature termination of the term of his office or of any contract of service.
(3) Notwithstanding anything contained in any other law for the time being in force, no court shall take
cognizance of an offence under the repealed Act and no adjudicating officer shall take notice of any
contravention under section 51 of the repealed Act after the expiry of a period of two years from the date
of the commencement of this Act.
(4) Subject to the provisions of sub-section (3) all offences committed under the repealed Act shall
continue to be governed by the provisions of the repealed Act as if that Act had not been repealed.
(5) Notwithstanding such repeal,—
(a) anything done or any action taken or purported to have been done or taken including any rule,
notification, inspection, order or notice made or issued or any appointment, confirmation or
declaration made or any license, permission, authorization or exemption granted or any document or
instrument executed or any direction given under the Act hereby repealed shall, in so far as it is not
inconsistent with the provisions of this Act, be deemed to have been done or taken under the
corresponding provisions of this Act;
(b) any appeal preferred to the Appellate Board under sub-section (2) of section 52 of the
repealed Act but not disposed of before the commencement of this Act shall stand transferred to and
shall disposed of by the Appellate Tribunal constituted under this Act;

1. Clause (ga) shall stand inserted (date to be notified) by Act 20 of 2015, s. 144.
2. Sub-section (3) shall stand inserted (date to be notified) by s. 144. ibid.

20
 (c) every appeal from any decision or order of the Appellate Board under sub-section (3) or
sub-section (4) of section 52 of the repealed Act shall, if not filed before the commencement of this
Act, be filled before the High Court within a period of sixty days of such commencement:
Provided that the High Court may entertain such appeal after the expiry of the said period of sixty
days if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within
the said period.
(6) Save as otherwise provided in sub-section (3), the mention of particular matters in
sub-sections (2), (4) and (5) shall not be held to prejudice or affect the general application of section 6 of
the General Clauses Act, 1897 (10 of 1897) with regard to the effect of repeal.

21
 Foreign Exchange (Compounding Proceedings) Rules, 2000

Notification No. G.S.R. 383(E) dated 3rd May 2000

In exercise of the powers conferred by section 46 read with sub-section (1) of section 15 of the
Foreign Exchange Management Act, 1999 (42 of 1999) the Central Government hereby makes
the following rules relating to compounding contraventions under chapter IV of the said Act,
namely:-

1. Short title and commencement–

(1) These rules may be called the Foreign Exchange (Compounding Proceedings) Rules 2000.

(2) They shall come into force on the 1st day of June, 2000.

2. Definitions - In these rules, unless the context otherwise requires -

(a) 'Act' means the Foreign Exchange Management Act, 1999 (42 of 1999);

(b) 'authorised officer' means an officer authorised under sub-rule (1) of rule 3;

(c) 'applicant' means a person who makes an application under section 15 (1) of the Act to the
compounding authority;

(d) 'Compounding Order' means an order issued under sub-section (1) of Section 15 of the Act;

(e) 'Form' means a form appended to these rules;

(f) 'section' means a section of the Act;

(g) all other words and expressions used in these rules and not defined but defined in the Act,
shall have the meaning respectively assigned to them in the Act.

3. (1) 'Compounding Authority' means the persons authorised by the Central Government under
sub-section (1) of section 15 of the Act, namely;

(a) an officer of the Enforcement Directorate not below the rank of Deputy Director or Deputy
Legal Adviser (DLA).

(b) An officer of the Reserve Bank of India not below the rank of the Assistant General
Manager.

4. Power of Reserve Bank to compound contravention -

3
[(1) If any Person contravenes any provisions of Foreign Exchange Management Act, 1999
(42 of 1999) except clause (a) of Section 3 of the Act.]

(a) in case where the sum involved in such contravention is 2[ten] lakhs rupees or below, by
the Assistant General Manager of the Reserve Bank of India;
(b) in case where the sum involved in such contravention is more than rupees 2[ten] lakhs but
less than rupees 2[forty] lakhs, by the Deputy General Manager of Reserve Bank of India;

(c) in case where the sum involved in the contravention is rupees 2[forty] lakhs or more but less
than rupees 2[one hundred] lakhs by the General Manager of Reserve Bank of India;

(d) in case the sum involved in such contravention is rupees 2[one hundred] lakhs or more, by
the Chief General Manager of the Reserve Bank of India;

Provided further that no contravention shall be compounded unless the amount involved in
such contravention is quantifiable.

(2) Nothing contained in sub-section (1) shall apply to a contravention committed by any
person within a period of three years from the date on which a similar contravention committed
by him was compounded under these rules.

Explanation: For the purposes of this rule, any second or subsequent contravention committed
after the expiry of a period of three years from the date on which the contravention was
previously compounded shall be deemed to be a first contravention.

(3) Every officer specified under sub-rule (1) of rule 4 of the Reserve Bank of India shall
exercise the powers to compound any contravention subject to the direction, control and
supervision of the Governor of the Reserve Bank of India.

(4) Every application for compounding any contravention under this rule shall be made in Form
to the Reserve Bank of India, Exchange Control Department, Central Office, Mumbai along
with a fee of Rs. 5000/- by Demand Draft in favour of compounding authority.

5. The Power of Enforcement Directorate to compound contraventions -

3
[(1) If any Person contravenes provisions of Section 3(a) of Foreign Exchange Management
Act.]

(a) in case where the sum involved in such contravention is five lakhs rupees or below, by the
Deputy Director of the Directorate of Enforcement;

(b) in case where the sum involved in such contravention is more than rupees five lakhs but
less than rupees ten lakhs, by the Additional Director of the Directorate of Enforcement;

(c) in case where the sum involved in the contravention is rupees ten lakhs or more but less
than fifty lakhs rupees by the Special Director of the Directorate of Enforcement;

(d) in case where the sum involved in the contravention is rupees fifty lakhs or more but less
than one crore rupees by Special Director with Deputy Legal Adviser of the Directorate of
Enforcement;

(e) in case the sum involved in such contravention is one crore rupees or more, by the Director
of Enforcement with Special Director of the Enforcement Directorate.
Provided further that no contravention shall be compounded unless the amount involved in
such contravention is quantifiable.

(2) Nothing contained in sub-section (1) shall apply to a contravention committed by any
person within a period of three years from the date on which a similar contravention committed
by him was compounded under these rules.

Explanation: For the purposes of this rule, any second or subsequent contravention committed
after the expiry of a period of three years from the date on which the contravention was
previously compounded shall be deemed to be a first contravention.

(3) Every officer of the Directorate of Enforcement specified under sub-rule (1) of this rule
shall exercise the powers to compound any contravention subject to the direction, control and
supervision of the Director of Enforcement.

(4) Every application for compounding any contravention under this rule shall be made in Form
to the Director, Directorate of Enforcement, New Delhi, along with a fee of Rs.5000 by DD in
favour of the Compounding Authority.

6. Where any contravention is compounded before the adjudication of any contravention under
section 16, no inquiry shall be held for adjudication of such contravention in relation to such
contravention against the person in relation to whom the contravention is so compounded.

7. Where the compounding of any contravention is made after making of a complaint under
sub-section (3) of section 16, such compounding shall be brought by the authority specified in
rule 4 or rule 5 in writing, to the notice of the Adjudicating Authority and on such notice of the
compounding of the contravention being given, the person in relation to whom the
contravention is so compounded shall be discharged.

8. Procedure for Compounding -

(1) The Compounding Authority may call for any information, record or any other documents
relevant to the compounding proceedings.

(2) The Compounding Authority shall pass an order of compounding after affording an
opportunity of being heard to all the concerned as expeditiously as possible as and not later
than 180 days from the date of application.
1
Provided that with respect to any proceeding initiated under rule 4, if the Enforcement
Directorate is of the view that the said proceeding relates to a serious contravention suspected
of money laundering, terror financing or affecting sovereignty and integrity of the nation, the
Compounding Authority shall not proceed with the matter and shall remit the case to the
appropriate Adjudicating Authority for adjudicating contravention under section 13.

9. Payment of amount compounded -

4
The sum for which the contravention is compounded as specified in the order of compounding
under sub-rule (2) of rule 8, shall be paid by demand draft in favour of the Compounding
Authority within fifteen days from the date of the order of compounding of such contravention.
10. In case a person fails to pay the sum compounded in accordance with the rule 9 within the
time specified in that rule, he shall be deemed to have never made an application for
compounding of any contravention under these rules and the provisions of the Act for
contravention shall apply to him.

11. No contravention shall be compounded if an appeal has been filed under section 17 or
section 19 of the Act.

12. Contents of the order of the Compounding Authority -

(1) Every order shall specify the provisions of the Act or of the rules, directions, requisitions
or orders made there under in respect of which contravention has taken place along with details
of the alleged contravention.

(2) Every such order shall be dated and signed by the Compounding Authority under his seal.

13. Copy of the order - One copy of the order made under rule 8(2) shall be supplied to the
applicant and the Adjudicating Authority as the case may be.

___________________________________________________________________________

As amended vide

1. G.S.R. 151 (E) dated February 20, 2017

2. G.S.R. 613 (E) dated August 27, 2008
3. G.S.R. 609 (E) dated September 13, 2004 and
4. G.S.R. 443(E) dated November 2, 2002
RBI/FED/2015-16/1
FED Master Direction No.4/2015-16 January 1, 2016
(Updated as on May 24, 2022)
(Updated as on January 04, 2021)
(Updated as on April 04, 2019)
(Updated as on September 19, 2018)
(Updated as on December 22, 2017)
(Updated as on February 02, 2017)
(Updated as on May 26, 2016)
To,
All Authorised Dealer Category – I banks and Authorised banks

Madam / Sir,

Master Direction- Compounding of Contraventions under FEMA, 1999

The provisions of section 15 of Foreign Exchange Management Act, 1999 (42 of
1999) hereinafter referred to as FEMA, 1999, permit compounding of contraventions
and, as such it empowers the Reserve Bank to compound any contravention as
defined under section 13 of the FEMA, 1999, except the contraventions under
section 3 (a) of FEMA, 1999, on an application made by the person committing such
contravention. Foreign Exchange (Compounding Proceedings) Rules, 2000 (the
Rules), as amended from time to time, lays down the basic framework for the
compounding process.

2. Instructions issued on "Compounding of Contraventions under FEMA, 1999"

have been compiled in this Master Direction. The list of underlying circulars/
notifications which form the basis of this Master Direction is furnished in the
Appendix. All AD Category – I banks and Authorised banks may bring the
instructions contained in this Master Direction to the notice of their constituents.

3. The Master Direction will be updated from time to time as and when fresh
instructions are issued.
Yours faithfully,

(Ajay Kumar Misra)

Chief General Manager in Charge
 INDEX
Description Page
General 3
Power to compound by Reserve Bank 3
Delegation of Powers to Regional Offices 4
Authorisation to compound the contraventions by FED, CO Cell, New Delhi 6
Application for Compounding 8
Pre-requisite for Compounding process 9
Scope and Procedure for Compounding 11
Issue of Compounding order 14
Payment of the amount for which contravention is compounded 15
Directions to the Authorised Dealers 15
Reporting requirements 16

2
1. General

1.1 In terms of Section 15 of the FEMA 1999, any contravention under section 13
of FEMA 1999 may, on an application made by the person committing such
contravention, be compounded within one hundred and eighty days from the date of
receipt of application by the officers of the Reserve Bank as may be authorized in
this behalf by the Central Government in such manner as may be prescribed.

In terms of Section 13(1), if any person contravenes any provision of FEMA, 1999,
or any rule, regulation, notification, direction or order issued in exercise of the
powers under this Act, or contravenes any condition subject to which an
authorization is issued by the Reserve Bank, he shall, upon adjudication, be liable to
a penalty up to thrice the sum involved in such contravention where the amount is
quantifiable or up to Rupees Two lakhs, where the amount is not directly quantifiable
and where the contravention is a continuing one, further penalty which may extend to
Rupees Five thousand for every day after the first day during which the
contravention continues.

1.2 In exercise of the powers conferred by section 46 read with sub-section (1) of
section 15 of the Foreign Exchange Management Act, 1999 (42 of 1999) the Central
Government had made the Foreign Exchange (Compounding Proceedings) Rules,
2000 relating to compounding contraventions under chapter IV of FEMA, 1999.

1.3 In terms of the Foreign Exchange (Compounding Proceedings) Rules, 2000,

effective from June 1, 2000, RBI is empowered to compound contraventions relating
to Section 7, 8 and 9 and the third schedule to FEMCAT Rules. Vide GSR 609 (E)
dated 13-09-2004, RBI was empowered to compound all the contraventions of
FEMA 1999 except Section 3(a) with a view to providing comfort to individuals and
corporate community by minimizing transaction costs, while taking severe view of
willful, malafide and fraudulent transactions.

2. Power to compound by Reserve Bank

2.1 If any person contravenes any provisions of Foreign Exchange Management

Act, 1999 (42 of 1999), it can be compounded in case where the sum involved in
such contravention is:

(a) ten lakhs rupees or below, by the Assistant General Manager of the Reserve
Bank of India;

3
(b) more than rupees ten lakhs but less than rupees forty lakhs, by the Deputy
General Manager of Reserve Bank of India;

(c) rupees forty lakhs or more but less than rupees hundred lakhs by the General
Manager of Reserve Bank of India;

(d) rupees one hundred lakhs or more, by the Chief General Manager of the Reserve
Bank of India;

Provided further that no contravention shall be compounded unless the amount

involved in such contravention is quantifiable.

2.2 Every officer specified under sub-rule (1) of rule 4 of the Reserve Bank of India
(Compounding Authority) shall exercise the powers to compound any contravention
subject to the direction, control and supervision of the Governor of the Reserve Bank
of India.

3. Delegation of Powers to Regional Offices/Sub-Offices

As a measure of customer service and in order to facilitate the operational

convenience, compounding powers have been delegated to the Regional Offices/
Sub-Offices of the Reserve Bank of India and they are accordingly empowered to
compound the following contraventions of FEMA 20, FEMA 20(R), FEM (NDI) Rules
and FEMA 395 as per details below:

FEMA 20/2000-RB dated May 3, 2000

Paragraph 9(1)(A) of Schedule 1
Paragraph 9(1)(B) of Schedule 1
1
Paragraph 9(2) of Schedule 1
Paragraph 8 of Schedule 1
Paragraph 5 of Schedule 1
Regulation 2(ii) read with Regulation 5(1)
Paragraph 2 or 3 of Schedule 1 (Issue of shares without approval of RBI or
Government, wherever required)
Regulation 10A (b)(i) read with paragraph 10 of Schedule 1
Regulation 10B (2) read with paragraph 10 of Schedule 1
Regulation 4 (Receiving investment in India from non-resident or taking on
record transfer of shares by investee company)

1
Inserted vide AP (DIR Series) Circular No. 29 dated February 02, 2017.

4
 Regulation 14(6)(ii)(a)
Paragraphs 7(1) (for the period upto 02.03.2017) and 6(1) (for the period
03.03.2017 to 06.11.2017) of Schedule 9
Regulation 10(A)(a)

In supersession of the earlier Notification No. FEMA 20/2000-RB dated May 3, 2000,
the Reserve Bank hads issued Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident Outside India) Regulations, 2017 notified vide
Notification No. FEMA 20(R)/ 2017-RB dated November 07, 2017.

FEMA 20(R)/ 2017-RB dated November 07, 2017

Regulation 13.1(1)
Regulation 13.1(2)
Regulation 13.1(3)
Paragraph 2 of Schedule 1
Regulation 11
Regulation 2(v) read with Regulation 5
Regulation 16.B (Issue of shares without approval of RBI or Government,
wherever required)
Regulation 13.1(4)
Regulation 4 (Receiving investment in India from non-resident or taking on
record transfer of shares by investee company)
Regulation 13.1(11)
Regulations 13.1(7) and 13.1(8)
Regulation 10(5)

2
The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 and
Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt
Instruments) Regulations, 2019 i.e. Notification No. FEMA. 395/2019-RB, both
notified on October 17, 2019, by Government of India and Reserve Bank of India
respectively, have since superseded the earlier Notification No. FEMA 20(R)/ 2017-
RB.

2
Inserted vide AP (DIR Series) Circular No. 06 dated November 17, 2020.

5
 FEM (Non –Debt Instruments) Rules, 2019 dated October 17, 2019
Rule 2(k) read with Rule 5
Rule 21
Paragraph 3 (b) of Schedule I (Issue of shares without approval of RBI or
Government, wherever required)
Rule 4 (Receiving investment in India from non-resident or taking on record
transfer of shares by Investee Company)
Rule 9(4) and Rule 13(3)

FEM (Mode of Payment and Reporting of Non-Debt Instruments) Regulations

dated October 17, 2019 (FEMA 395/2019-RB)
Regulation 3.1(I)(A)
Regulation 4(1)
Regulation 4(2)
Regulation 4(3)
Regulation 4(6)
Regulation 4(7)
Regulation 4(11)

4. Authorisation to compound the contraventions by FED CO Cell, New Delhi

4.1 The work related to Liaison/ Branch/ Project office(LO/ BO/ PO) division, Non
Resident Foreign Account Division (NRFAD) and Immovable Property (IP) Division is
carried out at FED, CO Cell, New Delhi with effect from July 15, 2014. Accordingly
the officers attached to the FED, CO, Cell at New Delhi office are authorized to
compound the contraventions as per details below:

FEMA Notification

FEMA 7/2000-RB, dated 3-5-2000 / FEMA 7(R) /2015-RB dated 21-1-2016

FEMA 21/2000-RB, dated 3-5-2000 / FEMA 21(R)/2018-RB, dated 26-3-2018 /

Chapter IX of Foreign Exchange Management (Non-Debt Instruments) Rules,
2019 dated 17-10-2019
FEMA 22/2000-RB, dated 3-5-2000 / FEMA 22(R) /2016-RB dated 31-3-2016
FEMA 5/2000-RB, dated 3-5-2000 / FEMA 5(R)/2016-RB dated 1-4-16

6
4.2 The contraventions for amounts of Rupees one hundred lakh (Rs. 1,00,00,000/-)
or more under the jurisdiction of Panaji and Kochi offices shall be compounded at
Mumbai Regional Office and Thiruvananthapuram Regional Office respectively, in
case these offices are headed by an officer below the rank of a Chief General
Manager.

4.3 Accordingly, applications for compounding related to the above contraventions

may be submitted to the respective Regional Offices under whose jurisdiction they
fall or to FED, CO Cell, New Delhi, as applicable. For all other contraventions,
applications may continue to be submitted to CEFA, Foreign Exchange Department,
Reserve Bank of India, 5th floor, Amar Building, Sir P. M. Road, Fort, Mumbai
400001.

5. Application for Compounding

5.1 All applications for compounding may be submitted together with the prescribed
fee of Rs.5000/- by way of a demand draft drawn in favour of “Reserve Bank of
India” and payable at the concerned Regional Office/ CO Cell New Delhi and by way
of a demand draft drawn in favour of “Reserve Bank of India” and payable at Mumbai
for cases submitted to the Compounding Authority, [Cell for Effective implementation
of FEMA (CEFA)], Foreign Exchange Department, Reserve Bank of India, Central
Office, Mumbai.

5.2 The format of the application is appended to the Foreign Exchange

(Compounding Proceedings) Rules, 2000. Application submitted to the Reserve
Bank must contain contact details i.e, name of the applicant / authorised
official or representative of the applicant, telephone/ mobile number and email
ID.

5.3 Along with the application in the prescribed format, the applicant may also
furnish the details as per Annex-II relating to Foreign Direct Investment, External
Commercial Borrowings, Overseas Direct Investment and Branch Office / Liaison
Office, as applicable, a copy of the Memorandum of Association and latest audited
balance sheet along with an undertaking as per Annex III that they are not under any
enquiry/investigation/adjudication by Directorate of Enforcement, as on the date of
the application and to inform to the Compounding Authority/RBI immediately, in

7
writing, if any enquiry/investigation/adjudication proceedings are initiated by the
Directorate of Enforcement against the applicant after the date of filing the
compounding application but on or before the date of issuance of the compounding
order to enable the Bank to complete the compounding process within the time
frame.

5.4 In case the application has to be returned where required approvals are not
obtained from the authorities concerned or in case of incomplete application for any
other reason, the application fees of Rs.5000/-, received along with the application
will be returned by crediting the same to the applicant’s account through NEFT as
per the ECS mandate and details of their bank account as per Annex IV furnished
along with the application. The Annexes relating to Foreign Direct Investment,
External Commercial Borrowings, Overseas Direct Investment and Branch Office /
Liaison Office, as given in A.P.(Dir Series) Circular No.57 dated December 13,
2011, have also been modified to include the details of income-tax PAN and the
activity as per NIC codes – 1987 in terms of A.P.(Dir Series) Circular No.20 dated
August 12, 2013. The application will be treated as incomplete without these details.

5.5 The applicants are also advised to bring to the notice of the compounding
authority change, if any, in the address/ contact details of the applicant during the
pendency of the compounding application with Reserve Bank.

5.6 If an application for compounding is not submitted in the prescribed format or is

found incomplete due to the absence of any mandatory details, declarations,
documents, or the demand draft (as prescribed) towards the application fee, it will
not be taken up for processing and shall be liable to be ‘returned’ to the applicant. If
the applicant is allowed by the Reserve Bank to submit such mandatory details,
declarations or documents within a reasonable time, then the date of such
submission towards making it a complete application shall be taken as the date of
receipt of the application at the Reserve Bank for the purpose of Rule 8(2) of the
Foreign Exchange (Compounding Proceedings) Rules, 2000.

6. Pre-requisite for Compounding Process

6.1 In respect of a contravention committed by any person within a period of three

years from the date on which a similar contravention committed by him was
compounded under the Compounding Rules, such contraventions would not be
compounded and relevant provisions of the FEMA, 1999 shall apply. Any second or
subsequent contravention committed after the expiry of a period of three years from
8
the date on which the contravention was previously compounded shall be deemed to
be a first contravention.

6.2 Contraventions relating to any transaction where proper approvals or permission

from the Government or any statutory authority concerned, as the case may be,
have not been obtained, such contraventions would not be compounded unless the
required approvals are obtained from the concerned authorities.

6.3 Cases of contravention, such as, those having serious contravention suspected
of money laundering, terror financing or affecting sovereignty and integrity of the
nation or where the contravener fails to pay the sum for which contravention was
compounded within the specified period in terms of the compounding order, shall be
referred to the Directorate of Enforcement for further investigation and necessary
action under FEMA, 1999 or to the authority instituted for implementation of the
Prevention of Money Laundering Act 2002, or to any other agencies, for necessary
action as deemed fit.

6.4 In case where adjudication has been done by the Directorate of Enforcement and
an appeal has been filed under section 17 or section 19 of FEMA, 1999, no
contravention can be compounded in terms of Rule 11 of Foreign Exchange
(Compounding Proceedings) Rules, 2000. The applicant shall confirm in the
undertaking required to be furnished as per Annex III along with the compounding
application that they have not filed any appeal under section 17 or section 19 of
FEMA, 1999.

6.5 In this connection, it is clarified that whenever a contravention is identified by

the Reserve Bank or brought to its notice by the entity involved in contravention, the
Bank shall examine

(i) whether it is material and, hence is required to be compounded for which the
necessary compounding procedure has to be followed or

(ii) whether the issues involved are sensitive / serious in nature and, therefore, need
to be referred to the Directorate of Enforcement (DOE).

6.6 In terms of the proviso to rule 8 (2) of Foreign Exchange (Compounding

Proceedings) Rules, 2000 inserted vide GOI notification dated February 20, 2017, if
the Enforcement Directorate is of the view that the compounding proceeding relates
to a serious contravention suspected of money laundering, terror financing or
affecting sovereignty and integrity of the nation, the Compounding Authority shall not

9
proceed with the matter and shall remit the case to the appropriate Adjudicating
Authority for adjudicating contravention under section 13. Further, the cases
attracting the provisions under section 3(a) or those attracting special provisions
under section 37(A) of the FEMA, 1999 - relating to assets held outside India in
contravention of section 4, shall also not be eligible for compounding by the Reserve
Bank.

7. Scope and procedure for compounding

7.1 On receipt of the application for compounding, the Reserve Bank shall examine
the application based on the documents and submissions made in the application
and assess whether contravention is quantifiable and, if so, the amount of
contravention.

7.2 The Compounding Authority may call for any information, record or any other
documents relevant to the compounding proceedings. In case the contravener fails
to submit the additional information/documents called for within the specified period,
the application for compounding will be liable to be returned.

7.3 The following factors, which are only indicative, may be taken into consideration
for the purpose of passing compounding order and adjudging the quantum of sum on
payment of which contravention shall be compounded:

a) the amount of gain of unfair advantage, wherever quantifiable, made as a result

of the contravention;

b) the amount of loss caused to any authority/ agency/ exchequer as a result of the
contravention;

c) economic benefits accruing to the contravener from delayed compliance or

compliance avoided;

d) the repetitive nature of the contravention, the track record and/or history of non-
compliance of the contravener;

e) contravener’s conduct in undertaking the transaction and in disclosure of full facts

in the application and submissions made during the personal hearing; and any other
factor as considered relevant and appropriate.

10
7.4 3As per provisions of section 13 of FEMA the amount imposed can be up to three
times the amount involved in the contravention. However, the amount imposed is
calculated based on guidance note given below. It may, however, be noted that the
guidance note is meant only for the purpose of broadly indicating the basis on which
the amount to be imposed is derived by the compounding authorities in Reserve
Bank of India. The actual amount imposed may sometimes vary, depending on the
circumstances of the case taking into account the factors indicated in the foregoing
paragraph.

I. Guidance Note on Computation Matrix

Type of contravention Existing Formula
1] Reporting Contraventions Fixed amount : Rs10000/- (applied once
A) FEMA 20 for each contravention in a compounding
Para 9(1)(A), 9(1)(B), part B of FC(GPR), FCTRS application) +
(Reg. 10) and taking on record FCTRS (Reg. 4) Variable amount as under:
B) FEMA 3 Up to 10 lakhs: 1000 per year
Non submission of ECB statements Above Rs.10 lakhs & below Rs. 40
C) FEMA 120 lakhs: 2500 per year
Non reporting/delay in reporting Rs.40 lakhs or more and below Rs. 100
of
acquisition/setup of subsidiaries/step down lakhs: 7000 per year
subsidiaries /changes in the shareholding patternRs.1-10 crore 50000 per year
D) Any other reporting contraventions (except Rs.10 -100 Crore: 100000 per year
those in Row 2 below) Above Rs.100 Crore : 200000 per year
E) Reporting contraventions by LO/BO/PO As above, subject to ceiling of Rs.2
lakhs. In case of Project Office, the
amount imposed shall be calculated on
10% of total project cost.
2] AAC/ APR/ FLAR/ Share certificate delays Rs.10000/- per AAC/APR/FCGPR
In case of non-submission/ delayed submission (B) 5/FLA Return delayed.
of APR/ share certificates (FEMA 120) or AAC Delayed receipt of share certificate –
(FEMA 22) or FCGPR (B) 4or FLA Returns - Rs.10000/- per year, the total amount
FEMA 20 / FEMA 20 (R) / FEMA 120/ FEMA 395 being subject to ceiling of 300% of the
amount invested.
3] Rs.30000/- + given percentage:
A] Allotment/Refunds
Para 8 of FEMA 20/2000-RB (non-allotment of 1st year : 0.30%
shares or allotment/ refund after the stipulated 1-2 years : 0.35%
180 days) 2-3 years : 0.40%
3-4 years : 0.45%
B] LO/BO/PO 4-5 years : 0.50%
(Other than reporting contraventions) >5 years : 0.75%
(For project offices the amount of
contravention shall be deemed to be
10% of the cost of project).
4] All other contraventions, – including all Rs.50000/- + given percentage:
contraventions of FEMA20(R)/2017/NDIR, 1st year : 0.50%
2019/FEMA 395/ 2019/, except contraventions 1-2 years : 0.55%

3 Inserted vide AP (DIR Series) Circular No. 73 dated May 26, 2016. Accordingly, existing para 7.4 has been re-numbered
as 7.5
4
Inserted vide AP (DIR Series) Circular No. 29 dated February 02, 2017.
5
Inserted vide AP (DIR Series) Circular No. 29 dated February 02, 2017.

11
pertaining to FLA returns and corporate 2-3 years : 0.60%
guarantees 3-4 years : 0.65%
4-5 years : 0.70%
> 5 years : 0.75%
5] Issue of Corporate Guarantees without UIN/ Rs.500000/- + given percentage:
without permission wherever required /open 1st year : 0.050%
ended guarantees or any other contravention 1-2 years : 0.055%
related to issue of Corporate Guarantees. 2-3 years : 0.060%
3-4 years : 0.065%
4-5 years : 0.070%
>5 years : 0.075%

In case the contravention includes issue

of guarantees for raising loans which are
invested back into India, the amount
imposed may be trebled.
*The contraventions of FEMA 20 existing and continuing as on November 07, 2017 (i.e. the starting date of
contraventions prior to November 07, 2017) will be compounded as per 1(A) above.

II. The above amounts are presently subject to the following provisos, viz.
(i) the amount imposed should not exceed 300% of the amount of contravention
(ii) In case the amount of contravention is less than Rs. One lakh, the total
amount imposed should not be more than amount of simple interest @5% p.a.
calculated on the amount of contravention and for the period of the
contravention in case of reporting contraventions and @10% p.a. in respect of
all other contraventions.
(iii) In case of paragraph 8 of Schedule I to FEMA 20/2000 RB contraventions, the
amount imposed will be further graded as under:
a. If the shares are allotted after 180 days without the prior approval of
Reserve Bank, 1.25 times the amount calculated as per table above
(subject to provisos at (i) & (ii) above).
b. If the shares are not allotted and the amount is refunded after 180 days
with the Bank’s permission: 1.50 times the amount calculated as per
table above (subject to provisos at (i) & (ii) above).
c. If the shares are not allotted and the amount is refunded after 180 days
without the Bank’s permission: 1.75 times the amount calculated as per
table above (subject to provisos at (i) & (ii) above).
(iv) In cases where it is established that the contravenor has made undue gains,
the amount thereof may be neutralized to a reasonable extent by adding the
same to the compounding amount calculated as per chart.
(v) If a party who has been compounded earlier applies for compounding again
for similar contravention, the amount calculated as above may be enhanced
by 50%.

12
III. For calculating amount in respect of reporting contraventions under para I.1
above, the period of contravention may be considered proportionately {(approx.
rounded off to next higher month ÷ 12) X amount for 1 year}. The total no. of days
does not exclude Sundays/holidays.

8. Issue of the Compounding Order

8.1 The Compounding Authority shall pass an order of compounding after affording
an opportunity of being heard to all the concerned as expeditiously as possible as
and not later than 180 days from the date of application on the basis of the
averments made in the application as well as other documents and submissions
made in this context by the contravener during the personal hearings.

8.2 The time limit for this purpose would be reckoned from the date of receipt of the
completed application for compounding by the Reserve Bank.

8.3 If the applicant opts for appearing for the personal hearing, the Reserve Bank
would encourage the applicant to appear directly for it rather than being represented
/ accompanied by legal experts / consultants, as compounding is only for admitted
contraventions. Appearing for or opting out of personal hearing does not have any
bearing whatsoever on the amount imposed in the compounding order. If the
authorized representative of the applicant is unavailable for the personal hearing, the
Compounding Authority may pass the order based on available information/
documents.

8.4 The Compounding Order shall specify the provisions of the FEMA, 1999 or any
rule, regulation, notification, direction or order issued in exercise of the powers under
FEMA, 1999 in respect of which contravention has taken place along with details of
the contravention.

8.5 One copy of the compounding order issued under sub rule (2) of Rule 8 of
Foreign Exchange (Compounding Proceedings) Rules, 2000 shall be supplied to the
applicant (the contravener) and also to the Adjudicating Authority, where the
compounding of any contravention is made after making of a complaint under sub-
section (3) of section 16 of the FEMA, as the case may be.
6
8.6 In terms of AP (DIR Series) Circular No. 06 dated November 17, 2020 the
summary information about the compounding orders passed on or after March 01,

6
Inserted vide AP (DIR Series) Circular No. 06 dated November 17, 2020.

13
2020 shall be hosted on the Reserve Bank’s website ([Link]) in the following
format:

Sr. Name of Details of Date of Amount

No. the contraventions compounding imposed for
Applicant (provisions of the order compounding of
Act/Regulation/Rules contraventions
compounded)

9. Payment of the amount for which contravention is compounded

9.1 The sum for which the contravention is compounded as specified in the order of
compounding shall be paid by way of demand draft in favour of the “Reserve Bank of
India” within 15 days from the date of the order of compounding of such
contravention. The manner in which the demand draft has to be drawn and
deposited shall be indicated in the compounding order.

9.2 The provisions of the Rules do not confer any right to the contravener, after a
compounding order is passed, to seek to withdraw the order or to hold that
the compounding order is void or request review of the order passed by the
Compounding Authority.

9.3 In case of failure to pay the sum compounded within the time specified in the
compounding order and the Foreign Exchange (Compounding Proceedings) Rules,
2000, it shall be deemed that the contravener had never made an application for
compounding of any contravention under these Rules.

9.4 In respect of the contraventions of the FEMA, 1999 which are not compounded
by the Compounding Authority, other relevant provisions of FEMA, 1999 dealing with
contraventions shall apply accordingly.

9.5 On realization of the sum for which contravention is compounded a certificate in

this regard shall be issued by the Reserve Bank subject to the specified conditions, if
any, in the order.

10. Directions to Authorised Dealers

10.1 In terms of Section 11 (2) of FEMA, 1999, the Reserve Bank may, for the
purpose of ensuring the compliance with the provisions of the Act or of any rule,
regulation, notification, direction or order made thereunder, direct any authorized
person to furnish such information, in such manner, as it deems fit. Accordingly, RBI
has entrusted to the Authorised Dealers (ADs) the responsibility of complying with

14
the prescribed rules/ regulations for the foreign exchange transactions and reporting
the same as per the directions issued from time to time. Authorised Dealers have,
therefore, advised to take necessary steps to ensure that checks and balances are
incorporated in systems relating to dealing with and reporting of foreign exchange
transactions so that contraventions of provisions of FEMA, 1999 attributable to the
Authorised Dealers do not occur.

10.2 In this connection, it is reiterated that in terms of Section 11(3) of FEMA, 1999,
the Reserve Bank may impose on the authorized person a penalty for contravening
any direction given by the Reserve Bank under this Act or failing to file any return as
directed by the Reserve Bank.

11. Reporting requirements.

11.1 Reporting requirements in respect of Compounding of Contraventions under

FEMA, 1999 are included in FED Master Direction No. 18/2015-16 dated January 1,
2016.

15
 Appendix I

List of Rules/ A.P. (DIR Series) Circulars consolidated

Sl. No Rules Date

Foreign Exchange (Compounding Proceedings) Rules,
1 May 3, 2000
2000
Foreign Exchange (Compounding Proceedings) Rules,
2 November 2, 2002
2002 (Amendment)
Foreign Exchange (Compounding Proceedings) Rules,
3 September 13, 2004
2004 (Amendment)
Foreign Exchange (Compounding Proceedings) Rules,
4 August 27, 2008
2008 (Amendment)
Foreign Exchange (Compounding Proceedings) Rules,
5 February 20, 2017
2017 (Amendment)

A.P. (DIR Series) Circular

1 31 February 1, 2005
2 56 June 28, 2010
3 57 December 13, 2011
4 11 July 31, 2012
5 76 January 17, 2013
6 20 August 12, 2013
7 117 April 4, 2014
8 36 October 16, 2014
9 73 May 26, 2016
10 29 February 02, 2017
11 6 November 17, 2020

Press Release 2012-2013/1215 dated January 18, 2013

16
5/8/2018 Income Tax Department

FOREIGN EXCHANGE MANAGEMENT (PERMISSIBLE CAPITAL ACCOUNT

TRANSACTIONS) REGULATIONS, 2000 *

FEMA 1/2000-RB, dated 3-5-2000 [GSR 384(E), dated 3-5-2000] - In exercise of the powers conferred by
subsection (2) of section 6, sub-section (2) of section 47 of the Foreign Exchange Management Act, 1999 (42
of 1999), the Reserve Bank of India makes, in consultation with the Central Government, following
regulations relating to capital account transactions namely:-
Short title and commencement.
1. (i) These Regulations may be called the "Foreign Exchange Management (Permissible Capital Account
Transactions) Regulations, 2000".

(ii) They shall come into force on the 1st day of June, 2000.

Definitions.
2. In these Regulations, unless the context requires otherwise,-
(a) 'Act' means, the Foreign Exchange Management Act, 1999 (42 of 1999);
(b) 'Drawal' means drawal of foreign exchange from an authorised person and includes opening
of Letter of Credit or use of International Credit Card or International Debit Card or ATM card or
any other thing by whatever name called which has the effect of creating foreign exchange
liability;
(c) 'Schedule' means a schedule to these Regulations;
(d) Transferable Development Rights' means certificates issued in respect of category of land
acquired for public purpose either by Central or State Government in consideration of surrender
of land by the owner without monetary compensation, which are transferable in part or whole;
(e) The words and expressions used but not defined in these Regulations shall have the same
meanings respectively assigned to them in the Act.

Permissible Capital Account Transactions.

3. (1) Capital account transactions of a person may be classified under the following heads, namely :-

(A) transactions, specified in Schedule I, of a person resident in India;

(B) transactions, specified in Schedule II, of a person resident outside India.
(2) Subject to the provisions of the Act or the rules or regulations or direction or orders made or issued
thereunder, any person may sell or draw foreign exchange to or from an authorised person for a capital
account transaction specified in the Schedules:
Provided that the transaction is within the limit, if any, specified in the regulations relevant to the transaction.
Prohibition.
4. Save as otherwise provided in the Act, rules or regulations made thereunder,

(a) no person shall undertake or sell or draw foreign exchange to or from an authorised person
for any capital account transaction :
1[Provided that-

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5/8/2018 Income Tax Department

(a) subject to the provisions of the Act or the rules or regulations or directions or
orders made or issued thereunder, a resident individual may, draw from an
authorized person foreign exchange not exceeding USD 75000 per financial year or
such amount as decided by Reserve Bank from time to time for a capital account
transaction specified in Schedule I. Further, any remittances for acquisition of
immovable property outside India under the Scheme shall not be permitted.
Explanation : Drawal of foreign exchange by resident individuals towards
remittances of gift or donations as per item Nos. 3 and 4 of Schedule III to Foreign
Exchange Management (Current Account Transactions) Rules, 2000 dated 3rd May,
2000 as amended from time to time, shall be subsumed within the limit under
proviso (a) above;
(b) where the drawal of foreign exchange by a resident individual for any capital
account transaction specified in Schedule I exceeds USD 75000 or as decided by
Reserve Bank from time to time as the case may be, per financial year, the limit
specified in the regulations relevant to the transaction shall apply with respect to
such drawal:
Provided further that no part of the foreign exchange of USD 75000 or as decided
by Reserve Bank from time to time as the case may be, drawn under proviso (a) shall
be used for remittance directly or indirectly to countries notified as non-co-operative
countries and territories by Financial Action Task Force (FA TF) from time to time
and communicated by the Reserve Bank of India to all concerned."]

(b) no person resident outside India shall make investment in India, in any form, in any company
or partnership firm or proprietary concern or any entity, whether incorporated or not, which is
engaged or proposes to engage-
(i) in the business of chit fund, or
(ii) as Nidhi Company, or
(iii) in agricultural or plantation activities, or
(iv) in real estate business, or construction of farm houses, or
(v) in trading in Transferable Development Rights (TDRs).

Explanation.-For the purpose of this regulation, "real estate business" shall not include development of
townships, construction of residential/commercial premises, roads or bridges.
Method of payment for investment.
5. The payment for investment shall be made by remittance from abroad through normal banking channels or
by debit to an account of the investor maintained with an authorised person in India in accordance with the
regulations made by the Reserve Bank under the Act.
Declaration to be furnished.
6. Every person selling or drawing foreign exchange to or from an authorised person for a capital account
transaction shall furnish to the Reserve Bank, a declaration in the form and within the time specified in the
regulations relevant to the transaction.
SCHEDULE I
[See Regulation 3(1)(A)]
Classes of capital account transactions of persons resident in India
(a) Investment by a person resident in India in foreign securities.
(b) Foreign currency loans raised in India and abroad by a person resident in India.
(c) Transfer of immovable property outside India by a person resident in India.
(d) Guarantees issued by a person resident in India in favour of a person resident outside India.
(e) Export, import and holding of currency/currency notes.

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(f) Loans and overdrafts (borrowings) by a person resident in India from a person resident outside India.
(g) Maintenance of foreign currency accounts in India and outside India by a person resident in India.
(h) Taking out of insurance policy by a person resident in India from an insurance company outside India.
(i) Loans and overdrafts by a person resident in India to a person resident outside India.
(j) Remittance outside India of capital assets of a person resident in India.
(k) Sale and purchase of foreign exchange derivatives in India and abroad and commodity derivatives abroad
by a person resident in India.
SCHEDULE II
[See Regulation 3(1)(B)]
Classes of capital account transactions of persons resident outside India
(a) Investment in India by a person resident outside India, that is to say,

(i) issue of security by a body corporate or an entity in India and investment therein by a person
resident outside India; and
(ii) investment by way of contribution by a person resident outside India to the capital of a firm
or a proprietorship concern or an association of persons in India.
(b) Acquisition and transfer of immovable property in India by a person resident outside India.
(c) Guarantee by a person resident outside India in favour of, or on behalf of, a person resident in India.
(d) Import and export of currency/currency notes into/from India by a person resident outside India.
(e) Deposits between a person resident in India and a person resident outside India.
(f) Foreign currency accounts in India of a person resident outside India.
(g) Remittance outside India of capital assets in India of a person resident outside India.

*MASTER CIRCULAR : No. 5/2013-14, dated 1-7-2013.

LATEST CLARIFICATIONS : See AP (DIR Series) (2006-07) Circular No. 24, dated 20-12-2006 and
Circular No. 51, dated 8-5-2007.
See AP (DIR Series) (2007-08) Circular No. 9, dated 26-9-2007 and No. 17, dated 6-11-2007.
See AP (DIR Series) (2012-13) Circular No. 86, dated 1-3-2013 and No. 106, dated 23-5-2013.
See also AP (DIR Series) (2013-14) Circular No. 24, dated 14-8-2013, Circular No. 29, dated 20-8-2013 and
Circular No. 32, dated 4-9-2013.
1. Substituted by the FEM (Permissible Capital Account Transactions) (Amendment) Regulations, 2013,
w.e.f. 14-8-2013. Prior to its substitution, provisos, as substituted by the FEM (Permissible Capital Account
Transactions) (Amendment) Regulations, 2007 and amended by the FEM (Permissible Capital Account
Transactions) (Amendment) Regulations, 2004, w.e.f. 5-2-2004, read as under :

"Provided that-
(a) subject to the provisions of the Act or the rules or regulations or directions or
orders made or issued thereunder, a resident individual may, draw from an
authorized person foreign exchange not exceeding USD 50,000 per financial year
with effect from December 20, 2006, USD 100,000 per financial year with effect
from May 8, 2007 and USD 2,00,000 per financial year with effect from September
26, 2007, for a capital account transaction specified in Schedule I.

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Explanation.- Drawal of foreign exchange by resident individuals towards

remittances of gift or donations as per item Nos. 3 and 4 of Schedule III to Foreign
Exchange Management (Current Account Transactions) Rules, 2000, dated 3rd May,
2000 as amended from time-to-time, shall be subsumed within the limit under
proviso (a) above;
(b) where the drawal of foreign exchange by a resident individual for any capital
account transaction specified in Schedule I exceeds USD 50,000 or USD 100,000 or
USD 200,000, as the case may be, per financial year, the limit specified in the
regulations relevant to the transaction shall apply with respect to such drawal:

Provided further that no part of the foreign exchange of USD 50,000 or USD 100,000 or USD
200,000, as the case may be, drawn under proviso (a) shall be used for remittance directly or
indirectly to countries notified as non-co-operative countries and territories by Financial Action
Task Force (FATF) from time-to-time and communicated by the Reserve Bank of India to all
concerned."
© Copyright. Taxmann Publications. Pvt. Ltd.

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 Foreign Exchange Management (Current Account Transactions) Rules, 2000

Notification No. G.S.R.381(E) dated 3rd May 2000

(Updated by Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015 vide
Notification G.S.R. 426(E) dated 26-05-2015.)
Includes Amendments

In exercise of the powers conferred by section 5 and subsection (1) and clause (a) of sub-section (2) of Section
46of the Foreign Exchange Management Act, 1999, and in consultation with the Reserve Bank, the Central
Government having considered it necessary in the public interest, makes the following rules, namely :

1. Short title and commencement

2. Definitions
3. Prohibition on drawal of Foreign Exchange
4. Prior approval of Govt. of India
5. Prior approval of Reserve Bank
7. Use of International Credit Card while outside India

Schedule I
Schedule II
Schedule III
 Foreign Exchange Management (Current Account Transactions) Rules, 2000

1. Short title and commencement -

(1) These rules may be called the Foreign Exchange Management (Current Account Transactions)
Rules, 2000.
(2) They shall come into effect on the 1st day of June, 2000.
2. Definitions - In these rules, unless the context otherwise requires -

(a) "Act" means the Foreign Exchange Management Act, 1999 (42 of 1999);
(b) "Drawal" means drawal of foreign exchange from an authorised person and includes opening of
Letter of Credit or use of International Credit Card or International Debit Card or ATM card or any
other thing by whatever name called which has the effect of creating foreign exchange liability;
(c) "Schedule' means a schedule appended to these rules;
(d) The words and expressions not defined in these rules but defined in the Act shall have the same
meanings respectively assigned to them in the Act.
3. Prohibition on drawal of Foreign Exchange - Drawal of foreign exchange by any person for the
following purpose is prohibited, namely :
(a) a transaction specified in the Schedule I; or
(b) a travel to Nepal and / or Bhutan; or
(c) a transaction with a person resident in Nepal or Bhutan
Provided that the prohibition in clause (c) may be exempted by RBI subject to such term and conditions
as it may consider necessary to stipulate by special or general order.
4. Prior approval of Govt. of India - No person shall draw foreign exchange for a transaction included in
the Schedule II without prior approval of the Government of India.
Provided that this Rule shall not apply where the payment is made out of funds held in Resident Foreign
Currency (RFC) Account 2[****] of the remitter.
26[5. Prior approval of Reserve Bank.-Every drawal of foreign exchange for transactions included in
Schedule III shall be governed as provided therein :
Provided that this rule shall not apply where the payment is made out of funds held in Resident Foreign
Currency (RFC) Account of the remitter.]
3[6.
(1) Nothing contained in rule 4 or rule 5 shall apply to drawal made out of funds held in Exchange
Earners' Foreign Currency (EEFC) account of the remitter.
(2) Notwithstanding anything contained in sub-rule (1), restrictions imposed under rule 4 or rule 5 shall
continue to apply where the drawal of foreign exchange from the Exchange Earners Foreign
Currency (EEFC) account is for the purpose specified in items 10 and 11 of Schedule II, or item 3,
4, 11, 16 & 17 Schedule III as the case may be.]
10[7. Use of International Credit Card while outside India - Nothing contained in rule 5 shall apply to the use
of International Credit Card for making payment by a person towards meeting expenses while such
person is on a visit outside India.]

--------------------------------

Schedule - I
18[Transactions which are Prohibited
(See Rule 3)]

1. Remittance out of lottery winnings,

2. Remittance of income from racing / riding etc. or any other hobby,
3. Remittance for purchase of lottery tickets, banned / proscribed magazines, football pools, sweepstakes
etc.,
4. Payment of commission on exports made towards equity investment in Joint Ventures / Wholly Owned
Subsidiaries abroad of Indian companies,
5. Remittance of dividend by any company to which the requirement of dividend balancing is applicable,
11[6. Payment of commission on exports under Rupee State Credit Route, except commission up to 10% of
invoice value of exports of tea and tobacco.]
7. Payment related to "Call Back Services" of telephones,
8. Remittance of interest income on funds held in Non Resident Special Rupee Account Scheme.

------------------------------------

Schedule - II
19[Transactions which require prior approval of the Central Government
(See Rule 4)]

Ministry / Department of Govt. of India

Purpose of Remittance
whose approval is required
1. Cultural Tours Ministry of Human Resources Development,
(Department of Education and Culture)
4[2. Advertisement in foreign print media for the purposes Ministry of Finance, Department of Economic
other than promotion of tourism, foreign investments Affairs.]
and international bidding (exceeding US$ 10,000) by a
State Government and its Public Sector Undertakings.
3. Remittance of freight of vessel chartered
Ministry of Surface Transport, (Chartering Wing)
by a PSU
4. Payment of import 15[through ocean transport] by a Ministry of surface Transport, (Chartering Wing)
Govt. Department
or a PSU on c.i.f. basis (i.e. other than f.o.b.
and f.a.s. basis)
5. Multi-modal transport Operators making remittance to Registration Certificate from the Director
their agents abroad. General of Shipping
16[6. Remittance of hiring charges of transponders
(a) TV Channels Ministry of Information and Broadcasting
(b) Internet service providers Ministry of Communication and Information
Technology"]
7. Remittance of container detention charges exceeding Ministry of Surface transport (Director General
the rate prescribed by Director of Shipping)
General of Shipping
25[8. ****]
9. Remittance of prize money / sponsorship of Ministry of Human resources Development
sports activity abroad by a person other (Department of Youth Affairs and Sports)
than International / National / State Level
sports bodies, if the amount involved
exceeds US$ 100,000
17[10. ****]
11. Remittance for membership of P & I Club. Ministry of Finance (Insurance Division)

-------------------------------
 27Schedule - III
(See Rule 5)

Facilities for individuals-

1. Individuals can avail of foreign exchange facility for the following purposes within the limit of USD 2,50,000
only. Any additional remittance in excess of the said limit for the following purposes shall require prior
approval of the Reserve Bank of India.
(i) Private visits to any country (except Nepal and Bhutan)
(ii) Gift or donation.
(iii) Going abroad for employment
(iv) Emigration
(v) Maintenance of close relatives abroad
(vi) Travel for business, or attending a conference or specialised training or for meeting expenses for
meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going
abroad for medical treatment / check-up.
(vii) Expenses in connection with medical treatment abroad
(viii) Studies abroad
(ix) Any other current account transaction
Provided that for the purposes mentioned at item numbers (iv), (vii) and (viii), the individual may
avail of exchange facility for an amount in excess of the limit prescribed under the Liberalised
Remittance Scheme as provided in regulation 4 to FEMANotification 1/2000-RB, dated the 3rd May,
2000 (here in after referred to as the said Liberalised Remittance Scheme) if it is so required by a
country of emigration, medical institute offering treatment or the university, respectively :
Provided further that if an individual remits any amount under the said Liberalised Remittance
Scheme in a financial year, then the applicable limit for such individual would be reduced from USD
250,000 (US Dollars Two Hundred and Fifty Thousand Only) by the amount so remitted :
provided also that for a person who is resident but not permanently resident in India and
(a) is a citizen of a foreign State other than Pakistan; or
(b) is a citizen of India, who is on deputation to the office or branch of a foreign company or
subsidiary or joint venture in India of such foreign company,
may make remittance up to his net salary (after deduction of taxes, contribution to provident fund
and other deductions).
Explanation : For the purpose of this item, a person resident in India on account of his employment
or deputation of a specified duration (irrespective of length thereof) or for a specific job or
assignments, the duration of which does not exceed three years, is a resident but not permanently
resident :
provided also that a person other than an individual may also avail of foreign exchange facility,
mutatis mutandis, within the limit prescribed under the said Liberalised Remittance Scheme for the
purposes mentioned herein above.
Facilities for persons other than individual -

2. The following remittances by persons other than individuals shall require prior approval of the Reserve
Bank of India.
(i) Donations exceeding one per cent. of their foreign exchange earnings during the previous three
financial years or USD 5,000,000, whichever is less, for-
(a) creation of Chairs in reputed educational institutes,
(b) contribution to funds (not being an investment fund) promoted by educational institutes; and
 (c) contribution to a technical institution or body or association in the field of activity of the donor
Company.
(ii) Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in
India exceeding USD 25,000 or five percent of the inward remittance whichever is more.
(iii) Remittances exceeding USD 10,000,000 per project for any consultancy services in respect of
infrastructure projects and USD 1,000,000 per project, for other consultancy services procured from
outside India.
Explanation :-For the purposes of this sub-paragraph, the expression "infrastructure' shall mean as
defined in explanation to para 1(iv)(A)(a) of Schedule I of FEMA Notification 3/2000-RB, dated the
May 3, 2000.
(iv) Remittances exceeding five per cent of investment brought into India or USD 100,000 whichever is
higher, by an entity in India by way of reimbursement of pre-incorporation expenses."
3. Procedure

The procedure for drawal or remit of any foreign exchange under this schedule shall be the same as
applicable for remitting any amount under the said Liberalised Remittance Scheme.

1 Substituted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2000, vide Notification
No. GSR 663(E) dated 09.08.2000. Prior to substitution, the entries under serial no. 2 read as under :

"2. Advertisement abroad by any PSU / State and Ministry of Finance, (Department Economic Affairs)"
Central Government

2. The words "or Exchange Earners' Foreign Currency (EEFC) account" omitted by the Foreign Exchange Management (Current
Account Transactions) (Amendment) Rules, 2001, vide Notification No. SO 301(E) dated 30.03.2001.
3. Inserted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2001, vide Notification No.
SO 301(E) dated 30.03.2001.
4. Substituted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2001, vide Notification
No. SO 301(E) dated 30.03.2001. Prior to substitution, the entries under serial no. 2 read as under:

"1[2. Advertisement abroad by any State Government or its Ministry of Finance, Department of Economic
PSUs Affairs”

5. Substituted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2001, vide Notification
No. SO 301(E) dated 30.03.2001. Prior to its substitution, item 3 read as under:
"3. Gift remittance exceeding US$ 5,000 per beneficiary per annum."
6. Substituted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2001, vide Notification
No. SO 301(E) dated 30.03.2001. Prior to its substitution, item 4 read as under:
"4. Donation exceeding US$ 5,000 per annum per beneficiary.
7. Substituted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2001, vide Notification
No. SO 301(E) dated 30.03.2001. Prior to its substitution, item 7 read as under:
"7. Remittance for maintenance of close relatives abroad exceeding US$ 5,000 per year per recipient.
8. Substituted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2001, vide Notification
No. SO 301(E) dated 30.03.2001. Prior to its substitution, item 15 read as under:
"15. Remittances exceeding US$ 100,000 for architectural / consultancy services procured from abroad.
8a Omitted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2004, vide Notification No.
G.S.R.608(E) dated 13-09-04. Prior to its omission, item 1 read as under:
"Remittance by artiste e.g. wrestler, dancer, entertainer etc. (This restriction is not applicable to artistes engaged by tourism
related organisations in India like ITDC, State Tourism Development Corporations etc. during special festivals or those artistes
engaged by hotels in five star categories, provided the expenditure is met out of EEFC account.)"
8b Substituted by the Foreign Exchange Management (Current Account Transaction) (Second Amendment) Rules, 2004, vide
Notification No. G.S.R.608(E) dated 13-09-04. Prior to its substitution, item 11 read as under:
"11. Commission to agents abroad for sale of residential flats / commercial plots in India, exceeding 5% of the inward
remittance."
Omitted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2004, vide Notification No.
8c
G.S.R.608(E) dated 13-09-04. Prior to its omission, item 12, 13 and 14 read as under:
"12. Short term credit to overseas offices of Indian companies.
13. Remittance for advertisement on foreign television by a person whose export earnings are less than Rs. 10 lakhs
during each of the preceding two years.
14. Remittances of royalty and payment of lump-sum fee under the technical collaboration agreement which has not
been registered with Reserve Bank."
 Substituted by the Foreign Exchange Management (Current Account Transaction) (Second Amendment) Rules, 2004, vide
8d
Notification No. G.S.R.608(E) dated 13-09-04. Prior to its substitution, item 16 read as under:
"16. Remittances for use and / or purchase of trade mark / franchise in India."
8e Omitted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2004, vide Notification No.
G.S.R.608(E) dated 13-09-04.
9. Substituted for "US$ 5000" by the Foreign Exchange Management (Current Account Transactions) (Second Amendment) Rules,
2002, vide Notification No. G.S.R.831(E) dated 17.12.2002.
10. Inserted by he Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2003, vide Notification No.
G.S.R.33(E) dated 15.01.2003.
11. Substituted by the Foreign Exchange Management (Current Account Transaction) (Second Amendment) Rules, 2003, vide
Notification No. G.S.R.397(E) dated 01.05.2003. Prior to its substitution, item 6 read as under:
"6. Payment of commission on exports under Rupee State Credit Route,
12. Substituted by the Foreign Exchange Management (Current Account Transaction) (Second Amendment) Rules, 2003, vide
Notification No. G.S.R.397(E) dated 01.05.2003. Prior to its substitution, clause (i) read as under:
"(i) exceeding net salary (after deduction of taxes, contribution to provident fund and other deductions) of a person who
is resident but not permanently resident in India and is a citizen of a foreign state other than Pakistan.
13. Substituted for "employment of" by the Foreign Exchange Management (Current Account Transaction) (Second Amendment)
Rules, 2003, vide Notification No. G.S.R.397(E) dated 01.05.2003.
14. Substituted for "US $ 5000" by the Foreign Exchange Management (Current Account Transactions) (Third Amendment) Rules
2003, vide Notification No. G.S.R.731(E) dated 05.09.2003.
14 Substituted for "US $ 30,000" by the Foreign Exchange Management (Current Account Transactions) (Third Amendment) Rules
a 2003, vide Notification No. G.S.R.731(E) dated 05.09.2003.
14 Substituted for "US $ 100,000" by the Foreign Exchange Management (Current Account Transactions) (Third Amendment)
b Rules 2003, vide Notification No. G.S.R.731(E) dated 05.09.2003.
15. Inserted by the Foreign Exchange Management (Current Account Transaction) (Fourth Amendment) Rules, 2003, vide
Notification No. G.S.R.849(E) dated 27.10.2003.
16. Inserted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2004, vide Notification No.
G.S.R.608(E) dated 13-09-04.
17. Omitted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2004, vide Notification No.
G.S.R.608(E) dated 13-09-04. Prior to its omission, item 10 read as under:

"10. Payment for securing Insurance for health from a Ministry of Finance (Insurance Division)
company abroad

18 Substituted for "(see Rule 3)" by the Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2005,
vide Notification No. G.S.R.512(E) dated 27.07.2005.
19. Substituted for "(see Rule 4)" by the Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2005,
vide Notification No. G.S.R.512(E) dated 27.07.2005.
20. The original item 16 omitted by the Foreign Exchange Management (Current Account Transaction) (Amendment) Rules, 2006,
vide Notification No. G.S.R. 412 (E) dated 10.07.06. Prior to its substitution, item 16 read as under:
"16. 8d[Remittance for purchase of trademark or franchise in India.]"
21. Substituted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2009, vide Notification
No. G.S.R.349(E) dated 22.05.09, w.e.f. 20.12.06. Prior to their substitution, item 2 & 3 read as under :
"2. Release of exchange exceeding 9[US$ 10000] or its equivalent in one calendar year, for one or more private visits to
any country (except Nepal and Bhutan).
5[3. Gift remittance exceeding US$ 5,000 per remitter / donor per annum.]
22. Substituted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2009, vide Notification
No. G.S.R.349(E) dated 22.05.09, w.e.f. 30.04.2007. Prior to their substitution, item 4 read as under:
"6[4. Donation exceeding US$ 5,000 per remitter / donor per annum.]
23. Substituted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2009, vide Notification
No. G.S.R.349(E) dated 22.05.09, w.e.f. 30.04.2007. Prior to their substitution, item 15 read as under:
"8[15. Remittance exceeding 14b[US$ 1,000,000], per project, for any consultancy service procured from outside India.]
24. Inserted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2009, vide Notification No.
G.S.R.349(E) dated 22.05.09, w.e.f. 30.04.2007. Prior to insertion clause read as:
"3[17. Remittance exceeding US$ 100,000, by an entity in India by way of reimbursement of pre-incorporation expenses.]"
25. Omitted by the Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2010, vide Notification No.
G.S.R.382(E) dated 05-05-10, w.e.f. 16-12-2009. Prior to its omission, item 8 read as under :

"8. Remittances under technical collaboration agreements where Ministry of Industry and Commerce
payment of royalty exceeds 5% on local sales and 8% on
exports and lump-sum payment exceeds US$2 million

26 Substituted by the Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015 w.e.f. 26-05-2015.
Prior to its substitution, rule 5 read as follows :
 (5) Prior approval of Reserve Bank - No person shall draw foreign exchange for a transaction included in
the Schedule III without prior approval of the Reserve Bank:
Provided that this Rule shall not apply where the payment is made out of funds held in Resident Foreign Currency
(RFC) Account 2[****] of the remitter.
27 Substituted by the Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015 w.e.f. 26-05-2015.
Prior to its substitution,Schedule III read as follows :

1. [****]8a
21[2. Release of exchange exceeding US$ 10,000 or its equivalent in one financial year for one or more private visits to any country
(except Nepal and Bhutan).

3. Gift remittance exceeding US$ 5,000 per financial year per remitter or donor other than resident individual;]
22[4. (i) Donation exceeding US$ 5,000 per financial year per remitter or donor other than resident individual;

(ii) Donations by corporate, exceeding one per cent of their foreign exchange earnings during the previous three financial
years or US$ 5,000,000, whichever is less, for,-

(a) creation of Chairs in reputed educational institutes;

(b) to funds (not being an investment fund) promoted by educational institutes; and

(c) to a technical institution or body or association in the field of activity of the donor company.

Explanation - For the purposes of these item numbers 3 and 4, remittance of gift and donation by resident individuals
are subsumed under the Liberalised Remittance Scheme.]

5. Exchange facilities exceeding 14[US $ 100,000] for persons going abroad for employment.

6. Exchange facilities for emigration exceeding 14[US $ 100,000] or amount prescribed by country of emigration.
7[7. Remittance for maintenance of close relatives abroad,

12[(i) exceeding net salary (after deduction of taxes, contribution to provident fund and other deductions) of a person who is
resident but not permanently resident in India and -

(a) is a citizen of a Foreign State other than Pakistan; or

(b) is a citizen of India, who is on deputation to the office or branch or subsidiary or joint venture in India of such
foreign company.]

(ii) Exceeding 14[US $ 100,000] per year per recipient, in all other cases.

Explanation : For the purpose of this item, a person resident in India on account of his 13[employment or deputation of] a
specified duration (irrespective of length thereof) or for a specific job or assignment; the duration of which does not exceed
three years, is a resident but not permanently resident.]

8. Release of foreign exchange, exceeding US$ 25,000 to a person, irrespective of period of stay, for business travel, or
attending a Conference or specialised training or for maintenance expenses of a patient going abroad for medical treatment or
check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment / check-up.

9. Release of exchange for meeting expenses for medical treatment abroad exceeding the estimate from the doctor in India or
hospital / doctor abroad.

10. Release of exchange for studies abroad exceeding the estimates from the institution abroad or 14a[US$ 100,000] 3[per
academic year], whichever is higher.
8b[11. Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India exceeding USD 25,000
or 5% of the inward remittance whichever is more.]

12. 8c[***]

13. 8c[***]

14. 8c[***]

23[15. Remittances exceeding US$ 10,000,000 per project, for any consultancy services in respect of infrastructure projects and US$
1,000,000 per project for other consultancy services procured from outside India.

Explanation - For the purposes of this item number 'infrastructure project' is those related to -

(i) Power,

(ii) Telecommunication,

(iii) Railways,

(iv) Roads including bridges,

 (v) Sea port and airport,

(vi) Industrial parks, and

(vii) Urban infrastructure (water supply, sanitation and sewage).]

20[16. [****]

24[17. Remittances exceeding five per cent of the investment brought into India or US$ 1,00,000 whichever is higher, by an entity in
India by way of reimbursement of pre-incorporation expenses.]

18. 8e[***]

----------------------------------------

Includes Amendments
G.S.R.663(E) dt 09-08-2000 G.S.R.608(E) dt 13-09-04
S.O.301(E) dt 30-03-01 G.S.R.512(E) dt 27-07-05
G.S.R.831(E) dt 17-12-02 G.S.R. 412(E) dt 10-07-06
G.S.R.33(E) dt 15-01-03 G.S.R.349(E) dt 22-05-09
G.S.R.397(E) dt 01-05-03 G.S.R.382(E) dt 05-05-10
G.S.R.731(E) dt 05-09-03 G.S.R.426(E) dt 26-05-15
G.S.R.849(E) dt 27-10-03
 FOREIGN EXCHANGE MANAGEMENT (NON-DEBT
INSTRUMENTS) RULES, 2019
AUTHOR :EDITOR4

[Link]

MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION

New Delhi, the 17th October, 2019

S.O. 3732(E).—In exercise of the powers conferred by clauses (aa) and (ab) of sub-section (2) of section 46 of
the Foreign Exchange Management Act, 1999 (42 of 1999), and in supersession of the 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,
except as respects things done or omitted to be done before such supersession, the Central Government hereby
makes the following rules, namely:-

CHAPTER I
PRELIMINARY

1. Short title and commencement :— (1) These rules may be called the Foreign Exchange Management (Non-
debt Instruments) Rules, 2019.

(2) Save as otherwise provided in these rules, they shall come into force from the date of their publication in the
Official Gazette.

2. Definitions: – In these rules, unless the context otherwise requires:-

(a) “Act” means the Foreign Exchange Management Act, 1999 (42 of 1999);

(b) “asset reconstruction company” means a company registered with the Reserve Bank under section 3 of the
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of
2002);

(c) “authorised bank” shall have the meaning assigned to it in the Foreign Exchange Management (Deposit)
Regulations,2016;

(d) “authorised dealer” includes a person authorised under sub-section (1) of section 10 of the Act;

(e) ‘convertible note’ means an instrument issued by a startup company acknowledging receipt of money
initially as debt, repayable at the option of the holder, or which is convertible into such number of equity shares
of that company, within a period not exceeding five years from the date of issue of the convertible note, upon
occurrence of specified events as per other terms and conditions agreed and indicated in the instrument;

(f) “debt instruments” means all instruments other than non-debt instruments defined in clause (ai) of this rule;

(g) “depository receipt” means a foreign currency denominated instrument, whether listed on an international
exchange or not, issued by a foreign depository in a permissible jurisdiction on the back of eligible securities
issued or transferred to that foreign depository and deposited with a domestic custodian and includes ‘global
depository receipt’ as defined in the Companies Act, 2013 (18 of 2013);

(h) “domestic custodian” means a custodian of securities registered with the Securities and Exchange Board of
India in accordance with the SEBI (Custodian of Securities) Regulations, 1996;

(i) “domestic depository” means a custodian of securities registered with the Securities and Exchange Board of
India and authorised by the issuing entity to issue Indian depository receipts;

(j) “ESOP” means ‘Employees’ stock option’ as defined under the Companies Act, 2013 and issued under the
regulations by the Securities and Exchange Board of India;

(k) “equity instruments” means equity shares, convertible debentures, preference shares and share warrants
issued by an Indian company;

Explanation:-

(i) Equity shares issued in accordance with the provisions of the Companies Act, 2013 shall include equity
shares that have been partly paid. “Convertible debentures” means fully, compulsorily and mandatorily
convertible debentures.

“Preference shares” means fully, compulsorily and mandatorily convertible preference shares. Share Warrants
are those issued by an Indian company in accordance with the regulations by the Securities and Exchange Board
of India. Equity instruments can contain an optionality clause subject to a minimum lock-in period of one year or
as prescribed for the specific sector, whichever is higher, but without any option or right to exit at an assured
price.

(ii) Partly paid shares that have been issued to a person resident outside India shall be fully called-up within
twelve months of such issue or as may be specified by the Reserve Bank from time to time. Twenty- five per
cent of the total consideration amount (including share premium, if any) shall be received upfront.

(iii) In case of share warrants, at least twenty-five per cent of the consideration shall be received upfront and the
balance amount within eighteen months of the issuance of share warrants.

(l) “escrow account” means an escrow account maintained in accordance with the Foreign Exchange
Management (Deposit) Regulations, 2016;

(m) “FDI linked performance conditions” means the sector specific conditions specified in Schedule I of these
rules for companies receiving foreign investment;

(n) “FVCI” means a Foreign Venture Capital Investor incorporated and established outside India and registered
with the Securities and Exchange Board of India under the Securities and Exchange Board of India (Foreign
Venture Capital Investors) Regulations, 2000;
(o) “foreign central bank” means an institution or organisation or body corporate established in a country outside
India and entrusted with the responsibility of carrying out central bank functions under the law for the time being
in force in that country;

(p) “FCNR (B) account” means a Foreign Currency Non-Resident (Bank) account maintained in accordance
with the Foreign Exchange Management (Deposit) Regulations, 2016;

(q) “FCCB” or “Foreign Currency Convertible Bond” means a bond issued under the Issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993;

(r) “FDI” or “Foreign Direct Investment” means investment through equity instruments by a person resident
outside India in an unlisted Indian company; or in ten per cent or more of the post issue paid-up equity capital on
a fully diluted basis of a listed Indian company;

Note:- In case an existing investment by a person resident outside India in equity instruments of a listed Indian
company falls to a level below ten percent, of the post issue paid-up equity capital on a fully diluted basis, the
investment shall continue to be treated as FDI;

Explanation: – Fully diluted basis means the total number of shares that would be outstanding if all possible
sources of conversion are exercised;

(s) “foreign investment” means any investment made by a person resident outside India on a repatriable basis in
equity instruments of an Indian company or to the capital of a LLP;

Explanation: – If a declaration is made by a person as per the provisions of the Companies Act, 2013 about a
beneficial interest being held by a person resident outside India, then even though the investment may be made
by a resident Indian citizen, the same shall be counted as foreign investment;

Note:- A person resident outside India may hold foreign investment either as FDI or as FPI in any particular
Indian company;

(t) “foreign portfolio investment” means any investment made by a person resident outside India through equity
instruments where such investment is less than ten percent of the post issue paid-up share capital on a fully
diluted basis of a listed Indian company or less than ten percent of the paid-up value of each series of equity
instrument of a listed Indian company;

(u) “FPI” or “Foreign Portfolio Investor” means a person registered in accordance with the provisions of the
Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014;

(v) “government approval” means the approval from the erstwhile Secretariat for Industrial Assistance (SIA),
Department of Industrial Policy and Promotion, Government of India and/ or the erstwhile Foreign Investment
Promotion Board (FIPB) and/ or any of the ministry/ department of the Government of India, as the case may be;

(w) “group company” means two or more enterprises which, directly or indirectly, are in a position to (i)
exercise twenty-six per cent, or more of voting rights in other enterprise; or (ii) appoint more than fifty per cent
of members of Board of Directors in the other enterprise;

(x) “hybrid securities” means hybrid instruments such as optionally or partially convertible preference shares or
debentures and other such instruments as specified by the Central Government from time to time, which can be
issued by an Indian company or trust to a person resident outside India;
(y) “Indian company” means a company incorporated in India;

(z) “IDR” or “Indian Depository Receipts (IDRs)” means any instrument in the form of a depository receipt
created by a domestic depository in India and authorised by a company incorporated outside India making an
issue of such depository receipts;

( a) “Indian entity” shall mean an Indian company or a LLP ;

(ab) “investing company” means an Indian company holding only investments in other Indian company/ies
directly or indirectly, other than for trading of such holdings or securities;

(ac) “investment” means to subscribe, acquire, hold or transfer any security or unit issued by a person resident in
India;

Explanation:-

(i) Investment shall include to acquire, hold or transfer depository receipts issued outside India, the underlying of
which is a security issued by a person resident in India;

(ii) for the purpose of LLP, investment shall mean capital contribution or acquisition or transfer of profit shares;

(ad) “investment on repatriation basis” means an investment, sale or maturity proceeds of which are net of taxes,
eligible to be repatriated out of India, and the expression “investment on non-repatriation basis”, shall be
construed accordingly;

(ae) “investment vehicle” means an entity registered and regulated under the regulations framed by the Securities
and Exchange Board of India or any other authority designated for that purpose and shall include, namely:- (i)
Real Estate Investment Trusts (REITs) governed by the Securities and Exchange Board of India (REITs)
Regulations, 2014;(ii) Infrastructure Investment Trusts (InvIts) governed by the Securities and Exchange Board
of India (InvIts) Regulations, 2014 (iii) Alternative Investment Funds (AIFs) governed by the Securities and
Exchange Board of India (AIFs) Regulations, 2012 ;and (iv) mutual funds which invest more than fifty percent
in equity governed by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996;

(af) “LLP” means a limited liability partnership formed and registered under the Limited Liability Partnership
Act, 2008 (6 of 2009);

(ag) “listed Indian company” means an Indian company which has any of its equity instruments or debt
instruments listed on a recognised stock exchange in India and the expression “unlisted Indian company” shall
be construed accordingly;

(ah) “manufacture”, with its grammatical variations, means a change in a non-living physical object or article or
thing,:-

(i) resulting in transformation of the object or article or thing into a new and distinct object or article or thing
having a different name, character and use; or (ii) bringing into existence of a new and distinct object or article
or thing with a different chemical composition or integral structure;

(ai) “non-debt instruments” means the following instruments; namely :-

(i) all investments in equity instruments in incorporated entities: public, private, listed and unlisted;
(ii) capital participation in LLP;

(iii) all instruments of investment recognised in the FDI policy notified from time to time;

(iv) investment in units of Alternative Investment Funds (AIFs), Real Estate Investment Trust (REITs) and
Infrastructure Investment Trusts (InvIts);

(v) investment in units of mutual funds or Exchange-Traded Fund (ETFs) which invest more than fifty per cent
in equity;

(vi) junior-most layer (i.e. equity tranche) of securitisation structure;

(vii) acquisition, sale or dealing directly in immovable property;

(viii) contribution to trusts; and

(ix) depository receipts issued against equity instruments;

(aj) “NRI” or “Non-Resident Indian” means an individual resident outside India who is a citizen of India;

(ak) “OCI” or “Overseas Citizen of India” means an individual resident outside India who is registered as an
Overseas Citizen of India Cardholder under section 7A of the Citizenship Act, 1955 ( 57 of 1955);

(al) “resident Indian citizen” means an individual who is a person resident in India and is a citizen of India by
virtue of the Constitution of India or the Citizenship Act, 1955 ;

(am) “sectoral cap” means the maximum investment including both foreign investment on a repatriation basis by
persons resident outside India in equity and debt instruments of a company or the capital of a LLP, as the case
may be, and indirect foreign investment, unless provided otherwise. This shall be the composite limit for the
Indian investee entity.

Explanation:

(i) FCCBs and DRs having underlying of instruments being in the nature of debt shall not be included in the
sectoral cap;

(ii) any equity holding by a person resident outside India resulting from conversion of any debt instrument under
any arrangement shall be reckoned under the sectoral cap;

(an) “startup company” means a private company incorporated under the Companies Act, 2013 and identified
under G.S.R. 180(E), dated the 17th February, 2016 issued by the Department of Industrial Policy and
Promotion, Ministry of Commerce and Industry;

(ao) “sweat equity shares” means sweat equity shares defined under the Companies Act, 2013;

(ap) “transferable development rights (TDR)” shall have the meaning assigned to it in the regulations made
under subsection (2) of section 6 of the Act;

(aq) “unit” means a beneficial interest of an investor in an investment vehicle;

(ar) “venture capital fund” means a fund established in the form of a trust, a company including a body corporate
and registered under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations,
2012.

(2) The words and expressions used but not defined in these rules shall have the same meanings respectively
assigned to them in the Act, rules and regulations.

CHAPTER II
GENERAL CONDITIONS APPLICABLE TO ALL INVESTORS

3. Restriction on investment in India by a person resident outside India.- Save as otherwise provided in the
Act or rules or regulations made thereunder, no person resident outside India shall make any investment in India
:

Provided that an investment made in accordance with the Act or the rules or the regulations made thereunder and
held on the date of commencement of these rules shall be deemed to have been made under these rules and shall
accordingly be governed by these rules:

Provided further that the Reserve Bank may, on an application made to it and for sufficient reasons and in
consultation with the Central Government, permit a person resident outside India to make any investment in
India subject to such conditions as may be considered necessary.

4. Restriction on receiving investment.- Save as otherwise provided in the Act or rules or regulations made
thereunder, an Indian entity or an investment vehicle, or a venture capital fund or a firm or an association of
persons or a proprietary concern shall not receive any investment in India from a person resident outside India or
record such investment in its books:

Provided that the Reserve Bank may, on an application made to it and for sufficient reasons and in consultation
with the Central Government, permit an Indian entity or an investment vehicle, or a venture capital fund or a
firm or an association of persons or a proprietary concern to receive any investment in India from a person
resident outside India or to record such investment subject to such conditions as may be considered necessary.

5. Permission for making investment by a person resident outside India.- Unless otherwise specified in these
rules or the Schedules, any investment made by a person resident outside India shall be subject to the entry
routes, sectoral caps or the investment limits, as the case may be, and the attendant conditionalities for such
investment as laid down in these rules.

CHAPTER III
INVESTMENT BY PERSON RESIDENT OUTSIDE INDIA

6. Investments by person resident outside India: – A person resident outside India may make investment as
under:-

(a) may subscribe, purchase or sell equity instruments of an Indian company in the manner and subject to the
terms and conditions specified in Schedule I:

Provided that a person who is a citizen of Bangladesh or Pakistan or is an entity incorporated in Bangladesh or
Pakistan cannot purchase equity instruments without the prior government approval:

Provided further that a citizen of Pakistan or an entity incorporated in Pakistan cannot invest in defence, space,
atomic energy and sectors or activities prohibited for foreign investment even through the government route.
Note: Issue or transfer of “participating interest or right” in oil fields by Indian companies to a person resident
outside India would be treated as foreign investment and shall comply with the conditions laid down in Schedule
I.

(b) A person resident outside India, other than a citizen of Bangladesh or Pakistan or an entity incorporated in
Bangladesh or Pakistan, may invest either by way of capital contribution or by way of acquisition or transfer of
profit shares of an LLP, in the manner and subject to the terms and conditions specified in Schedule VI.

(c) A person resident outside India, other than a citizen of Bangladesh or Pakistan or an entity incorporated in
Bangladesh or Pakistan, may invest in units of an investment vehicle, in the manner and subject to the terms and
conditions specified in Schedule VIII.

(d) A person resident outside India may invest in the depository receipts (DRs) issued by foreign depositories
against eligible securities in the manner and subject to the terms and conditions specified in Schedule IX.

7. Acquisition through rights issue or bonus issue.- A person resident outside India and having investment in
an Indian company may make investment in equity instruments (other than share warrants) issued by such
company as a rights issue or a bonus issue, provided that,-

(a) the offer made by the Indian company is in compliance with the provisions of the Companies Act, 2013;

(b) such issue shall not result in a breach of the sectoral cap applicable to the company;

(c) the share holding on the basis of which the rights issue or the bonus issue has been made must have been
acquired and held as per the provisions of these rules;

(d) in case of a listed Indian company, the rights issue to persons resident outside India shall be at a price
determined by the company;

(e) in case of an unlisted Indian company, the rights issue to persons resident outside India shall not be at a price
less than the price offered to persons resident in India;

(f) such investment made through rights issue or bonus issue shall be subject to the conditions as are applicable
at the time of such issue;

(g) the mode of payment and attendant conditions for such transactions shall be specified by the Reserve Bank.

(h). an individual who is a person resident outside India exercising a right which was issued when he or she was
a person resident in India shall hold the equity instruments (other than share warrants) so acquired on exercising
the option on a non-repatriation basis.

Explanation: The above conditions shall also be applicable in case a person resident outside India makes
investment in equity instruments (other than share warrants) issued by an Indian company as a rights issue that
are renounced by the person to whom it was offered.

8. Issue of Employees Stock Options and sweat equity shares to persons resident outside India.- An Indian
company may issue “employees’ stock option” and/ or “sweat equity shares” to its employees or directors or
employees or directors of its holding company or joint venture or wholly owned overseas subsidiary or
subsidiaries who are resident outside India:

Provided that. –
(a) the scheme has been drawn either in terms of regulations issued under the Securities and Exchange Board of
India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014, as the case may be;

(b) the “employee’s stock option” or “sweat equity shares” so issued under the rules or regulations are in
compliance with the sectoral cap applicable to the said company;

(c) the issue of “employee’s stock option” or “sweat equity shares” in a company where investment by a person
resident outside India is under the approval route shall require prior government approval and issue of
“employee’s stock option” or “sweat equity shares” to a citizen of Bangladesh or Pakistan shall require prior
government approval :

Provided further that an individual who is a person resident outside India exercising an option which was issued
when he or she was a person resident in India shall hold the shares so acquired on exercising the option on a non-
repatriation basis.

9. Transfer of equity instruments of an Indian company by or to a person resident outside India.- A person
resident outside India holding equity instruments of an Indian company or units in accordance with these rules or
a person resident in India, may transfer such equity instruments or units so held by him in compliance with the
conditions, if any, specified in the Schedules of these rules and subject to the terms and conditions prescribed
hereunder:

(1) a person resident outside India, not being a non-resident Indian or an overseas citizen of India or an erstwhile
overseas corporate body may transfer by way of sale or gift the equity instruments of an Indian company or units
held by him to any person resident outside India;

Explanation: It shall also include transfer of equity instruments of an Indian company pursuant to liquidation,
merger, de-merger and amalgamation of entities or companies incorporated or registered outside India.

Provided that.-

(i) prior government approval shall be obtained for any transfer in case the company is engaged in a sector which
requires government approval;

(ii) where the equity instruments are held by the person resident outside India on a non-repatriable basis, the
transfer by way of sale where the transferee intends to hold the equity instruments on a repatriable basis, shall be
in compliance with and subject to the adherence to entry routes, sectoral caps or investment limits, as specified
in these rules and attendant conditionalities for such investment, pricing guidelines, documentation and reporting
requirements for such transfers, as may be specified by the Reserve Bank from time to time;

(2) A person resident outside India, holding equity instruments of an Indian company or units in accordance with
these rules may transfer the same to a person resident in India by way of sale or gift or may sell the same on a
recognised stock exchange in India in the manner specified by the Securities and Exchange Board of India :

Provided that. –

(i) the transfer by way of sale shall be in compliance with and subject to the adherence to pricing guidelines,
documentation and reporting requirements for such transfers as may be specified by the Reserve Bank in
consultation with the Central Government from time to time;

(ii) where the equity instruments are held by the person resident outside India on a non-repatriable basis,
conditions at item (i) of the proviso shall not apply.
(3) A person resident in India holding equity instruments of an Indian company or units, may transfer the same
to a person resident outside India by way of sale, subject to the adherence to entry routes, sectoral caps or
investment limits, pricing guidelines and other attendant conditions as applicable for investment by a person
resident outside India and documentation and reporting requirements for such transfers as may be specified by
the Reserve Bank in consultation
with the Central Government from time to time;

(4) A person resident in India holding equity instruments or units of an Indian company on a non- repatriation
basis may transfer the same to a person resident outside India by way of gift with the prior approval of the
Reserve Bank, in the manner prescribed, and subject to the following conditions, namely:-

(i) the donee is eligible to hold such a security under the Schedules of these Rules;

(ii) the gift does not exceed five percent of the paid up capital of the Indian company or each series of debentures
or each mutual fund scheme;

Explanation: The five percent of the paid up capital of the Indian company or each series of debentures or each
mutual fund scheme will be on cumulative basis by a single person to another single person.

(iii) the applicable sectoral cap in the Indian company is not breached;

(iv) the donor and the donee shall be “relatives” within the meaning in clause (77) of section 2 of the Companies
Act, 2013;

(v) the value of security to be transferred by the donor together with any security transferred to any person
residing outside India as gift during the financial year does not exceed the rupee equivalent of fifty-thousand US
Dollars;

(vi) such other conditions as considered necessary in public interest by the Central Government.

(5) A person resident outside India holding equity instruments of an Indian company containing an optionality
clause in accordance with these rules and exercising the option or right, may exit without any assured return,
subject to the pricing guidelines prescribed in these rules and a minimum lock-in period of one year or minimum
lock-in period as prescribed in these rules, whichever is higher.

(6) In case of transfer of equity instruments between a person resident in India and a person resident outside
India, an amount not exceeding twenty five percent of the total consideration,-

(i) may be paid by the buyer on a deferred basis within a period not exceeding eighteen months from the date of
the transfer agreement; or

(ii) may be settled through an escrow arrangement between the buyer and the seller for a period not exceeding
eighteen months from the date of the transfer agreement; or

(iii) may be indemnified by the seller for a period not exceeding eighteen months from the date of the payment
of the full consideration, if the total consideration has been paid by the buyer to the seller :

Provided that the total consideration finally paid for the shares shall be compliant with the applicable pricing
guidelines.
(7) In case of transfer of equity instruments between a person resident in India and a person resident outside
India, a person resident outside India may open an escrow account in accordance with the Foreign Exchange
Management (Deposit) Regulations, 2016 and such escrow account may be funded by way of inward remittance
through banking channels and/ or by way of guarantee issued by an authorised dealer bank, subject to the terms
and conditions as specified in the Foreign Exchange Management (Guarantees) Regulations, 2000.

(8) The transfer of equity instruments of an Indian company or units of an investment vehicle by way of pledge
is subject to the following terms and conditions, namely :-

(i) any person being a promoter of a company registered in India (borrowing company), which has raised
external commercial borrowing in compliance with the Foreign Exchange Management (Borrowing and Lending
in Foreign Exchange) Regulations, 2000 may pledge the shares of the borrowing company or that of its associate
resident companies for the purpose of securing the external commercial borrowing raised by the borrowing
company subject to the following
further conditions, namely :-

(A) the period of such pledge shall be co-terminus with the maturity of the underlying external commercial
borrowing;

(B) in case of invocation of pledge, transfer shall be made in accordance with these rules and directions issued
by the Reserve Bank;

(C) the statutory auditor has certified that the borrowing company shall utilise or has utilised the proceeds of the
external commercial borrowing for the permitted end-use only;

(D) no person shall pledge any such share unless a no-objection has been obtained from an authorised dealer
bank that the above conditions have been complied with;

(ii) any person resident outside India holding equity instruments in an Indian company or units of an investment
vehicle may pledge the equity instruments or units, as the case may be,-

(A) in favour of a bank in India to secure the credit facilities being extended to such Indian company for bona
fide purposes,

(B) in favour of an overseas bank to secure the credit facilities being extended to such person or a person
resident outside India who is the promoter of such Indian company or the overseas group company of such
Indian company,

(C) in favour of a non-banking financial company registered with the Reserve Bank to secure the credit facilities
being extended to such Indian company for bona fide purposes,

(D) subject to the authorised dealer bank satisfying itself of the compliance of the conditions stipulated by the
Reserve Bank in this regard;

(iii) in case of invocation of pledge, transfer of equity instruments of an Indian company or units shall be in
accordance with entry routes, sectoral caps or investment limits, pricing guidelines and other attendant
conditions at the time of creation of pledge.

CHAPTER IV
INVESTMENT BY FOREIGN PORTFOLIO INVESTOR (FPI)
10. Investment by FPI – A FPI may make investments as under:-

(1) A FPI may purchase or sell equity instruments of an Indian company which is listed or to be listed on a
recognised stock exchange in India, and/or may purchase or sell securities other than equity instruments, in the
manner and subject to the terms and conditions specified in Schedule II.

Note – A FPI may trade or invest in all exchange traded derivative contracts approved by Securities and
Exchange Board of India from time to time subject to the limits specified by the Securities and Exchange Board
of India and the conditions prescribed in Schedule II.

(2) A FPI may purchase, hold, or sell Indian Depository Receipts (IDRs) of companies resident outside India and
issued in the Indian capital market, in the manner and subject to the terms and conditions as prescribed in
Schedule X.

11. Transfer of equity instruments of an Indian company by FPI – A FPI holding equity instruments of an
Indian company or units in accordance with these rules, may transfer such equity instruments or units so held by
him in compliance with the conditions, if any, prescribed in the respective Schedules of these rules and subject to
the terms and conditions prescribed hereunder and as specified by the Securities and Exchange Board of India;

(1) A FPI may transfer by way of sale or gift the equity instruments of an Indian company or units held by him
to any person resident outside India;

Explanation: For the purposes of this rule transfer shall also include transfer of equity instruments of an Indian
company pursuant to liquidation, merger, de-merger and amalgamation of entities or companies incorporated or
registered outside India.

Provided that.-

(i) prior Government approval shall be obtained for any transfer in case the company is engaged in a sector
which requires the Government approval.

(ii) where the acquisition of equity instruments by FPI made under Schedule II of these rules has resulted in a
breach of the applicable aggregate FPI limits or sectoral limits, the provisions of sub-paragraph a (iii) of
paragraph (1) of Schedule II shall apply.

CHAPTER V
INVESTMENT BY NON-RESIDENT INDIAN OR AN OVERSEAS CITIZEN OF INDIA

12. Investment by NRI or OCI – A NRI or an OCI may make investments as under:-

(1) A NRI or an OCI may, on repatriation basis, purchase or sell equity instruments of a listed Indian company
and other securities in the manner and subject to the terms and conditions prescribed in Schedule III.

(2) A NRI or an OCI may, on non-repatriation basis, purchase or sell equity instruments of an Indian company or
other securities or contribute to the capital of a LLP or a firm or proprietary concern, in the manner and subject
to the terms and conditions specified in Schedule IV.

Note: A NRI or an OCI may trade or invest in all exchange traded derivative contracts approved by the
Securities and Exchange Board of India from time to time subject to the limits specified by Securities and
Exchange Board of India and conditions prescribed in Schedule III.
(3) A NRI or an OCI may purchase, hold, or sell Indian Depository Receipts (IDRs) of companies resident
outside India and issued in the Indian capital market, in the manner and subject to the terms and conditions
specified in Schedule X.

13. Transfer of equity instruments by NRI or OCI – A NRI or an OCI holding equity instruments of an
Indian company or units in accordance with these rules may transfer such equity instruments or units so held by
him in compliance with the conditions, if any, prescribed in the Schedules of these rules and subject to the terms
and conditions prescribed hereunder :

(1) A NRI or an OCI holding equity instruments of an Indian company or units on repatriation basis may transfer
the same by way of sale or gift to any person resident outside India :

Provided that,-

(i) prior Government approval shall be obtained for any transfer in case the company is engaged in a sector
which requires Government approval;

(ii) where the acquisition of equity instruments by an NRI or an OCI under the provisions of Schedule III of
these rules has resulted in a breach of the applicable aggregate NRI or OCI limit or sectoral limits, the NRI or the
OCI shall sell such equity instruments to a person resident in India eligible to hold such instruments within the
time stipulated by the Reserve Bank of India in consultation with the Central Government and the breach of the
said aggregate or sectoral limit on account of such acquisition for the period between the acquisition and sale,
provided the sale is within the prescribed time, shall not be reckoned as a contravention under these rules.

(2) A NRI or an OCI or an eligible investor under Schedule IV of these rules, holding equity instruments of an
Indian company or units on a non-repatriation basis, may transfer the same to a person resident outside India by
way of sale, subject to the adherence to entry routes, sectoral caps or investment limits, pricing guidelines and
other attendant conditions as applicable for investment by a person resident outside India and documentation and
reporting requirements for such transfers as may be specified by the Reserve Bank in consultation with the
Central Government from time to time;

Provided that the entry routes, sectoral caps or investment limits, pricing guidelines and other attendant
conditions shall not apply in case the transfer is to an NRI or an OCI or an eligible investor under Schedule IV of
these rules acquiring such investment.

(3) A NRI or an OCI or an eligible investor under Schedule IV of these rules holding equity instruments or units
of an Indian company on a non-repatriation basis may transfer the same to a person resident outside India by
way of gift with the prior approval of the Reserve Bank of India, in the manner prescribed, and subject to the
following conditions, namely :-

(i) the donee is eligible to hold such a security under relevant Schedules of these rules;

(ii) the gift does not exceed five percent of the paid up capital of the Indian company or each mutual fund
scheme;

Explanation: The five percent shall be on cumulative basis by a single person to another single person.

(iii) the applicable sectoral cap in the Indian company is not breached;

(iv) the donor and the donee shall be “relatives” within the meaning in clause (77) of section 2 of the Companies
Act, 2013;
(v) the value of security to be transferred by the donor together with any security transferred to any person
residing outside India as gift during the financial year does not exceed the rupee equivalent of USD 50000;

(vi) such other conditions as may be considered necessary in public interest by the Central Government.

(4) A NRI or an OCI or an eligible investor specified under Schedule IV of these rules holding equity
instruments of an Indian company or units on a non-repatriation basis, may transfer the same by way of gift to an
NRI or an OCI or an eligible investor under Schedule IV of these rules who shall hold it on a non-repatriable
basis.

(5) An erstwhile OCB may transfer equity instruments subject to the directions issued by the Reserve Bank of
India from time to time in this regard.

Explanation: “Overseas Corporate Body (OCB)” means an entity de-recognised through Foreign Exchange
Management [Withdrawal of General Permission to Overseas Corporate Bodies (OCBs)] Regulations, 2003.

CHAPTER VI
INVESTMENT BY OTHER NON-RESIDENT INVESTORS

14. Investment in securities by other non-resident investors – The other non-resident investors may make
investments in securities in the manner and subject to the terms and conditions specified in Schedule V.

15. Transfer of securities by other non-resident investors :- The other non-resident investors, holding
securities in accordance with these rules, may transfer the securities subject to such terms and conditions
prescribed in Schedule V and as specified by the Securities and Exchange Board of India and the Reserve Bank.

CHAPTER VII
INVESTMENT BY FOREIGN VENTURE CAPITAL INVESTOR

16. Investment by FVCI – A Foreign Venture Capital Investor (FVCI) may make investments in the manner
and subject to the terms and conditions specified in Schedule VII.

17. Transfer of equity instruments of an Indian company by or to a FVCI – A FVCI holding equity
instruments of an Indian company or units in accordance with these rules or a person resident in India, may
transfer such equity instruments or units so held by him in compliance with the conditions, if any, prescribed in
Schedule VII of these rules and as specified by the Securities and Exchange Board of India and the Reserve
Bank.

CHAPTER VIII
GENERAL PROVISIONS

18. Issue of Convertible Notes by an Indian startup company .- (1) A person resident outside India (other
than an individual who is citizen of Pakistan or Bangladesh or an entity which is registered or incorporated in
Pakistan or Bangladesh), may purchase convertible notes issued by an Indian startup company for an amount of
twenty five lakh rupees or more in a single tranche.

(2) A startup company, engaged in a sector where investment by a person resident outside India requires
Government approval, may issue convertible notes to a person resident outside India only with such approval.
Further, issue of equity shares against such convertible notes shall be in compliance with the entry route, sectoral
caps, pricing guidelines and other attendant conditions for foreign investment.
(3) The mode of payment and other attendant conditions for remittance of sale or maturity proceeds shall be
specified by the Reserve Bank.

(4) A NRI or an OCI may acquire convertible notes on non-repatriation basis in accordance with Schedule IV of
these rules.

(5) A person resident outside India may acquire or transfer by way of sale, convertible notes, from or to, a person
resident in or outside India, provided the transfer takes place in accordance with the entry routes and pricing
guidelines as prescribed for capital instruments.

19. Merger or demerger or amalgamation of Indian companies.- (1) Where a scheme of merger or
amalgamation of two or more Indian companies or a reconstruction by way of demerger or otherwise of an
Indian company, has been approved by the National Company Law Tribunal (NCLT) or competent authority, the
transferee company or the new company, as the case may be, may issue equity instruments to the existing
holders of the transferor company resident outside India, subject to the following conditions, namely:-

(a) the transfer or issue is in compliance with the entry routes, sectoral caps or investment limits, as the case may
be, and the attendant conditionalities of investment by a person resident outside India :

Provided that where the percentage is likely to breach the sectoral caps or the attendant conditionalities, the
transferor company or the transferee or new company may obtain necessary approval from the Central
Government.

(b) the transferor company or the transferee company or the new company shall not engage in any sector
prohibited for investment by a person resident outside India.

(2) where a scheme of merger or amalgamation of two or more Indian companies or a reconstruction by way of
demerger or otherwise of an Indian company where any of the companies involved is listed on a recognised
stock exchange in India, then the scheme of arrangement shall be in compliance with the SEBI (Listing
Obligation and Disclosure Requirement) Regulations, 2015.

20. Reporting requirements – The reporting requirements for any investment in India by a person resident in
India shall be as specified by the Reserve Bank.

21. Pricing guidelines – (1) The pricing guidelines specified in these rules shall not be applicable for any
transfer by way of sale done in accordance with Securities and Exchange Board of India regulations where the
pricing is specified by Securities and Exchange Board of India.

(2) Unless otherwise prescribed in these rules, the price of equity instruments of an Indian company, –

(a) issued by such company to a person resident outside India shall not be less than :

(i) the price worked out in accordance with the Securities and Exchange Board of India guidelines in case of a
listed Indian company or in case of a company going through a delisting process as per the Securities and
Exchange Board of India (Delisting of Equity Shares) Regulations, 2009;

(ii) the valuation of equity instruments done as per any internationally accepted pricing methodology for
valuation on an arm’s length basis duly certified by a Chartered Accountant or a Merchant Banker registered
with the Securities and Exchange Board of India or a practising Cost Accountant, in case of an unlisted Indian
Company.
(b) transferred from a person resident in India to a person resident outside India shall not be less than,-

(i) the price worked out in accordance with the Securities and Exchange Board of India guidelines in case of a
listed Indian company;

(ii) the price at which a preferential allotment of shares can be made under the Securities and Exchange Board of
India Guidelines, as applicable, in case of a listed Indian company or in case of a company going through a
delisting process as per the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations,
2009;

(iii) the valuation of equity instruments done as per any internationally accepted pricing methodology for
valuation on an arm’s length basis duly certified by a Chartered Accountant or a Merchant Banker registered
with the Securities and Exchange Board of India or a practising Cost Accountant, in case of an unlisted Indian
company.

(c) transferred by a person resident outside India to a person resident in India shall not exceed :

(i) the price worked out in accordance with the relevant Securities and Exchange Board of India guidelines in
case of a listed Indian company;

(ii) the price at which a preferential allotment of shares can be made under the Securities and Exchange Board of
India Guidelines, as applicable, in case of a listed Indian company or in case of a company going through a
delisting process as per the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations,
2009 :

Provided that the price is determined for such duration as specified in the Securities and Exchange Board of
India Guidelines, preceding the relevant date, which shall be the date of purchase or sale of shares;

(iii) the valuation of equity instruments done as per any internationally accepted pricing methodology for
valuation on an arm’s length basis duly certified by a Chartered Accountant or a Merchant Banker registered
with the Securities and Exchange Board of India or a practising Cost Accountant, in case of an unlisted Indian
company.

Explanation: The guiding principle shall be that the person resident outside India is not guaranteed any assured
exit price at the time of making such investment or agreement and shall exit at the price prevailing at the time of
exit.

(iv) in case of swap of equity instruments, subject to the condition that irrespective of the amount, valuation
involved in the swap arrangement shall have to be made by a Merchant Banker registered with the Securities and
Exchange Board of India or an investment banker outside India registered with the appropriate regulatory
authority in the host country.

(v) where shares in an Indian company are issued to a person resident outside India in compliance with the
provisions of the Companies Act, 2013, by way of subscription to Memorandum of Association, such
investments shall be made at face value subject to entry route and sectoral caps.

(vi) in case of share warrants, their pricing and the price or conversion formula shall be determined upfront:

Provided that these pricing guidelines shall not be applicable for investment in equity instruments by a person
resident outside India on a non-repatriation basis.
22. Taxes and remittances of sale proceeds – (1) Taxes – All transaction under these rules shall be undertaken
through banking channels in India and subject to the payment of applicable taxes and other duties or levies in
India.

(2) Remittance of sale proceeds : (a) No remittance of sale proceeds of an Indian security held by a person
resident outside India shall be made otherwise than in accordance with these rules , the conditions prescribed in
the relevant Schedule and as specified by the Reserve Bank.

(b) An authorised dealer may allow the remittance of sale proceeds of a security (net of applicable taxes) to the
seller of shares resident outside India :

Provided that –

(i) the security was held by the seller on repatriation basis; and

(ii) either the security has been sold in compliance with the pricing guidelines or the Reserve Bank’s approval
has been obtained in other cases for sale of the security and remittance of the sale proceeds thereof.

23. Downstream investment – (1) Indian entity which has received indirect foreign investment shall comply
with the entry route, sectoral caps, pricing guidelines and other attendant conditions as applicable for foreign
investment.

Explanation: Downstream investment by an LLP not owned and not controlled by resident Indian citizens or
owned or controlled by persons resident outside India is allowed in an Indian company operating in sectors
where foreign investment up to one hundred percent is permitted under automatic route and there are no FDI
linked performance conditions.

(2) With effect from the 31st day of July, 2012, downstream investment(s) made under Corporate Debt
Restructuring (CDR), or other loan restructuring mechanism, or in trading book, or for acquisition of shares due
to defaults in loans, by a banking company, as defined in clause (c) of section 5 of the Banking Regulation Act,
1949 ( 10 of 1949) incorporated in India, which is not owned and not controlled by resident Indian citizens or
owned or controlled by persons resident outside India, shall not count towards indirect foreign investment,
however, their strategic downstream investment shall be counted towards indirect foreign investment for the
company in which such investment is being made.

(3) Guidelines for calculating total foreign investment in Indian companies are as follows ,-

(a) any equity holding by a person resident outside India resulting from conversion of any debt instrument under
any arrangement shall be reckoned for total foreign investment;

(b) FCCBs and DRs having underlying of instruments in the nature of debt shall not be reckoned for total foreign
investment;

(c) the methodology for calculating total foreign investment shall apply at every stage of investment in Indian
companies and thus in each and every Indian company;

(d) for the purpose of downstream investment, the portfolio investment held as on 31st March of the previous
financial year in the Indian company making the downstream investment shall be considered for computing its
total foreign investment;
(e) indirect foreign investment received by a wholly owned subsidiary of an Indian company shall be limited to
the total foreign investment received by the company making the downstream investment.

(4) Downstream investment that is treated as indirect foreign investment for the investee entity shall be subject
to the following conditions, namely :-

(a) downstream investment shall have the approval of the Board of Directors as also a shareholders’ Agreement,
if any;

(b) for the purpose of downstream investment, the Indian entity making the downstream investment shall bring
in requisite funds from abroad and not use funds borrowed in the domestic markets and the downstream
investments may be made through internal accruals and for this purpose, internal accruals shall mean profits
transferred to reserve account after payment of taxes. Further raising of debt and its utilisation shall be in
compliance with the Act, rules or regulations made thereunder.

(5) Equity instrument of an Indian company held by another Indian company which has received foreign
investment and is not owned and not controlled by resident Indian citizens or is owned or controlled by persons
resident outside India may be transferred to-

(a) a person resident outside India, subject to the reporting requirements as specified by the Reserve Bank.

(b) a person resident in India subject to adherence to pricing guidelines;

(c) an Indian company which has received foreign investment and is not owned and not controlled by resident
Indian citizens or owned or controlled by persons resident outside India.

(6) The first level Indian company making downstream investment shall be responsible for ensuring compliance
with the provisions of these rules for the downstream investment made by it at second level and so on and so
forth and such first level company shall obtain a certificate to this effect from its statutory auditor on an annual
basis and such compliance of these rules shall be mentioned in the Director’s report in the Annual Report of the
Indian company. In case statutory auditor has given a qualified report, the same shall be immediately brought to
the notice of the regional office of the Reserve Bank in whose jurisdiction the Registered Office of the company
is located and shall also obtain acknowledgement from the Registered Office.

(7) The provisions (5) and (6) of rule 23 shall apply mutatis mutandis to a LLP.

Note: Downstream investment that is treated as indirect foreign investment for the investee entity made in
accordance with the guidelines in existence prior to the 13th February, 2009 shall not require any modification to
conform to these rules and all such investments, after the said date, shall come under the ambit of these rules.
Downstream investment that is treated as indirect foreign investment for the investee entity made between the
13th February,2009 and 21st June 2013 which is not in conformity with these rules shall have to be intimated to
the Reserve Bank by 3rd October,2013 for treating such cases as compliant with these Rules.

Explanation.- For the purposes of this rule,-

(a) “ownership of an Indian company” shall mean beneficial holding of more than fifty percent of the equity
instruments of such company and “ownership of an LLP” shall mean contribution of more than fifty percent in
its capital and having majority profit share;

(b) “company owned by resident Indian citizens” shall mean an Indian company where ownership is vested in
resident Indian citizens and/ or Indian companies, which are ultimately owned and controlled by resident Indian
citizens and “LLP owned by resident Indian citizens” shall mean an LLP where ownership is vested in resident
Indian citizens and/ or Indian entities, which are ultimately owned and controlled by resident Indian citizens;

(c) “company owned by persons resident outside India” shall mean an Indian company that is owned by persons
resident outside India and “LLP owned by persons resident outside India” shall mean an LLP that is owned by
persons resident outside India;

(d) “control” shall mean the right to appoint majority of the directors or to control the management or policy
decisions including by virtue of their shareholding or management rights or shareholders agreement or voting
agreement and for the purpose of LLP, “control” shall mean the right to appoint majority of the designated
partners, where such designated partners, with specific exclusion to others, have control over all the policies of
an LLP;

(e) “company controlled by resident Indian citizens” means an Indian company, the control of which is vested in
resident Indian citizens and/ or Indian companies which are ultimately owned and controlled by resident Indian
citizens and “LLP controlled by resident Indian citizens” shall mean an LLP, the control of which is vested in
resident Indian citizens and/or Indian entities, which are ultimately owned and controlled by resident Indian
citizens;

(f) “company controlled by persons resident outside India” shall mean an Indian company that is controlled by
persons resident outside India and “LLP controlled by persons resident outside India” shall mean an LLP that is
controlled by persons resident outside India;

(g) “downstream investment” shall mean investment made by an Indian entity which has total foreign investment
in it, or an Investment Vehicle in the capital instruments or the capital, as the case may be, of another Indian
entity;

(h) “holding company” shall have the same meaning as assigned to it under Companies Act, 2013;

(i) “indirect foreign investment” means downstream investment received by an Indian entity from,-

(A) another Indian entity (IE) which has received foreign investment and (i) the IE is not owned and not
controlled by resident Indian citizens or (ii) is owned or controlled by persons resident outside India; or

(B) an investment vehicle whose sponsor or manager or investment manager (i) is not owned and not controlled
by resident Indian citizens or (ii) is owned or controlled by persons resident outside India :

Provided that no person resident in India other than an Indian entity can receive Indirect Foreign Investment;

(j) “total foreign investment” means the total of foreign investment and indirect foreign investment and the same
will be reckoned on a fully diluted basis;

(k) “strategic downstream investment” means investment by banking companies incorporated in India in their
subsidiaries, joint ventures and associates.

CHAPTER IX
ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTY IN INDIA

24. Acquisition and transfer of property in India by a NRI or an OCI – A NRI or an OCI may –

(a) acquire immovable property in India other than an agricultural land or farm house or plantation property:
Provided that the consideration, if any, 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, rules or
regulations framed thereunder:

Provided further that no payment for any transfer of immovable property shall be made either by traveller’s
cheque or by foreign currency notes or by any other mode other than those specifically permitted under this
clause;

(b) acquire any immovable property in India other than agricultural land or farm house or plantation property by
way of gift from a person resident in India or from an NRI or from an OCI, who in any case is a relative as
defined in clause (77) of section 2 of the Companies Act, 2013;

(c) acquire any immovable property in India by way of inheritance from a person resident outside India who had
acquired such property:-

(i) 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

(ii) from a person resident in India;

(d) transfer any immovable property in India to a person resident in India;

(e) transfer any immovable property other than agricultural land or farm house or plantation property to an NRI
or an OCI.

25. Joint acquisition by the spouse of a NRI or an OCI : A person resident outside India, not being an NRI or
an OCI, who is a spouse of an NRI or an 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 :

Provided that –

(a) 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 Reserve Bank;

(b) no payment for any transfer of immovable property shall be made either by traveller’s cheque or by foreign
currency notes or by any other mode other than those specifically permitted under this clause :

Provided that the marriage has been registered and subsisted for a continuous period of not less than two years
immediately preceding the acquisition of such property :

Provided further that the non-resident spouse is not otherwise prohibited from such acquisition.
26. Acquisition of immovable property for carrying on a permitted activity – A person resident outside
India who has established in India in accordance with the Foreign Exchange Management (Establishment in
India of a Branch office or a liaison office or a project office or any other place of business) Regulations, 2016,
as amended from time to time, a branch, office or other place of business for carrying on in India any activity,
excluding a liaison office, may –

(a) acquire any immovable property in India, which is necessary for or incidental to carrying on such activity:

Provided that,-

(i) all applicable laws, rules, regulations, for the time being in force are duly complied with; and

(ii) the person files with the Reserve Bank a declaration in the Form IPI as specified by the Reserve Bank from
time to time, not later than ninety days from the date of such acquisition;

(b) transfer by way of mortgage to an authorised dealer as a security for any borrowing, the immovable property
acquired in pursuance of clause (a) of rule 26:

Provided that no person of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Hong Kong
or Macau or Nepal or Bhutan or Democratic People’s Republic of Korea (DPRK) shall acquire immovable
property, other than on lease not exceeding five years, without prior approval of the Reserve Bank.

27. Purchase or sale of immovable property by Foreign Embassies or Diplomats or Consulate Generals –
A Foreign Embassy or Diplomat or Consulate General may purchase or sell immovable property in India other
than agricultural land or plantation property or farm house provided :

(i) clearance from Government of India, Ministry of External Affairs is obtained for such purchase or sale; and

(ii) the consideration for acquisition of immovable property in India is paid out of funds remitted from abroad
through banking channels.

28. Acquisition by a long-term visa holder – A person being a citizen of Afghanistan, Bangladesh or Pakistan
belonging to minority communities in those countries, namely, Hindus, Sikhs, Buddhists, Jains, Parsis and
Christians who is residing in India and has been granted a Long Term Visa (LTV) by the Central Government
may purchase only one residential immovable property in India as dwelling unit for self-occupation and only one
immovable property for carrying out self-employment subject to the following conditions, namely :-

(a) the property shall not be located in and around restricted or protected areas so notified by the Central
Government and cantonment areas;

(b) the person submits a declaration to the Revenue Authority of the district where the property is located,
specifying the source of funds and that he or she is residing in India on LTV;

(c) the registration documents of the property shall mention the nationality and the fact that such person is on
LTV;

(d) the property of such person may be attached or confiscated in the event of his or her indulgence in anti-India
activities;

(e) a copy of the documents of the purchased property shall be submitted to the Deputy Commissioner of Police
(DCP) or Foreigners Registration Office (FRO) or Foreigners Regional Registration Office (FRRO) concerned
and to the Ministry of Home Affairs (Foreigners Division);

(f) such person shall be eligible to sell the property only after acquiring Indian citizenship, however, transfer of
the property before acquiring Indian citizenship shall require prior approval of DCP or FRO or FRRO
concerned.

29. Repatriation of sale proceeds – (1) A person referred to in sub-section (5) of section 6 of the Act, or his
successor shall not, except with the general or specific permission of the Reserve Bank, repatriate outside India
the sale proceeds of any immovable property referred to in that sub- section.

(2) In the event of sale of immovable property other than agricultural land or farm house or plantation property
in India by an NRI or an OCI, the authorised dealer may allow repatriation of the sale proceeds outside India,
provided the following conditions are satisfied, namely:-

(a) the 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;

(b) 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;

(c) in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such
properties.

(3) In the event of failure in repayment of external commercial borrowing availed by a person resident in India
under the provisions of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange)
Regulations, 2000, as amended from time to time, a bank which is an authorised dealer may permit the overseas
lender or the security trustee (in whose favour the charge on immovable property has been created to secure the
ECB) to sell the immovable property on which the said loan has been secured only to a (by the) person resident
in India and to repatriate the sale proceeds towards outstanding dues in respect of the said loan and not any other
loan.

30. Prohibition on transfer of immovable property in India – (1) Save as otherwise provided in the Act or
rules, no person resident outside India shall transfer any immovable property in India:

Provided that:-

(a) the Reserve Bank may, for sufficient reasons, permit the transfer subject to such conditions as may be
considered necessary;

(b) a bank which is an authorised dealer may, subject to the directions issued by the Reserve Bank in this behalf,
permit a person resident in India or on behalf of such person to create charge on his immovable property in India
in favour of an overseas lender or security trustee, to secure an external commercial borrowing availed under the
provisions of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations,
2000;

(c) an authorised dealer in India being the Indian correspondent of an overseas lender may, subject to the
directions issued by the Reserve Bank in this regard, create a mortgage on an immovable property in India
owned by an NRI or an OCI, being a director of a company outside India, for a loan to be availed by the
company from the said overseas lender :
Provided further that :-

(i) the funds shall be used by the borrowing company only for its core business purposes overseas;

(ii) in case of invocation of charge, the Indian bank shall sell the immovable property to an eligible acquirer and
remit the sale proceeds to the overseas lender.

(2) A person resident outside India who has acquired any immovable property in India in accordance with
foreign exchange laws in force at the time of such acquisition or with the general or specific permission of the
Reserve Bank may transfer such property to a person resident in India provided the transaction takes place
through banking channels in India and provided further that the resident is not otherwise prohibited from such
acquisition.

31. Prohibition on acquisition or transfer of immovable property in India by citizens of certain countries –
No person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Hong
Kong or Macau or Democratic People’s Republic of Korea (DPRK) without prior permission of the Reserve
Bank shall acquire or transfer immovable property in India, other than lease not exceeding five years :

Provided that this prohibition shall not apply to an OCI.

Explanation: For the purpose of this rule, the term “citizen” shall include natural persons and legal entities.

32. Miscellaneous – Any transaction involving acquisition or transfer of immovable property under these rules
shall be undertaken:-

(a) through banking channels in India;

(b) subject to payment of applicable taxes and other duties or levies in India.

33. Savings – Any existing holding of immovable property in India by a person resident outside India made in
accordance with the policy in existence at the time of such acquisition would not require any modifications to
conform to these rules.

SCHEDULE I
(See rule 6(a))

Purchase or sale of equity instruments of an Indian company by a person resident outside India

(1) Purchase or sale of equity instruments of an Indian company by a person resident outside India

(a) An Indian company may issue equity instruments to a person resident outside India subject to entry routes,
sectoral caps and attendant conditionalities prescribed in this Schedule.

(b) A person resident outside India may purchase equity instruments of a listed Indian company on a stock
exchange in India:

Provided that –

(i) the person resident outside India making the investment has already acquired control of such company in
accordance with SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 and continues to hold
such control;
(ii) the amount of consideration may be paid as per the mode of payment specified by the Reserve Bank or out of
the dividend payable by Indian investee company in which the person resident outside India has acquired and
continues to hold the control in accordance with SEBI (Substantial Acquisition of Shares and Takeover)
Regulations, 2011 provided the right to receive dividend is established and the dividend amount has been
credited to a specially designated noninterest bearing rupee account for acquisition of shares on the recognised
stock exchange.

(c) A wholly owned subsidiary set up in India by a non-resident entity, operating in a sector where 100 percent
foreign investment is allowed in the automatic route and there are no FDI linked performance conditions, may
issue equity instruments to the said non-resident entity against pre- incorporation or pre-operative expenses
incurred by the said nonresident entity up to a limit of five percent of its authorised capital or USD 500,000
whichever is less, subject to the condition that within thirty days from the date of issue of equity instruments but
not later than one year from the date of incorporation or such time as the Reserve Bank permits, the Indian
company shall report the transaction to the Reserve Bank as per the reporting requirements as specified by the
Reserve Bank.

(d). An Indian company may issue, subject to compliance with the conditions prescribed by the Central
Government and/or the Reserve Bank from time to time, equity instruments to a person resident outside India, if
the Indian investee company is engaged in an automatic route sector, against,-

(i) swap of equity instruments; or

(ii) import of capital goods or machinery or equipment (excluding second-hand machinery); or

(iii) pre-operative or pre-incorporation expenses (including payments of rent etc.) :

Provided that the Government approval shall be obtained if the Indian investee company is engaged in a sector
under Government route and the applications for approval shall be made in the manner prescribed by the Central
Government from time to time.

(e) An Indian company may issue equity shares against any funds payable by it to a person resident outside
India, the remittance of which is permitted under the Act or the rules and regulations framed or directions issued
thereunder or does not require prior permission of the Central Government or the Reserve Bank under the Act or
the rules and regulations framed or directions issued thereunder or has been permitted by the Reserve Bank
under the Act or the rules and regulations framed or directions issued thereunder:

Provided that in case where permission has been granted by the Reserve Bank for making remittance, the Indian
company may issue equity shares against such remittance provided all regulatory actions with respect to the
delay or contravention under the Act or the rules or the regulations framed thereunder have been completed.

(f) The mode of payment and other attendant conditions for remittance of sale or maturity proceeds shall be
specified by the Reserve Bank.

(2) Sectors prohibited for FDI.-

(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

Explanation: For the purpose of this rule, ‘real estate business shall not include development of townships,
construction of residential or commercial premises, roads or bridges and Real Estate Investment Trusts (REITs)
registered and regulated under the SEBI (REITs) Regulations, 2014.

(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.

(3) Permitted sectors, entry routes and sectoral caps for total foreign investment

Unless otherwise specified in these Rules or the Schedules, the entry routes and sectoral caps for the total foreign
investment in an Indian entity shall be as follows, namely :-

(a) Entry routes.-

(i) “automatic route” means the entry route through which investment by a person resident outside India does not
require the prior approval of the Reserve Bank or the Central Government;

(ii) “government route” means the entry route through which investment by a person resident outside India
requires prior Government approval and foreign investment received under this route shall be in accordance with
the conditions stipulated by the Government in its approval.

(iii) Aggregate foreign portfolio investment up to forty-nine percent of the paid-up capital on a fully diluted basis
or the sectoral or statutory cap, whichever is lower, shall not require Government approval or compliance of
sectoral conditions as the case may be, if such investment does not result in transfer of ownership and control of
the resident Indian company from resident Indian citizens or transfer of ownership or control to persons resident
outside India and other investments by a person resident outside India shall be subject to the conditions of
Government approval and compliance of sectoral conditions as laid down in these rules.

(b) Sectoral caps.—

(i) Sectoral cap for the sectors or activities specified in the table is the limit indicated against each sector. The
total foreign investment shall not exceed the sectoral or statutory cap.

(ii) Foreign investment in the following sectors or activities is subject to applicable laws or regulations, security
and other conditionalities.

(iii) In sectors or activities not listed below or not prohibited under paragraph (2) of Schedule I of these rules,
foreign investment is permitted up to one hundred percent on the automatic route, subject to applicable laws or
regulations, security and other conditionalities :
Provided that foreign investment in financial services other than those indicated under serial number “F” below
would require prior approval of the Government .

(iv) Wherever there is a requirement of minimum capitalisation, it shall include premium received along with the
face value of the equity instrument, only when it is received by the company upon issue of such instruments to
the person resident outside India and the amount paid by the transferee during post-issue transfer beyond the
issue price of the capital instrument, shall not be taken into account while calculating minimum capitalization
requirement.

(v) (A) Foreign Investment in investing companies not registered as Non-Banking Financial Companies with the
Reserve Bank and in core investment companies (CICs), both engaged in the activity of investing in the capital
of other Indian entities, shall require prior approval of the Government .

Note: Compliance to these rules by the core investment companies is in addition to the compliance of the
regulatory framework prescribed to such companies as NBFCs under the Reserve Bank of India Act, 1934 and
regulations framed thereunder.

(v) (B) Foreign investment in investing companies registered as Non-Banking Financial Companies (NBFCs)
with the Reserve Bank, shall be under 100% automatic route.

(vi) For undertaking activities which are under automatic route and without FDI linked performance conditions,
an Indian company which does not have any operations and also has not made any downstream investment that
is treated as indirect foreign investment for the investee entity, may receive investment in its equity instruments
from persons resident outside India under automatic route, however, approval of the Government shall be
required for such companies for undertaking activities which are under Government route and as and when such
a company commences business or makes downstream investment that is treated as indirect foreign investment
for the investee entity, it shall have to comply with the relevant sectoral conditions on entry route,
conditionalities and caps.

(vii) The onus of compliance with the sectoral or statutory caps on such foreign investment and attendant
conditions, if any, shall be on the company receiving foreign investment.

(viii) Wherever the person resident outside India who has made foreign investment specifies a particular auditor
or audit firm having international network for the audit of the Indian investee company, then audit of such
investee company shall be carried out as joint audit wherein one of the auditors is not part of the same network.

Table

Sl. No Sector/Activity Entry Route

Sectoral
(1) (2) Cap(3) (4)

1. Agriculture and Animal Husbandry

 (a) Floriculture, Horticulture and Cultivation of
vegetables and mushrooms under controlled conditions;

(b) Development and production of seeds and planting

material;

(c) Animal Husbandry (including breeding of dogs),

1.1 100% Automatic
Pisciculture, Aquaculture and Apiculture; and

(d) Services related to agro and allied sectors.

Note: Other than the above, foreign investment is not

allowed in any other agricultural sector or activity.

1.2 Other Conditions

The term ‘under controlled conditions’ covers the following:

‘Cultivation under controlled conditions’ for the categories of Floriculture, Horticulture, Cultivatio
of vegetables and mushrooms is the practice of cultivation wherein rainfall, temperature, solar
radiation, air humidity and culture medium are controlled artificially. Control in these parameters
may be effected through protected cultivation under green houses, net houses, poly houses or any
other improved infrastructure facilities where micro-climatic conditions are regulated
anthropogenically.

2. Plantation
(a) Tea sector including tea plantations

(b)Coffee plantations

(c) Rubber plantations

(d) Cardamom plantations

2.1 100% Automatic
(e) Palm oil tree plantations

(f) Olive oil tree plantation

Note: Foreign investment is not allowed in any

plantation sector/ activity other than those listed
above.

2.2 Other Conditions

Prior approval of the State Government concerned is required in case of any future land use chang
3. Mining
Mining and Exploration of metal and non-metal ores
including diamond, gold, silver and precious ores but
3.1 excluding titanium bearing minerals and its ores; subject 100% Automatic
to the Mines and Minerals (Development and
Regulation) Act, 1957.
3.2 Coal and Lignite
(a) Coal and Lignite mining for captive consumption by
power projects, iron and steel and cement units and other
eligible activities permitted under and subject to the
provisions of Coal Mines (Nationalization) Act, 1973.

(b) Setting up coal processing plants like washeries,

subject to the condition that the company shall not do 100% Automatic
coal mining and shall not sell washed coal or sized coal
from its coal processing plants in the open market and
shall supply the washed or sized coal to those parties
who are supplying raw coal to coal processing plants for
washing or sizing.

Mining and mineral separation of titanium bearing minerals and ores, its value addition and
3.3
integrated activities
(a) Mining and mineral separation of titanium bearing
minerals and ores, its value addition and integrated
activities subject to sectoral regulations and the 100% Government
Mines and Minerals (Development and Regulation) Act,
1957.
3.4 Other Conditions
(a) Foreign investment for separation of titanium bearing minerals and ores shall be subject to the
following conditions:

(i) Value addition facilities are set up within India along with transfer of technology;

(ii) Disposal of tailings during the mineral separation shall be carried out in accordance with
regulations framed by the Atomic Energy Regulatory Board such as Atomic Energy (Radiation
Protection) Rules, 2004 and the Atomic Energy (Safe Disposal of Radioactive Wastes) Rules, 198

(b) Foreign investment will not be allowed in mining of “prescribed substances” listed in the
Notification No. S.O. 61(E), dated 18.1.2006, issued by the Department of Atomic Energy.

Clarification:

(i) For titanium bearing ores such as Ilmenite, Leucoxene and Rutile, manufacture of titanium
dioxide pigment and titanium sponge constitutes value addition. Ilmenite can be processed to
produce Synthetic Rutile or Titanium Slag as an intermediate value added product.

(ii) The objective is to ensure that the raw material available in the country is utilized for setting u
downstream industries and the technology available internationally is also made available for setti
up such industries within the country. Thus, if with the technology transfer, the objective of this
Rules can be achieved, the conditions prescribed at (a)(i) above shall be deemed to be fulfilled.
4. Petroleum and Natural Gas
 Exploration activities of oil and natural gas fields,
infrastructure related to marketing of petroleum products
and natural gas, marketing of natural gas and petroleum
products, petroleum product pipelines, natural gas/
pipelines, LNG Regasification infrastructure, market
4.1 study and formulation and Petroleum refining in the 100% Automatic
private sector, subject to the existing sectoral policy and
regulatory framework in the oil marketing sector and the
policy of the Government on private participation in
exploration of oil and the discovered fields of national
oil companies.
Petroleum refining by the Public Sector Undertakings
4.2 (PSUs), without any disinvestment or dilution of 49% Automatic
domestic equity in the existing PSUs.
5. Manufacturing 100% Automatic
A manufacturer is permitted to sell its products manufactured in India through wholesale and/ or
retail, including through e-commerce without Government approval.

Notwithstanding the provisions of these Rules on trading sector, 100 percent foreign investment
5.1 under the government approval route is allowed for trading, including through e-commerce, in
respect of food products manufactured and/ or produced in India. Applications for foreign
investment in food products retail trading shall be processed in the Department of Industrial Policy
and Promotion before being considered by the Government for approval.

6. Defence
Automatic route up to 4
Defence Industry subject to Industrial license under the Government route beyo
Industries (Development & Regulation) Act, 1951; and 49% wherever it is likel
6.1 100% to result in access to
Manufacturing of small arms and ammunition under the
modern technology or fo
Arms Act, 1959
other reasons to be
recorded.

6.2 Other Conditions

 (a) Fresh foreign investment within the permitted automatic route, in a company not seeking
industrial license, resulting in change in the ownership pattern or transfer of stake by existing
investor to new foreign investor, shall require Government approval.

(b) Licence applications will be considered and licences shall be given by the Department of
Industrial Policy and Promotion, Ministry of Commerce & Industry, in consultation with Ministry
Defence and Ministry of External Affairs.

(c) Foreign investment in this sector is subject to security clearance and guidelines of the Ministry
Defence.

(d) Investee company should be structured to be self-sufficient in areas of product design and
development. The investee/ joint venture company along with manufacturing facility, should also
have maintenance and life cycle support facility of the product being manufactured in India.

7. Broadcasting
7.1 Broadcasting Carriage Services
(a) Teleports (setting up of up-linking HUBs/ Teleports);

(b) Direct to Home (DTH);

(c) Cable Networks (Multi System Operators (MSOs)

operating at National or State or District level and
7.1.1 undertaking up-gradation of networks towards 100% Automatic
digitalization and addressability);

(d) Mobile TV;

(e) Head-end-in-the Sky Broadcasting Service (HITS)

Cable Networks (Other MSOs not undertaking up-

7.1.2 gradation of networks towards digitalization and 100% Automatic
addressability and Local Cable Operators (LCOs)).
Note: Infusion of fresh foreign investment for sectors specified in 7.1.1 and 7.1.2 above, beyond 4
percent in a company not seeking license/ permission from sectoral Ministry, resulting in change i
7.1.3
the ownership pattern or transfer of stake by existing investor to new foreign investor, will require
Government approval
7.2 Broadcasting Content Services
Terrestrial Broadcasting FM (FM Radio), subject to such
terms and conditions, as specified from time to time, by
7.2.1 49% Government
Ministry of Information and Broadcasting, for grant of
permission for setting up of FM Radio stations.
7.2.2 Up-Linking of ‘News & Current Affairs’ TV Channels 49% Government
Up-linking of Non-‘News & Current Affairs’ TV
7.2.3 100% Automatic
Channels/ Down- linking of TV Channels
7.3 Other Conditions
 (a) Foreign investment in companies engaged in all the afore-stated services shall be subject to
relevant regulations and such terms and conditions, as may be specified from time to time, by the
Ministry of Information and Broadcasting.

(b) Foreign investment in the afore-stated broadcasting carriage services shall be subject to the ter
and conditions as may be specified by the Ministry of Information and Broadcasting, from time to
time, in this regard.

(c) Licensee shall ensure that broadcasting service installation carried out by it shall not become a
safety hazard and is not in contravention of any statute, rule or regulations and public policy.

(d) In the l and B sector where the sectoral cap is up to 49 percent, the company should be owned
and controlled by resident Indian citizens or Indian companies which are owned and controlled by
resident Indian citizens.

(i) For this purpose, the equity held by the largest Indian shareholder shall be at least 51 percent o
the total equity, excluding the equity held by Public Sector Banks and Public Financial Institution
as defined in section 4A of the Companies Act, 1956 or Section 2 (72) of the Companies Act, 201
as the case may be and the term`largest Indian shareholder’ used in this clause, shall include any o
combination of the following, namely :—

(1) In the case of an individual shareholder,

(aa) The individual shareholder,

(bb) A relative of the shareholder within the meaning of Section 2 (77) of Companies Act, 2013.

(cc) A company or group of companies in which the individual shareholder or Hindu Undivided
Family to which he belongs has management and controlling interest.

(2) In the case of an Indian company,

(aa) The Indian company

(bb) A group of Indian companies under the same management and ownership control.

(3) For this purpose, “Indian company” shall be a company which must have a resident Indian or a
relative as defined under section 2 (77) of Companies Act, 2013/ HUF, either singly or in
combination holding at least 51 percent of the shares.

(4) Provided that, in case of a combination of all or any of the entities mentioned in sub-clauses (d
above, each of the parties shall have entered into a legally binding agreement to act as a single uni
managing the matters of the applicant company.

8. Print Media
Publishing of newspaper and periodicals dealing with
8.1 26% Government
news and current affairs
Publication of Indian editions of foreign magazines
8.2 26% Government
dealing with news and current affairs
8.2.1 Other conditions
 (a) ‘Magazine’, for the purpose of these guidelines, shall be defined as a periodical publication,
brought out on non-daily basis, containing public news or comments on public news.
(b) Foreign investment shall also be subject to the Guidelines for Publication of Indian editions of
foreign magazines dealing with news and current affairs issued by the Ministry of Information and
Broadcasting on 4-12-2008.
Publishing or printing of Scientific and Technical
Magazine or specialty journals or periodicals, subject to
8.3 compliance with the legal framework as applicable and 100% Government
guidelines issued in this regard from time to time by
Ministry of Information and Broadcasting.
8.4 Publication of facsimile edition of foreign newspapers 100% Government
8.4.1 Other conditions:
(a) Foreign investment shall be made by the owner of the original foreign newspapers whose
facsimile edition is proposed to be brought out in India.
(b) Publication of facsimile edition of foreign newspapers can be undertaken only by an entity
incorporated or registered in India under the provisions of the Companies Act, 2013.
(c) Publication of facsimile edition of foreign newspaper shall also be subject to the Guidelines fo
publication of newspapers and periodicals dealing with news and current affairs and publication o
facsimile edition of foreign newspapers issued by Ministry of Information and Broadcasting on 31
2006.
9. Civil Aviation
 The Civil Aviation sector includes Airports, Scheduled and Non-Scheduled domestic passenger
airlines, Helicopter services or Seaplane services, Ground Handling Services, Maintenance and
Repair organizations, Flying training institutes, and Technical training institutions.

For the purposes of the Civil Aviation sector:

(a) “Airport” means a landing and taking off area for aircrafts, usually with runways and aircraft
maintenance and passenger facilities and includes aerodrome as defined in clause (2) of section 2
the Aircraft Act, 1934;

(b)”Aerodrome” means any definite or limited ground or water area intended to be used, either
wholly or in part, for the landing or departure of aircraft, and includes all buildings, sheds, vessels
piers and other structures thereon or pertaining thereto;

(c) “Air transport service” means a service for the transport by air of persons, mails or any other
thing, animate or inanimate, for any kind of remuneration whatsoever, whether such service consi
9.1 of a single flight or series of flights;

(d) “Air Transport Undertaking” means an undertaking whose business includes the carriage by ai
of passengers or cargo for hire or reward;

(e) “Aircraft component” means any part, the soundness and correct functioning of which, when
fitted to an aircraft, is essential to the continued airworthiness or safety of the aircraft and includes
any item of equipment;

(f) “Helicopter” means a heavier than air aircraft supported in flight by the reactions of the air on o
or more power driven rotors on substantially vertical axis;

(g)”Scheduled air transport service” means an air transport service undertaken between the same t
or more places and operated according to a published time table or with flights so regular or frequ
that they constitute a recognizably systematic series, each flight being open to use by members of
public;

(h) “Non-Scheduled air transport service” means any service which is not a scheduled air transpor
service and will include Cargo airlines;

(i) “Cargo airlines” would mean such airlines which meet the conditions as given in the Civil
Aviation Requirements issued by the Ministry of Civil Aviation;

(j) “Seaplane” means an aeroplane capable normally of taking off from and alighting solely on
water;

(k)”Ground Handling” means (i) ramp handling, (ii) traffic handling both of which shall include th
activities as specified by the Ministry of Civil Aviation through the Aeronautical Information
Circulars from time to time, and (iii) any other activity specified by the Central Government to be
part of either ramp handling or traffic handling.

9.2 Airports
(a) Greenfield projects 100% Automatic
 (b) Existing projects 100% Automatic
9.3 Air Transport Services
(a) (i) Scheduled Air Transport Service/ Domestic Automatic up to 49%
Scheduled Passenger Airline Government route beyo
100% 49%(Automatic up to
(ii) Regional Air Transport Service 100% for NRI’s and
OCI’s)
(b) Non-Scheduled Air Transport Service 100% Automatic
(c) Non-Scheduled Air Transport Service 100% Automatic
(d) Helicopter service or seaplane services requiring
100% Automatic
General of Civil Aviation approval Directorate
9.4 Other Services under Civil Aviation sector
(a) Ground Handling Services subject to sectoral
100% Automatic
regulations and security clearance
(b) Maintenance and Repair organizations; flying
100% Automatic
training institutes and technical training institutions
9.5 Other Conditions
(a) Air Transport Services shall include Domestic Scheduled Passenger Airlines, Non-Scheduled A
Transport Services, helicopter and seaplane services.

(b) Foreign airlines are allowed to make foreign investment in Cargo airlines, helicopter and
seaplane services, as per the limits and entry routes mentioned above.

(c) Foreign airlines are allowed to invest in the capital of Indian companies, operating scheduled a
non-scheduled air transport, services up to the limit 49 percent of the paid up capital of the Indian
investee company.

Such foreign investment would be subject to the following conditions, namely,:—

(i) It shall be under the Government approval route.

(ii) The foreign investment shall comply with the relevant regulations of Securities and Exchange
Board of India as well as other applicable rules and regulations.

(iii) A Scheduled Operator’s Permit may be granted only to a company:

 (1) that is registered and has its principal place of business within India;

(2) the Chairman and at least two-thirds of the Directors of which are citizens of India; and

(3) the substantial ownership and effective control of which is vested in Indian citizens.

(iv) All foreign nationals likely to be associated with Indian scheduled and non-scheduled air
transport services, as a result of such foreign investment shall be cleared from security view point
before deployment; and

(i) All technical equipment that might be imported into India as a result of such foreign investmen
shall require clearance from the relevant authority in the Ministry of Civil Aviation.

(d) In addition to the above conditions, foreign investment in M/s Air India Limited shall be subje
to the following conditions:

(i) Foreign investment in M/s Air India Ltd., including that of foreign airline(s), shall not exceed
49% either directly or indirectly.

(i) Substantial ownership and effective control of M/s Air India Ltd. shall continue to be vested in
Indian Nationals.”

Note:

(4) The sectoral caps or entry routes, mentioned at paragraph 9.3(a) and 9.3(b) above, are applicab
in the situation where there is no investment by foreign airlines.

(5) The dispensation for NRIs and OCIs regarding foreign investment up to 100% shall also be
applicable in respect of the investment regime specified at 9.5(c) above.

(6) The investee company additionally shall have to follow guidelines issued by the concerned
ministry of the Central Government.

Construction Development: Townships, Housing,

10
Built-up infrastructure
Construction-development projects (which shall include
development of townships, construction of residential/
10.1 commercial premises, roads Or bridges, hotels, resorts, 100% Automatic
hospitals, educational institutions, recreational facilities,
city and regional level infrastructure, townships)
10.2 Other Conditions
 (a) Each phase of the construction development project shall be considered as a separate project.

(b) The investor shall be permitted to exit on completion of the project or after development of tru
infrastructure i.e. roads, water supply, street lighting, drainage and sewerage.

(c) Notwithstanding anything contained at (b) above, a person resident outside India shall be
permitted to exit and repatriate foreign investment before the completion of project under automat
route, provided that a lock-in-period of three years, calculated with reference to each tranche of
foreign investment has been completed.

Further, transfer of stake from a person resident outside India to another person resident outside
India, without repatriation of foreign investment will neither be subject to any lock-in period nor t
any government approval.

(d) The project shall conform to the norms and standards, including land use requirements and
provision of community amenities and common facilities, as laid down in the applicable building
control regulations, bye-laws, rules, and other regulations of the State Government or Municipal o
Local Body concerned.

(e) The Indian investee company shall be permitted to sell only developed plots. For the purposes
this policy “developed plots” shall mean plots where trunk infrastructure i.e. roads, water supply,
street lighting, drainage and sewerage, have been made available.

(f) The Indian investee company shall be responsible for obtaining all necessary approvals, includ
those of the building or layout plans, developing internal and peripheral areas and other
infrastructure facilities, payment of development, external development and other charges and
complying with all other requirements as prescribed under applicable rules/ bye-Laws/ regulations
the State Government or Municipal or Local Body concerned.

(g) The State Government or Municipal or Local Body concerned, which approves the building or
development plans, shall monitor compliance of the above conditions by the developer.

Note:

(1) Foreign investment is not permitted in an entity which is engaged or proposes to engage in rea
estate business, construction of farm houses and trading in transferable development rights (TDRs

(2) Condition of lock-in period shall not apply to Hotels and Tourist Resorts, Hospitals, Special
Economic Zones (SEZs), Educational Institutions, Old Age Homes and investment by NRIs or OC
10.2
(3) Completion of the project shall be determined as per the local bye-laws/ rules and other
regulations of State Governments.

(4) Foreign investment up to 100 percent under automatic route is permitted in completed projects
for operating and managing townships, malls/ shopping complexes and business centres. Consequ
to such foreign investment, transfer of ownership and/ or control of the investee company from
persons resident in India to persons resident outside India is also permitted, however, there shall b
lock-in-period of three years, calculated with reference to each tranche of foreign investment and
transfer of immovable property or part thereof is not permitted during this period.

(5) “Transfer”, in relation to this sector, includes,—

(a.) the sale, exchange or relinquishment of the asset; or

(b.) the extinguisher of any rights therein; or

11. Industrial Parks 100% Automatic
For the purpose of this sector:

(a) “Industrial Park” is a project in which quality infrastructure in the form of plots of developed l
or built up space or a combination with common facilities, is developed and made available to all
allottee units for the purposes of industrial activity.

(b) “Infrastructure” refers to facilities required for functioning of units located in the Industrial Pa
and includes roads (including approach roads), railway line/ sidings including electrified railway
lines and connectivity to the main railway line, water supply and sewerage, common effluent
treatment facility, telecom network, generation and distribution of power, air conditioning.

(c) “Common Facilities” refer to the facilities available for all the units located in the industrial pa
and include facilities of power, roads (including approach roads), railway line/ sidings including
electrified railway lines and connectivity to the main railway line, water supply and sewerage,
common effluent treatment, common testing, telecom services, air conditioning, common facility
buildings, industrial canteens, convention/ conference halls, parking, travel desks, security service
first aid centre, ambulance and other safety services, training facilities and such other facilities me
for common use of the units located in the Industrial Park.

(d) “Allocable area” in the Industrial Park means—

11.1
(i) in the case of plots of developed land – the net site area available for allocation to the units,
excluding the area for common facilities.

(ii) in the case of built up space – the floor area and built-up space utilized for providing common
facilities.

(iii) in the case of a combination of developed land and built-up space – the net site and floor area
available for allocation to the units excluding the site area and built-up space utilized for providing
common facilities.

(vi) in the case of a combination of developed land and built-up space – the net site and floor are
available for allocation to the units excluding the site area and built-up space utilized for providing
common facilities.

(e) “Industrial Activity” means manufacturing; electricity; gas and water supply; post and
telecommunications; software publishing, consultancy and supply; data processing, database
activities and distribution of electronic content; other computer related activities; basic and applied
research and development on bio-technology, pharmaceutical sciences or life sciences, natural
sciences and engineering; business and management consultancy activities; and architectural,
engineering and other technical activities.
 Foreign investment in Industrial Parks shall not be subject to the conditionalities applicable for
11.2 construction development projects etc. spelt out in para 10 above, provided the Industrial Parks m
with the undermentioned conditions:

(a) it shall comprise of a minimum of 10 units and no single unit shall occupy more than 50 percen
of the allocable area;

(b) the minimum percentage of the area to be allocated for industrial activity shall not be less than
66 percent of the total allocable area.

12. Satellites – Establishment and operation

Satellites Establishment and operation, subject to
the sectoral guidelines of Department of 100% Government
Space/ ISRO
13. Private Security Agencies 49% Government
Telecom services

14. (including Telecom Infrastructure Providers

Category-l)

All telecom services including Telecom Infrastructure

Providers Category-I, viz. Basic, Cellular, United Access
Services, Unified license (Access services), Unified
License, National/ International Long Distance, Automatic up to 49%;
Commercial V-Sat, Public Mobile Radio Trunked
14.1 Services (PMRTS), Global Mobile Personal 100% Government route beyo
Communications Services (GMPCS), all types of ISP 49%
licenses, Voice Mail/ Audiotex/ UMS, Resale of IPLC,
Mobile Number Portability services, Infrastructure
Provider Category-I (providing dark fibre, right of way,
duct space, tower) except Other Service Providers.
14.2 Other Conditions

The licensing and security conditions as notified by the Department of Telecommunications (DoT
from time to time, shall be observed by licensee as well as investors except for foreign investment
“Other Service Providers”, which is allowed up to 100 percent under the automatic route.

15. Trading
Cash and Carry Wholesale Trading/Wholesale
15.1 100% Automatic
Trading
(including sourcing from MSEs)
15.1.1 Definition:
 (a) Cash and Carry Wholesale trading (WT)/ Wholesale trading, shall mean sale of goods or
merchandise to retailers, industrial, commercial, institutional or other professional business users o
to other wholesalers and related subordinated service providers.

(b) Wholesale trading shall, accordingly, imply sales for the purpose of trade, business and
profession, as opposed to sales for the purpose of personal consumption. The yardstick to determin
whether the sale is wholesale or not shall be the type of customers to whom the sale is made and n
the size and volume of sales. Wholesale trading shall include resale, processing and thereafter sale
bulk imports with export/ ex-bonded warehouse business sales and B2B e-Commerce.

15.1.2 Other Conditions

 (a) For undertaking ‘WT’, requisite licenses/ registration/ permits, as specified under the relevant
Acts or Regulations or Rules or Orders of the State Government or Government Body or
Government Authority or Local Self-Government Body under that State Government shall be
obtained.

(b) Except in cases of sales to Government, sales made by the wholesaler shall be considered as
‘cash and carry wholesale trading/ wholesale trading’ with valid business customers, only when W
is made to the following entities:

(i) Entities holding sales tax or VAT registration or service tax or excise duty or Goods and Servic
Tax (GST) registration; or

(ii) Entities holding trade licenses i.e. a license or registration certificate or membership certificate
registration under Shops and Establishment Act, issued by a Government Authority or Governmen
Body/ Local Self-Government Authority, reflecting that the entity or person holding the license or
registration certificate or membership certificate, as the case may be, is itself or himself or herself
engaged in a business involving commercial activity; or

(iii) Entities holding permits or license etc. for undertaking retail trade (like tehbazari and similar
license for hawkers) from Government Authorities or Local Self Government Bodies; or

(iv) Institutions having certificate of incorporation or registration as a society or registration as

public trust for their self-consumption.

Note: An Entity, to whom WT is made, may fulfil any one of the 4 conditions at (b)(i) to (iv)
above.

(c) Full records indicating all the details of such sales like name of entity, kind of entity, registrati
license/ permit etc. number, amount of sale etc. shall be maintained on a day to day basis.

(d) WT of goods shall be permitted among companies of the same group. However, such WT to
group companies taken together shall not exceed 25 percent of the total turnover of the wholesale
venture.

(e) WT can be undertaken as per normal business practice, including extending credit facilities
subject to applicable regulations.

(f) A wholesale or cash and carry trader can undertake single brand retail trading, subject to the
conditions mentioned in para 15.3. An entity undertaking wholesale/ cash and carry as well as reta
business shall be mandated to maintain separate books of accounts for these two arms of the busin
and duly audited by the statutory auditors. Conditions under these rules for wholesale or cash and
carry business and for retail business have to be separately complied with by the respective busine
arms.

15.2 E-Commerce
15.2.1 B2B E-commerce activities 100% Automatic
Such companies would engage only in Business to Business (B2B) e-commerce and not in retail
trading, inter alia implying that existing restrictions on FDI in domestic trading would be applicab
to e-commerce as well.
15.2.2 Market place model of e-commerce 100 % Automatic
15.2.3 Other Conditions:
(a) E-commerce’ means buying and selling of goods and services including digital products over
digital & electronic network;

(b) ‘E-commerce entity’ means a company incorporated under Companies Act 1956 or the
Companies Act, 2013

(c) ‘Inventory based model of e-commerce’ means an e-commerce activity where inventory of goo
and

services is owned by e-commerce entity and is sold to the consumers directly;

(d) ‘Market place model of e-commerce’ means providing of an information technology platform
an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and
seller.

(e) Digital and electronic network shall include network of computers, television channels and any
other internet application used in automated manner such as web pages, extranets, mobiles etc.

(f) Marketplace e-commerce entity shall be permitted to enter into transactions with sellers registe
on its platform on B2B basis.

(g) E-commerce marketplace may provide support services to sellers in respect of warehousing,
logistics, order fulfilment, call centre, payment collection and other services.

(h) E-commerce entity providing a marketplace shall not exercise ownership over the inventory i.e
goods purported to be sold.

Explanation: Inventory of a vendor shall be deemed to be controlled by e-commerce marketplace

entity if more than 25% of purchases of such vendor are from the marketplace entity or its group
companies which shall render the business into inventory based model.

(i) An entity having equity participation by e-commerce marketplace entity or its group companie
having control on its inventory by e-commerce marketplace entity or its group companies, shall no
be permitted to sell its products on the platform run by such marketplace entity.’

(j) Goods/ services made available for sale electronically on website shall clearly provide name,
address and other contact details of the seller. Post sales, delivery of goods to the customers and
customer satisfaction shall be responsibility of the seller.

(k) Payments for sale may be facilitated by the e-commerce entity in conformity with the guidelin
issued by the Reserve Bank in this regard.

(l) Any warranty or guarantee of goods and services sold shall be the responsibility of the seller.

(m) E-commerce entities providing marketplace shall not directly or indirectly influence the sale
price of goods or services and shall maintain level playing field. Services should be provided by e
commerce marketplace entity or other entities in which e-commerce marketplace entity has direct
indirect equity participation or common control, to vendors on the platform at arm’s length and in
fair and non-discriminatory manner.

Explanation: Such services shall include but not limited to fulfilment, logistics, warehousing,
advertisement or marketing, payments, financing etc. Cash back provided by group companies of
marketplace entity to buyers shall be fair and non-discriminatory. For the purposes of this clause,
provision of services to any vendor on such terms which are not made available to other vendors i
similar circumstances will be deemed unfair and discriminatory.
 Sale of services through e-commerce shall be under automatic route subject to the sector specific
15.2.4
conditions,applicable laws/ regulations, security and other conditionalities.
15.3 Single Brand Product Retail Trading 100% Automatic up to 49%;
Foreign investment in Single Brand Product Retail
Trading (SBRT) is aimed at attracting investments
in production and marketing, improving the availability Government route beyo
of such goods for the consumer, encouraging increased
49%
sourcing of goods from India and enhancing
competitiveness of Indian enterprises through access to
global designs, technologies and management practices.
15.3.1 Other conditions
(a) Products to be sold should be of a ‘Single Brand’ only.

(b) Products should be sold under the same brand internationally i.e. products shall be sold under t
same brand in one or more countries other than India.

(c) ‘Single Brand’ product-retail trading shall cover only products which are branded during
manufacturing.

(d) A person resident outside India, whether owner of the brand or otherwise, shall be permitted to
undertake ‘single brand’ product retail trading in the country for the specific brand, either directly
the brand owner or through a legally tenable agreement executed between the Indian entity
undertaking single brand retail trading and the brand owner.

(e) In respect of proposals involving foreign investment beyond 51 percent, sourcing of 30 percen
the value of goods purchased, shall be done from India, preferably from MSMEs, village and cotta
industries, artisans and craftsmen, in all sectors. The quantum of domestic sourcing shall be self-
certified by the company, to be subsequently checked, by statutory auditors, from the duly certifie
accounts which the company shall be required to maintain. The procurement requirement is to be
met in the first instance as an average of five years total value of goods purchased beginning 1st
April of the year of the commencement of the business. Thereafter it shall be met on an annual ba
For the purpose of ascertaining the sourcing requirement, the relevant entity would be the compan
incorporated in India, which is the recipient of foreign investment for the purpose of carrying out
single brand product retail trading.

(f) Subject to the conditions mentioned in this Para, a single brand retail trading entity operating
through brick and mortar stores, is permitted to undertake retail trading through e-commerce.

(g) Single brand retail trading entity shall be permitted to set off its incremental sourcing of goods
from India for global operations during initial 5 years, beginning 1st April of the year of the openi
of first store, against the mandatory sourcing requirement of 30% of purchases from India. For thi
purpose, incremental sourcing shall mean the increase in terms of value of such global sourcing fr
India for that single brand (in INR terms) in a particular financial year from India over the precedi
financial year, by the non-resident entities undertaking single brand retail trading, either directly o
through their group companies. After completion of this 5 years period, the SBRT entity shall be
required to meet the 30% sourcing norms directly towards its India’s operation, on an annual basis

Note:

(1) Conditions mentioned at (b) and (d) above shall not be applicable for undertaking SBRT of
Indian brands.

(2) Indian brands should be owned and controlled by resident Indian citizens and/ or companies
which are owned and controlled by resident Indian citizens.

(3) Sourcing norms shall not be applicable up to three years from commencement of the business
opening of the first store for entities undertaking single brand retail trading of products having ‘sta
of-art’ and ‘cutting-edge’ technology and where local sourcing is not possible. Thereafter, conditio
mentioned at 15.3.1(e) above shall be applicable. A Committee under the Chairmanship of Secreta
DPIIT, with representatives from NITI Aayog, concerned Administrative Ministry and independen
technical expert(s) on the subject shall examine the claim of applicants on the issue of the product
being in the nature of ‘state-of-art’ and ‘cutting-edge’ technology where local sourcing is not
possible and give recommendations for such relaxation.
15.4 Multi Brand Retail Trading (MBRT) 51% Government
15.4.1 Other Conditions
(a) Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry,
fishery and meat products, can be unbranded.

(b) Minimum amount to be brought in as foreign investment would be USD 100 million.

(c) At least 50 percent of the total foreign investment brought in the first tranche of USD 100
million, shall be invested in ‘back-end infrastructure’ within three years, where ‘back-end
infrastructure’ shall include capital expenditure on all activities, excluding that on front-end units;
for instance, back-end infrastructure shall include investment made towards processing,
manufacturing, distribution, design improvement, quality control, packaging, logistics, storage,
warehouse, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if
any, shall not be counted for purposes of back-end infrastructure. Subsequent investment in the ba
end infrastructure would be made by the MBRT retailer as needed, depending upon its business
requirements.

(d) At least 30 percent of the value of procurement of manufactured or processed products purcha
shall be sourced from Indian micro, small and medium industries, which have a total investment in
plant and machinery not exceeding USD2 million. This valuation refers to the value at the time of
installation, without providing for depreciation. The ‘small industry’ status shall be reckoned only
the time of first engagement with the retailer and such industry shall continue to qualify as a ‘sma
industry’ for this purpose, even if it outgrows the said investment of USD2 million during the cou
of its relationship with the said retailer. Sourcing from agricultural co-operatives and farmers co-
operatives shall also be considered in this category. The procurement requirement shall have to be
met, in the first instance, as an average of five years total value of the manufactured/ processed
products purchased, beginning 1st April of the year during which the first tranche of foreign
investment is received. Thereafter, it shall have to be met on an annual basis.

(e) Self-certification is required by the company, to ensure compliance of the conditions at serial n
(b), (c) and (d) above, which could be cross-checked, as and when required. Accordingly, the
investors shall maintain accounts, duly certified by statutory auditors.

(f) Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per th
2011 Census or any other cities as per the decision of the respective State Governments, and may
also cover an area of 10 kms. Around the municipal or urban agglomeration limits of such cities;
retail locations shall be restricted to conforming areas as per the Master or Zonal Plans of the
concerned cities and provision shall be made for requisite facilities such as transport connectivity
and parking.

(g) Government shall have the first right to procure agricultural products.

(h) The above policy is an enabling policy only and the State Governments or Union Territories sh
be free to take their own decisions in regard to implementation of the policy. Therefore, retail sale
outlets may be set up in those States or Union Territories which have agreed, or agree in future, to
allow foreign investment in MBRT under this policy. The States or Union Territories which have
conveyed their agreement are mentioned at 15.4.2. Such agreement, in future, to permit
establishment of retail outlets under this policy, would be conveyed to the Government of India
through the Department of Industrial Policy and Promotion and additions shall be made to the said
list. The establishment of the retail sales outlets shall be in compliance of applicable State/ Union
Territory laws or regulations, such as the Shops and Establishments Act etc.

(i) Retail trading, in any form, by means of e-commerce, shall not be permissible, for companies
with foreign investment engaged in multi-brand retail trading.

(j) Applications shall be processed in the Department of Industrial Policy and Promotion, to
 States or Union territories are Andhra Pradesh, Assam, Delhi, Haryana, Himachal Pradesh, Jammu
15.4.2 and Kashmir, Karnataka, Maharashtra, Manipur, Rajasthan, Uttarakhand, Daman and Diu and Dad
and Nagar Haveli (Union territories)
15.5 Duty Free Shops 100% Automatic
15.5.1 Other Conditions:
(a) Duty Free Shops would mean shops set up in custom bonded area at International Airports or
International Seaports and Land Custom Stations where there is transit of international passengers

(b) Foreign investment in Duty Free Shops is subject to compliance of conditions stipulated under
the Customs Act, 1962 and other laws, rules and regulations.

(c) Duty Free Shop entity shall not engage into any retail trading activity in the Domestic Tariff A
of the country.

16 Pharmaceuticals
16.1 Greenfield 100% Automatic
Automatic up to 74%;

16.2 Brownfield 100% Government route beyo

74%

16.3 Other Conditions

(a) ‘Non-compete’ clause shall not be allowed except in special circumstances with the Governme
approval.

(b) The prospective investor and the prospective investee are required to provide a certificate give
at 16.4 along with the application submitted for Government approval.

(c) Government approval may incorporate appropriate conditions for foreign investment in
brownfield cases.

(d) Foreign investment in brownfield pharmaceuticals, irrespective of entry route, is further subjec
to the following conditions :

(i) The production level of National List of Essential Medicines (NLEM) drugs and/ or consumab
and their supply to the domestic market at the time of induction of foreign investment, being
maintained over the next five years at an absolute quantitative level. The benchmark for this level
would be decided with reference to the level of production of NLEM drugs and/ or consumables in
the three financial years, immediately preceding the year of induction of foreign investment. Of
these, the highest level of production in any of these three years shall be taken as the level.

(ii) Research and Development (R&D) expenses being maintained in value terms for 5 years at an
absolute quantitative level at the time of induction of foreign investment. The benchmark for this
level would be decided with reference to the highest level of R&D expenses which has been incur
in any of the three financial years immediately preceding the year of induction of foreign investme

(iii) The administrative Ministry shall be provided complete information pertaining to the transfer
technology, if any, along with induction of foreign investment into the investee company.

(iv) The administrative Ministry (s) i.e. Ministry of Health and Family Welfare, Department of
Pharmaceuticals or any other regulatory Agency/Development as notified by Central Government
from time to time, shall monitor the compliance of conditionalities.

Note :

(1) Foreign investment up to 100% under the automatic route is permitted for manufacturing of
medical devices. The above mentioned conditions shall, therefore, not be applicable to greenfield
well as brownfield projects of this industry.

(2) Medical device means :-

(a) Any instrument, apparatus, appliance, implant, material or other article, whether used alone or
combination, including the software, intended by its manufacturer to be used specially for human
beings or animals for one or more of the specific purposes of:-

(aa) Diagnosis, prevention, monitoring, treatment or alleviation of any disease or disorder;

(ab) diagnosis, monitoring, treatment, alleviation of, or assistance for, any injury or disability;

(ac) investigation, replacement or modification or support of the anatomy or of a physiological

process;

(ad) supporting or sustaining life;

(ae) disinfection of medical devices;

(af) control of conception;

 Certificate to be furnished by the Prospective Investor as well as the Prospective Recipient Entity

It is certified that the following is the complete list of all inter-se agreements, including the
shareholders agreement, entered into between foreign investor(s) and investee brownfield
pharmaceutical entity

1…………………..

2…………………..

3…………………..

16.4 (copies of all agreements to be enclosed)

It is also certified that none of the inter-se agreements, including the shareholders agreement, ente
into between foreign investor(s) and investee brownfield pharmaceutical entity contain any non-
compete clause in any form whatsoever.

It is further certified that there are no other contracts/agreements between the foreign investor(s) a
investee brownfield pharma entity other than those listed above.

The foreign investor(s) and investee brownfield pharma entity undertake to submit to the FIPB an
inter-se agreements that may be entered into between them subsequent to the submission and
consideration of this application.

17 Railway Infrastructure
Construction, operation and maintenance of the
following:

(i) Suburban corridor projects through PPP, (ii) high-

speed train projects, (iii) Dedicated freight lines, (iv)
Rolling stock including train sets, and locomotives/
coaches manufacturing and maintenance facilities, (v)
17.1 100% Automatic
Railway Electrification, (vi) Signalling systems, (vii)
Freight terminals, (viii) Passenger terminals, (ix)
Infrastructure in industrial park pertaining to railway
line/ sidings including electrified railway lines and
connectivity to main railway line and (x) Mass Rapid
Transport Systems.

17.2 Other Conditions

(a) Foreign investment in this sector open to private-sector participation is subject to sectoral
guidelines of Ministry of Railways.

(b) Proposals involving foreign investment beyond 49 percent sensitive areas from security point o
view, will be brought by the Ministry of Railways before the Cabinet Committee on Security (CC
for consideration on a case to case basis.
 FINANCIAL SERVICES

F Investment in financial services, other than those indicated below, would require prior Governmen
approval.

F.1 Asset Reconstruction Companies 100% Automatic

F.1.1 Other Conditions
(a) Investment limit of a sponsor in the shareholding of an ARC shall be governed by the provisio
of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act
2002. Similarly, investment by institutional or non-institutional investors shall also be governed b
the said Act.

(b) FPIs can invest in the Security Receipts (SRs) issued by ARCs. FPIs may be allowed to invest
to 100 percent of each tranche in SRs issued by ARCs, subject to directions/ guidelines of Reserve
Bank. Such investment shall be within the relevant regulatory cap as applicable.

(c) All investments shall be subject to provisions of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002.

Automatic up to 49%

F.2 Banking – Private sector 74% Government route beyo

49% and up to 74%

F.2.1 Other conditions:

(a) At all times, at least 26 percent of the paid up capital shall have to be held by residents, except
regard to a wholly-owned subsidiary of a foreign bank.

(b) In case of NRIs individual holdings is restricted to 5 percent of the total paid up capital both on
repatriation and non-repatriation basis and aggregate limit cannot exceed 10 percent of the total pa
up capital both on repatriation and non-repatriation basis. However, NRI holdings shall be allowed
up to 24 percent of the total paid up capital both on repatriation and non-repatriation basis subject
a special resolution to this effect passed by the banking company’s general body.

(c) Applications for foreign investment in private banks having joint venture or subsidiary in
insurance sector may be addressed to the Reserve Bank for consideration in consultation with the
Insurance Regulatory and Development Authority of India (IRDAI) in order to ensure that the 49
percent limit of investment applicable for the insurance sector is not breached.

(d) Transfer of shares under FDI from residents to non-residents shall require approval of the
Reserve Bank and/ or the Government, wherever applicable.

(e) The policies and procedures prescribed by RBI and other institutions such as Securities and
Exchange Board of India, Ministry of Corporate Affairs and IRDAI on these matters shall apply.

(f) RBI guidelines relating to acquisition by purchase or otherwise of capital instruments of a priv
bank, if such acquisition results in any person owning or controlling 5 percent or more of the paid
capital of the private bank shall apply to foreign investment as well.

(g) Setting up of a subsidiary by foreign banks:

(i) Foreign banks shall be permitted to either have branches or subsidiaries but not both.

(ii) Foreign banks regulated by banking supervisory authority in the home country and meeting
Reserve Bank’s licensing criteria shall be allowed to hold 100 percent paid-up capital to enable th
to set up a wholly-owned subsidiary in India.

(iii) A foreign bank may operate in India through only one of the three channels viz., (i) branches
(ii) a wholly-owned subsidiary (iii) a subsidiary with aggregate foreign investment up to a maximu
of 74 percent in a private bank.

(vi) A foreign bank shall be permitted to establish a wholly-owned subsidiary either through
conversion of existing branches into a subsidiary or through a fresh banking license. A foreign ban
shall be permitted to establish a subsidiary through acquisition of shares of an existing private sec
bank provided at least 26 percent of the paid-up capital of the private sector bank is held by reside
at all times consistent with para (c) above.

(v) A subsidiary of a foreign bank shall be subject to the licensing requirements and conditions
broadly consistent with those for new private sector banks.

(vi) Guidelines for setting up a wholly-owned subsidiary of a foreign bank shall be issued separat
by RBI.

(vii) All applications by a foreign bank for setting up a subsidiary or for conversion of their existin
branches to subsidiary in India shall have to be made to the RBI.

(h) The present limit of 10 percent on voting rights in respect banking companies may be noted by
the potential investor.

(i) All investments shall be subject to the guidelines prescribed for the banking sector under the
F.3 Banking – Public Sector
Banking – Public Sector subject to Banking Companies
(Acquisition & Transfer of Undertakings) Acts, 1970/
F.3.1 20% Government
80. This ceiling is also applicable to the State Bank of
India.
F.4 Infrastructure Companies in the Securities Market
Infrastructure companies in Securities Markets, namely,
stock exchanges, commodity derivative exchanges,
F.4.1 depositories and clearing corporations, in compliance 49% Automatic
with Securities and Exchange Board of India
Regulations.
F.4.2 Other conditions:
(a) Foreign investment, including investment by FPIs, shall be subject to the Guidelines or Rules o
Regulations issued by the Central Government, Securities and Exchange Board of India and the
Reserve Bank from time to time.

(b)Words and expressions used herein and not defined in these rules but defined in the Companies
Act, 2013 (18 of 2013) or the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the
Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22
1996) or in the concerned Regulations issued by Securities and Exchange Board of India shall hav
the same meanings respectively assigned to them in those Acts or Regulations.

F.5 Commodities Spot Exchange 49% Automatic

F.5.1 Investment shall be subject to guidelines prescribed by the Central or State Government.
F.6 Power Exchanges
Power Exchanges under the Central Electricity
Regulatory Commission (Power Market) Regulations, 49% Automatic
2010.
F.6.1 Other conditions
(a) A person resident outside India including persons acting in concert should not hold more than
percent.

(b)The investment shall be in compliance with Securities and Exchange Board of India Regulation
other applicable laws/ rules/ regulations, security and other conditionalities.

F.7 Credit Information Companies 100% Automatic

F.7.1 Other conditions
 (a) Foreign investment in Credit Information Companies is subject to the Credit Information
Companies (Regulation) Act, 2005 and regulatory clearance from the Reserve Bank.

(b) FPI investment shall be permitted subject to the following conditions:

(i) A single entity shall directly or indirectly hold below 10 percent equity;

(i) Any acquisition in excess of 1 percent shall have to be reported to Reserve Bank as a mandator
requirement; and

(ii) FPIs investing in Credit Information Companies shall not seek a representation on the Board o
Directors based upon their shareholding.

F.8 Insurance
(a) Insurance Company

(b)Insurance Brokers

(c) Third Party Administrators

F.8.1 49% Automatic
(d) Surveyors and Loss Assessors

(e) Other Insurance Intermediaries appointed under the

provisions of Insurance Regulatory and Development
Authority Act, 1999 (41 of 1999).

F.8.2 Other Conditions

 (a) Foreign investment in this sector shall be subject to compliance with the provisions of the
Insurance Act, 1938 and subject to necessary license or approval from the Insurance Regulatory a
Development Authority of India for undertaking insurance and related activities.

(b) An Indian Insurance company shall ensure that its ownership and control remains at all times
with resident Indian entities as determined by the Central Government or Insurance Regulatory an
Development Authority of India as per the rules/ regulation issued.

(c) Where an entity like a bank, whose primary business is outside the insurance area, is allowed b
the Insurance Regulatory and Development Authority of India to function as an insurance
intermediary, the foreign equity investment caps applicable in that sector shall continue to apply,
subject to the condition that the revenues of such entities from their primary (i.e., non-insurance
related) business must remain above 50 percent of their total revenues in any financial year.

(d) The provisions of paragraphs F.2.1 relating to ‘Banking-Private Sector’, shall be applicable in
respect of bank promoted insurance companies.

(e) Terms ‘Control’, ‘Equity Share Capital’, ‘Foreign Direct Investment’ (FDI), ‘Foreign Investor
‘Foreign Portfolio Investment’, ‘Indian Insurance Company’, ‘Indian Company’, ‘Indian Control
an Indian Insurance Company’, ‘Indian Ownership’, ‘Non-resident Entity’, ‘Public Financial
Institution’, ‘Resident Indian Citizen’, ‘Total Foreign Investment’ will have the same meaning as
provided in Notification No. G.S.R 115 (E), dated 19th February, 2015 issued by Department of
Financial Services and regulations issued by Insurance Regulatory and Development Authority of
India from time to time.

F.9 Pension Sector 49% Automatic

F.9.1 Other conditions
(a) Foreign investment in this sector shall be in accordance with the Pension Fund Regulatory and
Development Authority (PFRDA) Act, 2013.

(b) Foreign investment in Pension Funds shall be subject to the condition that entities investing in
capital instruments issued by an Indian Pension Fund as per Section 24 of the PFRDA Act, 2013
shall obtain necessary registration from the PFRDA and comply with other requirements as per th
PFRDA Act, 2013 and Rules and Regulations framed under it for so participating in Pension Fund
Management activities in India.

(c) An Indian pension fund shall ensure that its ownership and control remains at all times with
resident Indian entities as determined by the Government of India/ PFRDA as per the rules or
regulation issued by them.

F.10 Other Financial Services 100% Automatic

F.10.1 Other Conditions
(a) Other Financial Services shall mean financial services activities regulated by financial sector
regulators, viz., Reserve Bank, Securities and Exchange Board of India, Insurance Regulatory and
Development Authority, Pension Fund Regulatory and Development Authority, National Housing
Bank or any other financial sector regulator as may be notified by the Government of India.

(b) Foreign investment in ‘Other Financial Services’ activities shall be subject to conditionalities,
including minimum capitalization norms, as specified by the concerned Regulator/Government
Agency

(c) ‘Other Financial Services’ activities need to be regulated by one of the Financial Sector
Regulators. In all such financial services activity which are not regulated by any Financial Sector
Regulator or where only part of the financial services activity is regulated or where there is doubt
regarding the regulatory oversight, foreign investment up to 100 percent will be allowed under
Government approval route subject to conditions including minimum capitalization requirement, a
may be decided by the Government.

(d) Any activity which is specifically regulated by an Act, the foreign investment limits shall be
restricted to those levels/ limit that may be specified in that Act, if so mentioned.

(e) Downstream investments by any of these entities engaged in “Other Financial Services” that is
treated as indirect foreign investment for the investee entity shall be subject to these rules.
 SCHEDULE II
(See rule 10(1))

Investments by Foreign Portfolio Investors

(1) Purchase or sale of equity instruments by Foreign Portfolio Investors

(a) Purchase and sale of equity instruments.-

A FPI may purchase or sell equity instruments of an Indian company listed or to be listed on a recognised stock
exchange in India subject to the following conditions, namely:-

(i) The total holding by each FPI or an investor group, shall be less than 10 percent of the total paid-up equity
capital on a fully diluted basis or less than 10 percent of the paid-up value of each series of debentures or
preference shares or share warrants issued by an Indian company and the total holdings of all FPIs put together,
including any other direct and indirect foreign investments in the Indian company permitted under these rules,
shall not exceed 24 per cent of paid-up equity capital on a fully diluted basis or paid up value of each series of
debentures or preference shares or share warrants. The said limit of 10 percent and 24 percent shall be called the
individual and aggregate limit, respectively.

(ii) With effect from the 1st April, 2020, the aggregate limit shall be the sectoral caps applicable to the Indian
company as laid out in sub-paragraph (b) of paragraph 3of Schedule I of these rules, with respect to its paid-up
equity capital on a fully diluted basis or such same sectoral cap percentage of paid up value of each series of
debentures or preference shares or share warrants:

Provided that the aggregate limit as provided above may be decreased by the Indian company concerned to a
lower threshold limit of 24% or 49% or 74% as deemed fit, with the approval of its Board of Directors and its
General Body through a resolution and a special resolution, respectively before 31st March, 2020:

Provided further, that the Indian company which has decreased its aggregate limit to 24% or 49% or 74%, may
increase such aggregate limit to 49% or 74% or the sectoral cap or statutory ceiling respectively as deemed fit,
with the approval of its Board of Directors and its General Body through a resolution and a special resolution,
respectively:

Provided also that once the aggregate limit has been increased to a higher threshold, the Indian company cannot
reduce the same to a lower threshold:

Provided also that the aggregate limit with respect to an Indian company in a sector where FDI is prohibited
shall be 24 per cent.

Explanation: In case, two or more FPI’s including foreign Governments/their related entities are having common
ownership, directly or indirectly, of more than fifty percent or common control, all such FPI’s shall be treated as
forming part of an investor group. Control includes the right to appoint majority of the directors or to control the
management or policy decisions exercisable by a person or persons acting individually or in concert, directly or
indirectly, including by virtue of shareholding or management rights or shareholders agreements or voting
agreements or in any other manner.

(iii) The FPIs investing in breach of the prescribed limit shall have the option of divesting their holdings within 5
trading days from the date of settlement of the trades causing the breach. In case the FPI chooses not to divest,
then the entire investment in the company by such FPI and its investor group shall be considered as investment
under Foreign Direct Investment (FDI) and the FPI and its investor group shall not make further portfolio
investment in the company concerned. The FPI, through its designated custodian, shall bring the same to the
notice of the depositories as well as the concerned company for effecting necessary changes in their records,
within 7 trading days from the date of settlement of the trades causing the breach. The breach of the said
aggregate or sectoral limit on account of such acquisition for the period between the acquisition and sale or
conversion to FDI within the prescribed time, shall not be reckoned as a contravention under these Rules.

(iv) The investment by foreign Government agencies shall be clubbed with the investment by the foreign
Government or its related entities for the purpose of calculation of 10 percent limit for FPI investments in a
single company, if they form part of an investor group. However, certain foreign Government agencies and its
related entities may be exempt from such clubbing requirements and other investment conditions either by way
of an agreement or treaty with other sovereign governments or by an order of the Central Government.

(v) A FPI may purchase equity instruments of an Indian company through public offer or private placement,
subject to the individual and aggregate limits specified under this Schedule:

Provided that –

(A) in case of public offer, the price of the shares to be issued is not less than the price at which shares are issued
to residents, and

(B) in case of issue by private placement, the price is not less than- (a) the price arrived in terms of guidelines
issued by the Securities and Exchange Board of India, or (b) the fair price worked out as per any internationally
accepted pricing methodology for valuation of shares on arm’s length basis, duly certified by a Merchant Banker
or Chartered Accountant or a practicing Cost Accountant, as applicable registered with the Securities and
Exchange Board of India

(vi) A FPI may, undertake short selling as well as lending and borrowing of securities subject to such conditions
as may be stipulated by the Reserve Bank and the Securities and Exchange Board of India from time to time.

(vii) Investments made under this Schedule shall be subject to the limits and margin requirements specified by
the Reserve Bank or the Securities and Exchange Board of India as well as the stipulations regarding collateral
securities as specified by the Reserve Bank from time to time.

(b) Purchase or sale of securities other than equity instruments by FPIs.-

(i) A FPI may purchase units of domestic mutual funds or Category III Alternative Investment Fund or offshore
fund for which no objection is issued in accordance with the SEBI (Mutual Fund) Regulations, 1996, which in
turn invest more than 50 percent in equity instruments on repatriation basis subject to the terms and conditions
specified by the Securities and Exchange Board of India and the Reserve Bank.

(ii) An FPI may purchase units of REITs and InVITs on repatriation basis subject to the terms and conditions
specified by the Securities and Exchange Board of India.

(2) The mode of payment and other attendant conditions for remittance of sale or maturity proceeds shall be
specified by the Reserve Bank.

SCHEDULE III
(See rule 12(1))

Investments by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on repatriation basis
(1) Purchase or sale of equity instruments of a listed Indian company

A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) may purchase or sell equity instruments of a
listed Indian company on repatriation basis, on a recognized stock exchange in India, subject to the following
conditions, namely :-

(a) NRIs or OCIs may purchase and sell equity instruments through a branch designated by an Authorized
Dealer for the purpose;

(b) The total holding by any individual NRI or OCI shall not exceed 5 percent of the total paid-up equity capital
on a fully diluted basis or shall not exceed 5 percent of the paid-up value of each series of debentures or
preference shares or share warrants issued by an Indian company and the total holdings of all NRIs and OCIs put
together shall not exceed ten percent of the total paid-up equity capital on a fully diluted basis or shall not exceed
ten percent of the paid-up value of each series of debentures or preference shares or share warrants:

Provided that the aggregate ceiling of 10 percent may be raised to 24 percent if a special resolution to that effect
is passed by the General Body of the Indian company.

(2) Purchase or sale of units of domestic mutual funds

A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) may without limit purchase or sell units of
domestic mutual funds which invest more than 50 percent in equity.

(3) Purchase or sale of shares in public sector enterprises

A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) may, without limit purchase or sell shares in
public sector enterprises being disinvested by the Central Government, provided the purchase is in accordance
with the terms and conditions stipulated in the notice inviting bids.

(4) Subscription to National Pension System.-

A NRI or an OCI may subscribe to the National Pension System governed and administered by Pension Fund
Regulatory and Development Authority (PFRDA), provided such person is eligible to invest as per the
provisions of the Pension Fund Regulatory and Development Authority Act. The annuity/ accumulated saving
will be repatriable:

Provided that NRIs or OCIs may offer such instruments as permitted by the Reserve Bank from time to time as
collateral to the recognised Stock Exchanges in India for their transactions in exchange traded derivative
contracts as prescribed in sub-clause (2) of clause 12 of these Rules.

(5) The mode of payment and attendant conditions for remittance of sale or maturity proceeds shall be specified
by the Reserve Bank.

SCHEDULE IV
(See rule 12(2))

Investment by NRI or OCI on non-repatriation basis

A. Purchase or sale of equity instruments of an Indian company or units or contribution to the capital of a
LLP by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on Non-repatriation basis.
(1) Purchase or sale of equity instruments or convertible notes or units or contribution to the capital of a
LLP.

(a) A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI), including a company, a trust and a
partnership firm incorporated outside India and owned and controlled by NRIs or OCIs, may purchase or
contribute, as the case may be, on non-repatriation basis the following, namely:-

(i) a equity instrument issued by a company without any limit either on the stock exchange or outside it;

(ii) units issued by an investment vehicle without any limit, either on the stock exchange or outside it;

(iii) The capital of a Limited Liability Partnership without any limit;

(iv) convertible notes issued by a startup company in accordance with these rules.

(b) The investment detailed at sub-paragraph (a) of paragraph (1) above shall be deemed to be domestic
investment at par with the investment made by residents.

(2) Purchase or sale of units of domestic mutual funds

A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) may without limit purchase or sell units of
domestic mutual funds on non-repatriation basis which invest more than 50% in equity.

(3) Prohibition on purchase of equity instruments of certain companies.

Notwithstanding anything contained in paragraph 1, a NRI or an OCI including a company, a trust and a
partnership firm incorporated outside India and owned and controlled by NRIs or OCIs, shall not make any
investment, under this Schedule, in equity instruments or units of 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.

Explanation: Real estate business shall have the same meaning as specified in sub-paragraph (b) of paragraph (3)
of Schedule 1.

(4) The mode of payment and attendant conditions for remittance of sale or maturity proceeds shall be specified
by the Reserve Bank.

B. Investment in a firm or a proprietary concern.

(1) Contribution to capital of a firm or a proprietary concern.

A NRI or an OCI may invest on a non-repatriation basis, by way of contribution to the capital of a firm or a
proprietary concern in India provided such firm or proprietary concern is not engaged in any agricultural or
plantation activity or print media or real estate business.

Explanation: Real estate business shall have the same meaning as specified in sub paragraph (b) of paragraph (3)
of Schedule I.

(2) The mode of payment and attendant conditions for remittance of sale or maturity proceeds shall be specified
by the Reserve Bank.
 SCHEDULE V
(See Rule (14))

Investment by other non-resident investors

Permission to other non-resident investors for purchase of securities

(1) Long term investors like Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds,
Insurance Funds, Pension Funds and Foreign Central Banks may purchase securities subject to such terms and
conditions as may be specified by the Reserve Bank and the Securities and Exchange Board of India.

(2) “Eligible Foreign Entity (EEE)” as defined in SEBI circular dated the 9th October 2018 and having actual
exposure to Indian physical commodity market may participate in domestic commodity derivative markets in
accordance with framework specified by the Securities and Exchange Board of India.

(3) The mode of payment and other attendant conditions for remittance of sale or maturity proceeds shall be
specified by the Reserve Bank.

SCHEDULE VI
(See rule 6(b))

Investment in a Limited Liability Partnership (LLP)

(a) A person resident outside India (other than a citizen of Pakistan or Bangladesh)or an entity incorporated
outside India (other than an entity incorporated in Pakistan or Bangladesh), not being a Foreign Portfolio
Investor (FPI) or a Foreign Venture Capital Investor (FVCI), may contribute to the capital of an LLP operating
in sectors or activities where foreign investment up to 100 per cent is permitted under automatic route and there
are no FDI linked performance conditions.

(b) Investment by way of “profit share” shall fall under the category of reinvestment of earnings.

(c) Investment in a LLP is subject to the compliance of the conditions of Limited Liability Partnership Act, 2008.

(d) A company having foreign investment, engaged in a sector where foreign investment up to 100 percent is
permitted under the automatic route and there are no FDI linked performance conditions, may be converted into
a LLP under the automatic route.

(e) A LLP having foreign investment, engaged in a sector where foreign investment up to 100 per cent is
permitted under the automatic route and there are no FDI linked performance conditions, may be converted into
a company under the automatic route.

(f) Investment in a LLP either by way of capital contribution or by way of acquisition or transfer of profit shares,
should not be less than the fair price worked out as per any valuation norm which is internationally accepted or
adopted as per market practice (hereinafter referred to as “fair price of capital contribution or profit share of a
LLP”) and a valuation certificate to that effect shall be issued by the Chartered Accountant or by a practising
Cost Accountant or by an approved valuer from the panel maintained by the Central Government.

(g) In case of transfer of capital contribution or profit share from a person resident in India to a person resident
outside India, the transfer shall be for a consideration not less than the fair price of capital contribution or profit
share of a LLP.
Further, in case of transfer of capital contribution or profit share from a person resident outside India to a person
resident in India, the transfer shall be for a consideration which is not more than the fair price of the capital
contribution or profit share of an LLP.

(h) The mode of payment and other attendant conditions for remittance of sale or maturity proceeds shall be
specified by the Reserve Bank .

SCHEDULE VII
(See rule 16)

Investment by a Foreign Venture Capital Investor (FVCI)

(1) Subject to the terms and conditions as may be laid down by the Central Government, a Foreign Venture
Capital Investor (FVCI) may purchase,- –

(i) securities, issued by an Indian company engaged in any sector mentioned in paragraph (4) of this Schedule
and whose securities are not listed on a recognised stock exchange at the time of issue of the said securities;

(ii) units of a Venture Capital Fund (VCF) or of a Category I Alternative Investment Fund (Cat-I AIF) or units of
a scheme or of a fund set up by a VCF or by a Cat-I AIF.

(iii) equity or equity linked instrument or debt instrument issued by an Indian ‘start-up’ irrespective of the sector
in which the start-up is engaged. The definition of ‘start-up’ shall be as per Department for Promotion of
Industry and Internal Trade’s Notification No. G.S.R. 364(E), dated the 11th April, 2018:

Provided that if the investment is in equity instruments, then the sectoral caps, entry routes and attendant
conditions shall apply.

(2) A FVCI may purchase the securities or instruments mentioned above either from the issuer of these
securities/instruments or from any person holding these securities or instruments. The FVCI may invest in
securities on a recognised stock exchange subject to the provisions of the Securities and Exchange Board of
India (FVCI) Regulations, 2000.

(3) The FVCI may acquire, by purchase or otherwise, from, or transfer, by sale or otherwise, to, any person
resident in or outside India, any security or instrument it is allowed to invest in, at a price that is mutually
acceptable to the buyer and the seller/ issuer. The FVCI may also receive the proceeds of the liquidation of VCFs
or of Cat-I AIFs or of schemes or funds set up by the VCFs or Cat-I AIFs.

(4) The mode of payment and other attendant conditions for remittance of sale or maturity proceeds shall be
specified by the Reserve Bank of India

(5) List of sectors in which a Foreign Venture Capital Investor is allowed to invest is as follows :-

(a) biotechnology;

(b) IT related to hardware and software development;

(c) nanotechnology;

(d) seed research and development;

(e) research and development of new chemical entities in pharmaceutical sector.

(f) dairy industry;

(g) poultry industry;

(h) production of bio-fuels;

(i) hotel-cum-convention centres with seating capacity of more than three thousand;

(j) Infrastructure sector. The term “Infrastructure Sector” has the same meaning as given in the Harmonised
Master List of Infrastructure sub-sectors approved by Government of India vide notification F. No. 13/06/2009-
INF, dated the March 27, 2012 as amended or updated.

SCHEDULE VIII
(See Rule 6(c))

Investment by a person resident outside India in an Investment Vehicle

(1) A person resident outside India (other than a citizen of Pakistan or Bangladesh)or an entity incorporated
outside India (other than an entity incorporated in Pakistan or Bangladesh) may invest in units of Investment
Vehicles.

(2) A person resident outside India who has acquired or purchased units in accordance with this Schedule may
sell or transfer in any manner or redeem the units as per regulations framed by the Securities and Exchange
Board of India or directions issued by the Reserve Bank.

(3) An Investment vehicle may issue its units to a person resident outside India against swap of equity
instruments of a Special Purpose Vehicle (SPV) proposed to be acquired by such Investment Vehicle.

(4) Investment made by an Investment Vehicle into an Indian entity shall be reckoned as indirect foreign
investment for the investee Indian entity if the Sponsor or the Manager or the Investment Manager (i) is not
owned and not controlled by resident Indian citizens or (ii) is owned or controlled by persons resident outside
India.

Provided that for sponsors or managers or investment managers organised in a form other than companies or
LLPs, Securities and Exchange Board of India shall determine whether the sponsor or manager or investment
manager is foreign owned and controlled.

Explanation: “Control” of the AIF should be in the hands of “sponsors” and “manager”, with the general
exclusion to others. In case the “sponsors” and “managers or investment managers” of the AIF are individuals,
for the treatment of down- stream investment by such AIF as domestic, “sponsors” and “manager or investment
managers” should be resident Indian citizens.

(5) An Alternative Investment Fund Category III which has received any foreign investment shall make portfolio
investment in only those securities or instruments in which a FPI is allowed to invest under the Act or rules or
regulations made thereunder.

(6) The mode of payment and other attendant conditions for remittance of sale or maturity proceeds shall be
specified by the Reserve Bank .
 SCHEDULE IX
(See rule 6(d))

Investment in Depository Receipts by a person resident outside India

(1) Issue or transfer of eligible instruments to a foreign depository for the purpose of issuance of
depository receipts by eligible person(s).-

(a) Any security or unit in which a person resident outside India is allowed to invest under these rules shall be
eligible instruments for issue of Depository Receipts in terms of Depository Receipts Scheme, 2014 (DR
Scheme,2014).

(b) A person shall be eligible to issue or transfer eligible instruments to a foreign depository for the purpose of
issuance of depository receipts in accordance with the DR Scheme, 2014 and guidelines issued by the Central
Government in this regard.

(c) A domestic custodian may purchase eligible instruments on behalf of a person resident outside India, for the
purpose of converting the instruments so purchased into depository receipts in terms of DR Scheme, 2014.

(d) The aggregate of eligible instruments which may be issued or transferred to foreign depositories, along with
eligible instruments already held by persons resident outside India, shall not exceed the limit on foreign holding
of such eligible instruments under the Act, rules or regulations framed thereunder.

(e) The eligible instruments shall not be issued or transferred to a foreign depository for the purpose of issuing
depository receipts at a price less than the price applicable to a corresponding mode of issue or transfer of such
instruments to domestic investors under the applicable laws.

(2) Saving.-

Depository Receipts issued under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares
(Through Depository Receipt Mechanism) Scheme, 1993 shall be deemed to have been issued under the
corresponding provisions of DR Scheme 2014 and have to comply with the provisions specified in this Schedule.

SCHEDULE X
(See rule 10(2))

Issue of Indian Depository Receipts

(1) Issue of IDRs.- Companies incorporated outside India may issue IDRs through a Domestic Depository, to
persons resident in India and outside India, subject to the following conditions:

(a) the issue of IDRs is in compliance with the Companies (Registration of Foreign Companies) Rules, 2014 and
the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;

(b) any issue of IDRs by financial or banking companies having presence in India, either through a branch or
subsidiary, shall require prior approval of the sectoral regulator(s);

(c) IDRs shall be denominated in Indian rupee only;

(d) the proceeds of the issue of IDRs shall be immediately repatriated outside India by the companies issuing
such IDRs.
(2) Purchase or sale of IDRs.-

A FPI or a NRI or an OCI may purchase, hold, or sell IDRs, subject to the following terms and conditions,
namely:-

(a) the mode of payment and attendant conditions for remittance of sale or maturity proceeds shall be as
specified by the Reserve Bank;

(b) limited two way fungibility of IDRs shall be permissible subject to the terms and conditions stipulated by the
Reserve Bank in this regard;

(c) IDR shall not be redeemable into underlying equity shares before the expiry of one year from the date of
issue;

(d) Redemption or conversion of IDRs into underlying equity shares of the issuing company shall be in
compliance with the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations,
2004.

[[Link]. 1/14/EM/2015]

ANAND MOHAN BAJAJ, Jt. Secy

 FOREIGN EXCHANGE MANAGEMENT (OVERSEAS
INVESTMENT) RULES, 2022
AUTHOR :EDITOR

[Link]

MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION
New Delhi, the 22nd August, 2022

G.S.R. 646(E).—In exercise of the powers conferred by sub-section (1) and clauses (aa) and (ab) of sub-section
(2) of section 46 and sub-section (3) of section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999)
and in supersession of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security)
Regulations, 2004 and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property
Outside India) Regulations, 2015, except as respects things done or omitted to be done before such supersession,
the Central Government hereby makes the following rules, namely:

1. Short title and commencement.– (1) These rules may be called the Foreign Exchange Management (Overseas
Investment) Rules, 2022.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. Definitions.– (1) In these rules, unless the context otherwise requires,–

(a) “Act” means the Foreign Exchange Management Act, 1999 (42 of 1999);

(b) “Authorised Dealer Category-I bank or “AD bank” means a person authorised as such under sub-section (1)
of section 10 of the Act and for the purposes of these rules, shall mean only the domestic branches of such AD
bank;

(c) “control” means the right to appoint majority of the directors or to control management or policy decisions
exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of
their shareholding or management rights or shareholders’ agreements or voting agreements that entitle them to
ten per cent. or more of voting rights or in any other manner in the entity;

(d) “disinvestment” means partial or full extinguishment of right, title or possession of equity capital acquired
under these rules;

(e) “equity capital” means equity shares or perpetual capital or instruments that are irredeemable or contribution
to non-debt capital of a foreign entity in the nature of fully and compulsorily convertible instruments;

(f) “financial commitment” means the aggregate amount of investment made by a person resident in India by
way of Overseas Direct Investment, debt other than Overseas Portfolio Investment in a foreign entity or entities
in which the Overseas Direct Investment is made and shall include the non-fund-based facilities extended by
such person to or on behalf of such foreign entity or entities;

(g) “financial service regulator” means a financial service regulator established under any law in force in India
and include the Reserve Bank, the Securities and Exchange Board of India, the Insurance Regulatory and
Development Authority and the Pension Fund Regulatory and Development Authority;

(h) “foreign entity” means an entity formed or registered or incorporated outside India, including International
Financial Services Centre that has limited liability:

Provided that the restriction of limited liability shall not apply to an entity with core activity in a strategic sector;

(i) “host country” or “host jurisdiction” means the country or jurisdiction, including the International Financial
Services Centre, in which the foreign entity is formed, registered or incorporated, as the case may be;

(j) “Indian entity” means–

(i) a company defined under the Companies Act, 2013 (18 of 2013);

(ii) a body corporate incorporated by any law for the time being in force;

(iii) a Limited Liability Partnership duly formed and incorporated under the Limited Liability Partnership Act,
2008 (6 of 2009); and

(iv) a partnership firm registered under the Indian Partnership Act, 1932 ( 9 of 1932).

(k) “International Financial Services Centre” or “IFSC” shall have the same meaning as assigned to it in clause
(g) of section 3 of the International Financial Services Centres Authority Act, 2019 ( 50 of 2019);

(l) “last audited balance sheet” means audited balance sheet as on date not exceeding eighteen months preceding
the date of the transaction;

(m) “listed foreign entity” means a foreign entity whose equity shares or any other fully and compulsorily
convertible instrument is listed on a recognised stock exchange outside India;

(n) “listed Indian company” means an Indian company that has equity shares or any of its fully and compulsorily
convertible instruments listed on a recognised stock exchange in India and the expression “unlisted Indian
company” shall be construed accordingly;

(o) “mutual fund” means any fund registered as such with the Securities and Exchange Board of India;

(p) “net worth” shall have the same meaning as assigned to it in clause (57) of section 2 of the Companies Act,
2013 (18 of 2013).

Explanation.– For the purposes of this clause, “net worth” of registered partnership firm or Limited Liability
Partnership shall be the sum of the capital contribution of partners and undistributed profits of the partners after
deducting therefrom the aggregate value of the accumulated losses, deferred expenditure and miscellaneous
expenditure not written off, as per the last audited balance sheet;

(q) “Overseas Direct Investment” or “ODI” means investment by way of acquisition of unlisted equity capital of
a foreign entity, or subscription as a part of the memorandum of association of a foreign entity, or investment in
ten per cent, or more of the paid-up equity capital of a listed foreign entity or investment with control where
investment is less than ten per cent. of the paid-up equity capital of a listed foreign entity;

Explanation.– For the purposes of this clause, where an investment by a person resident in India in the equity
capital of a foreign entity is classified as ODI, such investment shall continue to be treated as ODI even if the
investment falls to a level below ten per cent. of the paid-up equity capital or such person loses control in the
foreign entity;

(r) “Overseas Investment” or “OI” means financial commitment and Overseas Portfolio Investment by a person
resident in India;

(s) “Overseas Portfolio Investment” or “OPI” means investment, other than ODI, in foreign securities, but not in
any unlisted debt instruments or any security issued by a person resident in India who is not in an IFSC:

Provided that OPI by a person resident in India in the equity capital of a listed entity, even after its delisting shall
continue to be treated as OPI until any further investment is made in the entity.

Explanation.– For the purposes of this clause, the expression “debt instruments” means the instruments specified
as such in clause (A) of rule 5;

(t) “relative” shall have the same meaning as assigned to it in clause (77) of section 2 of the Companies Act,
2013, (18 of 2013);

(u) “resident individual” means a person resident in India who is a natural person;

(v) “Resident Foreign Currency Account” or “RFC Account” shall have the same meaning as assigned to it in
the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations,
2015;

(w) “SEBI” means the Securities and Exchange Board of India established under section 3 of the Securities and
Exchange Board of India Act, 1992 (15 of 1992);

(x) “Society” means a society registered under the Societies Registration Act, 1860 (21 of 1860);

(y) “Subsidiary” or “step down subsidiary” of a foreign entity means an entity in which the foreign entity has
control;

(z) “strategic sector” shall include energy and natural resources sectors such as oil, gas, coal, mineral ores,
submarine cable system and start-ups and any other sector or sub-sector as deemed necessary by the Central
Government;

(za) “sweat equity shares” means such equity shares as are issued by an overseas entity to its directors or
employees at a discount or for consideration other than cash, for providing their know-how or making available
rights like intellectual property rights or value additions, by whatever name called;

(zb) “Trust” means a trust registered under the Indian Trust Act, 1882 (2 of 1882); (zc) “Venture Capital Fund”
means a fund registered as such with the SEBI.

(2) The words and expressions used but not defined in these rules shall have the meanings respectively assigned
to them in the Act or the rules or regulations made thereunder.
3. Administration of these rules.– (1) These rules shall be administered by the Reserve Bank. (2) The Reserve
Bank may issue such directions, circulars, instructions and clarifications as it may deem necessary for the
effective implementation of the provisions of these rules.

4. Non-applicability of rules and regulations relating thereto in certain cases.– Nothing in these rules or the
Foreign Exchange Management (Overseas Investment) Regulations, 2022 shall apply to–

(a) any investment made outside India by a financial institution in an IFSC;

(b) acquisition or transfer of any investment outside India made,–

(i) out of Resident Foreign Currency Account; or

(ii) out of foreign currency resources held outside India by a person who is employed in India for a
specific duration irrespective of length thereof or for a specific job or assignment, duration of which does
not exceed three years; or

(iii) in accordance with sub-section (4) of section 6 of the Act.

Explanation.– For the purposes of this rule, the expression “financial institution” shall have the same meaning as
assigned to it in the International Financial Services Centres Authority Act, 2019 (50 of 2019).

5. Debt instruments and non-debt instruments.– The following shall be the debt instruments and non-debt
instruments as determined by the Central Government under sub-section (7) of section 6 of the Act, namely:–

(A) Debt instruments:

(i) Government bonds;

(ii) corporate bonds;

(iii) all tranches of securitisation structure which are not equity tranche;

(iv) borrowings by firms through loans; and

(v) depository receipts whose underlying securities are debt securities;

(B) Non-debt instruments:

(i) all investments in equity in incorporated entities (public, private, listed and unlisted);

(ii) capital participation in Limited Liability Partnerships;

(iii) all instruments of investment as recognised in the Foreign Direct Investment policy from time to time;

(iv) investment in units of Alternative Investment Funds and Real Estate Investment Trust and
Infrastructure Investment Trusts;

(v) investment in units of mutual funds and Exchange-Traded Fund which invest more than fifty per cent
in equity;

(vi) the junior-most layer (i.e. equity tranche) of securitisation structure;

 (vii) acquisition, sale or dealing directly in immovable property;

(viii) contribution to trusts; and

(ix) depository receipts issued against equity instruments;

6. Continuity of certain investments.– Any investment or financial commitment outside India made in
accordance with the Act or the rules or regulations made thereunder and held as on the date of publication of
these rules in the Official Gazette, shall be deemed to have been made under these rules and the Foreign
Exchange Management (Overseas Investment) Regulations, 2022.

7. Rights issue and bonus shares.– (1) Any person resident in India who has acquired and continues to hold
equity capital of any foreign entity in accordance with the provisions of the Act or the rules or regulations made
thereunder–

(a) may invest in the equity capital issued by such entity as a rights issue; or

(b) may be granted bonus shares subject to the terms and conditions under these rules.

(2) The person resident in India acquiring the rights under sub-rule (1) may renounce such rights in favour of a
person resident in India or a person resident outside India.

8. Prohibition on investment outside India.– Save as otherwise provided in the Act or these rules or the
regulations made or directions issued under the Act, no person resident in India shall make or transfer any
investment or financial commitment outside India.

9. Overseas Investment.– (1) Save as otherwise provided in these rules or the Foreign Exchange Management
(Overseas Investment) Regulations, 2022, any investment made outside India by a person resident in India shall
be made in a foreign entity engaged in a bona fide business activity, directly or through step down subsidiary or
the special-purpose vehicle, subject to the limits and the conditions laid down in these rules and the said
regulations:

Provided that the structure of such subsidiary or step down subsidiary of the foreign entity shall comply with the
structural requirements of a foreign entity:

Provided further that Overseas Investment or transfer of such investment including swap of securities in a
foreign entity formed, registered or incorporated in Pakistan or in any other jurisdiction as may be advised by the
Central Government from time to time shall require prior approval of the Central Government.

Explanation.– For the purposes of this sub-rule, “bonafide business activity” shall mean any business activity
permissible under any law in force in India and the host country or host jurisdiction, as the case may be:

(2) Notwithstanding anything contained in these rules or Foreign Exchange Management (Overseas Investment)
Regulations 2022 –

(i) the Central Government may, on an application made to it through the Reserve Bank, permit financial
commitment in strategic sectors or geographies, above the limits laid down in these rules and subject to
such terms and conditions as it considers necessary.

(ii) the Reserve Bank may, on an application made to it through the designated AD bank and for sufficient
reasons, permit a person resident in India to make or transfer any investment or financial commitment
 outside India subject to such conditions as may be laid down by it:

Provided that Overseas Investment by a person resident in India shall not be made in a foreign entity located in a
country or jurisdiction as may be decided by the Central Government from time to time.

(3) The Reserve Bank, if it considers necessary may, in consultation with the Central Government,–

(i) stipulate the ceiling for the aggregate outflows during a financial year on account of financial
commitment or Overseas Portfolio Investment;

(ii) stipulate the ceiling beyond which the amount of financial commitment by a person resident in India in
a financial year shall require its prior approval.

10. No Objection Certificate.–

(1) Any person resident in India who,–

(i) has an account appearing as a non-performing asset; or

(ii) is classified as a wilful defaulter by any bank; or

(iii) is under investigation by a financial service regulator or by investigative agencies in India, namely,
the Central Bureau of Investigation or Directorate of Enforcement or Serious Frauds Investigation Office,

shall, before making any financial commitment or undertaking disinvestment under these rules or the Foreign
Exchange Management (Overseas Investment) Regulations, 2022, obtain a No Objection Certificate from the
lender bank or regulatory body or investigative agency by making an application in writing to such bank or
regulatory body or investigative agency concerned:

Provided that where the lender bank or regulatory body or investigative agency concerned fails to furnish the
certificate within sixty days from the date of receipt of such application, it may be presumed that there was no
objection to the proposed transaction.

(2) The No Objection Certificate issued under sub-rule (1) shall be addressed by the lender bank or regulatory
body or investigative agency concerned to the designated AD bank with an endorsement to the applicant.

11. Manner of making Overseas Direct Investment by Indian entity.– An Indian entity may make Overseas
Direct Investment in the manner and subject to the terms and conditions prescribed in Schedule I.

12. Manner of making Overseas Portfolio Investment by an Indian entity.– An Indian entity may make
Overseas Portfolio Investment in the manner and subject to the terms and conditions prescribed in Schedule II.

13. Manner of making Overseas Investment by resident individual.– A resident individual may make
Overseas Investment in the manner and subject to the terms and conditions prescribed in Schedule III.

14. Overseas Investment by person resident in India other than Indian entity and resident Individual.– A
person resident in India, other than an Indian entity and a resident individual, may make Overseas Investment in
the manner and subject to the terms and conditions prescribed in Schedule IV.

15. Overseas Investment in IFSC by person resident in India.– A person resident in India may make
Overseas Investment in an IFSC in India in the manner and subject to the terms and conditions prescribed in
Schedule V.

16. Pricing guidelines.– (1) Unless otherwise provided in these rules, the issue or transfer of equity capital of a
foreign entity from a person resident outside India or a person resident in India to a person resident in India who
is eligible to make such investment or from a person resident in India to a person resident outside India shall be
subject to a price arrived on an arm’s length basis.

(2) The AD bank, before facilitating a transaction under sub-rule (1), shall ensure compliance with arm’s length
pricing taking into consideration the valuation as per any internationally accepted pricing methodology for
valuation.

17. Transfer or liquidation.– (1) Unless otherwise provided in these rules, a person resident in India holding
equity capital in accordance with these rules may transfer such investment, in compliance with the limits and
subject to the conditions for such investment or disinvestment, pricing guidelines or documentation and
reporting requirements, in the manner provided in these rules and the Foreign Exchange Management (Overseas
Investment) Regulations, 2022.

(2) A person resident in India may transfer equity capital by way of sale to a person resident in India, who is
eligible to make such investment under these rules, or to a person resident outside India.

(3) In case the transfer is on account of merger, amalgamation or demerger or on account of buyback of foreign
securities, such transfer or liquidation in case of liquidation of the foreign entity, shall have the approval of the
competent authority as per the applicable laws in India or the laws of the host country or host jurisdiction, as the
case may be.

(4) Where the disinvestment by a person resident in India pertains to ODI–

(i) the transferor, in case of full disinvestment other than by way of liquidation, shall not have any dues
outstanding for receipt, which such transferor is entitled to receive from the foreign entity as an investor in
equity capital and debt;

(ii) the transferor, in case of any disinvestment must have stayed invested for at least one year from the
date of making ODI:

Provided that the above conditions shall not be applicable in case of a merger, demerger or amalgamation
between two or more foreign entities that are wholly-owned, directly or indirectly, by the Indian entity or where
there is no change or dilution in aggregate equity holding of the Indian entity in the merged or demerged or
amalgamated entity.

(5) The holding of any investment or transfer thereof in any manner shall not be permitted if the initial
investment was not permitted under the Act.

18. Restructuring.– A person resident in India who has made ODI in a foreign entity may permit restructuring
of the balance sheet by such foreign entity, which has been incurring losses for the previous two years as
evidenced by its last audited balance sheets, subject to ensuring compliance with reporting, documentation
requirements and subject to the diminution in the total value of the outstanding dues towards such person
resident in India on account of investment in equity and debt, after such restructuring not exceeding the
proportionate amount of the accumulated losses:
Provided that in case of such diminution where the amount of corresponding original investment is more than
USD 10 million or in the case where the amount of such diminution exceeds twenty per cent of the total value of
the outstanding dues towards the Indian entity or investor, the diminution in value shall be duly certified on an
arm’s length basis by a registered valuer as per the Companies Act, 2013 (18 of 2013) or corresponding valuer
registered with the regulatory authority or certified public accountant in the host jurisdiction:

Provided further that the certificate dated not more than six months before the date of the transaction shall be
submitted to the designated AD bank.

19. Restrictions and prohibitions.– (1) Unless otherwise provided in the Act or these rules, no person resident
in India shall make ODI in a foreign entity engaged in–

(a) real estate activity;

(b) gambling in any form; and

(c) dealing with financial products linked to the Indian rupee without specific approval of the Reserve
Bank.

Explanation.– For the purposes of this sub-rule, the expression “real estate activity” means buying and selling of
real estate or trading in Transferable Development Rights but does not include the development of townships,
construction of residential or commercial premises, roads or bridges for selling or leasing.

(2) Any ODI in start-ups recognised under the laws of the host country or host jurisdiction as the case may be,
shall be made by an Indian entity only from the internal accruals whether from the Indian entity or group or
associate companies in India and in case of resident individuals, from own funds of such an individual.

(3) No person resident in India shall make financial commitment in a foreign entity that has invested or invests
into India, at the time of making such financial commitment or at any time thereafter, either directly or
indirectly, resulting in a structure with more than two layers of subsidiaries:

Provided that such restriction shall not apply to the following classes of companies mentioned in sub-rule (2) of
rule 2 of the Companies (Restriction on Number of Layers) Rules, 2017 as may be amended from time to time,
namely:-

(a) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of
1949);

(b) a non-banking financial company as defined in clause (f) of section 45-I of the Reserve Bank of India
Act, 1934 (2 of 1934) which is registered with the Reserve Bank and considered as systematically
important non-banking financial company by the Reserve Bank;

(c) an insurance company being a company which carries on the business of insurance in accordance with
provisions of the Insurance Act, 1938 (4 of 1938) and the Insurance Regulatory and Development
Authority Act, 1999 (41 of 1999); and

(d) a Government company referred to in clause (45) of section 2 of the Companies Act, 2013 (18 of
2013).

20. Requirements to be specified by Reserve Bank.– The mode of payment, deferred payment of
consideration, reporting, realisation, and other requirements for any investment outside India by a person
resident in India shall be as per the regulations made in this behalf by the Reserve Bank under the Act.

21. Restriction on acquisition or transfer of immovable property outside India.–

(1) Save as otherwise provided in the Act or this rule, no person resident in India shall acquire or transfer any
immovable property situated outside India without general or special permission of the Reserve Bank:

Provided that nothing contained in this rule shall apply to a property–

(i) held by a person resident in India who is a national of a foreign State;

(ii) acquired by a person resident in India on or before the 8th day of July, 1947 and continued to be held
by such person with the permission of the Reserve Bank;

(iii) acquired by a person resident in India on a lease not exceeding five years.

(2) Notwithstanding anything contained in sub-rule (1)–

(i) a person resident in India may acquire immovable property outside India by way of inheritance or gift or
purchase from a person resident in India who has acquired such property as per the foreign exchange provisions
in force at the time of such acquisition;

(ii) a person resident in India may acquire immovable property outside India from a person resident outside
India–

(a) by way of inheritance;

(b) by way of purchase out of foreign exchange held in RFC account;

(c) by way of purchase out of the remittances sent under the Liberalised Remittance Scheme instituted by
the Reserve Bank:

Provided that such remittances under the Liberalised Remittance Scheme may be consolidated in respect
of relatives if such relatives, being persons resident in India, comply with the terms and conditions of the
Scheme;

(d) jointly with a relative who is a person resident outside India;

(e) out of the income or sale proceeds of the assets, other than ODI, acquired overseas under the provisions
of the Act;

(iii) an Indian entity having an overseas office may acquire immovable property outside India for the business
and residential purposes of its staff, as per the directions issued by the Reserve Bank from time to time;

(iv) a person resident in India who has acquired any immovable property outside India in accordance with the
foreign exchange provisions in force at the time of such acquisition may–

(a) transfer such property by way of gift to a person resident in India who is eligible to acquire such
property under these rules or by way of sale;

(b) create a charge on such property in accordance with the Act or the rules or regulations made thereunder
or directions issued by the Reserve Bank from time to time.
(3) The holding of any investment in immovable property or transfer thereof in any manner shall not be
permitted if the initial investment in immovable property was not permitted under the Act.

Schedule I

[See rule 11]

Manner of making Overseas Direct Investment by Indian entity

1. Manner of making ODI.— (1) An Indian entity may make ODI by way of investment in equity capital for
the purpose of undertaking bonafide business activity in the manner and subject to the limits and conditions
provided in this Schedule.

(2) The ODI may be made or held by way of,–

(i) subscription as part of memorandum of association or purchase of equity capital, listed or unlisted;

(ii) acquisition through bidding or tender procedure;

(iii) acquisition of equity capital by way of rights issue or allotment of bonus shares;

(iv) capitalisation, within the time period, if any, specified for realisation under the Act, of any amount due
towards the Indian entity from the foreign entity, the remittance of which is permitted under the Act or
does not require prior permission of the Central Government or the Reserve Bank under the Act or any
rules or regulations made or directions issued thereunder;

(v) the swap of securities;

(vi) merger, demerger, amalgamation or any scheme of arrangement as per the applicable laws in India or
laws of the host country or the host jurisdiction, as the case may be.

2. ODI in financial services activity.– (1) An Indian entity engaged in financial services activity in India may
make ODI in a foreign entity, which is directly or indirectly engaged in financial services activity, subject to the
following conditions, namely:–

(i) the Indian entity has posted net profits during the preceding three financial years;

(ii) the Indian entity is registered with or regulated by a financial services regulator in India;

(iii) the Indian entity has obtained approval as may be required from the regulators of such financial
services activity, both in India and the host country or host jurisdiction, as the case may be, for engaging in
such financial services:

(2) An Indian entity not engaged in financial services activity in India may make ODI in a foreign entity, which
is directly or indirectly engaged in financial services activity, except banking or insurance, subject to the
condition that such Indian entity has posted net profits during the preceding three financial years:

Provided that an Indian entity not engaged in the insurance sector may make ODI in general and health insurance
where such insurance business is supporting the core activity undertaken overseas by such an Indian entity.
(0) If an Indian entity does not meet the net profits required under sub paragraph (1) & (2) of this paragraph due
to the impact of Covid-19 during the period from 2020-2021 to 2021-2022, then the financial results of such
period may be excluded for considering the profitability period of three years:

Provided that such period may be extended by the Reserve Bank in consultation with the Central Government, as
it may deem necessary:

(1) Notwithstanding anything contained in this paragraph, Overseas Investment by banks and non-banking
financial institutions regulated by the Reserve Bank shall be subject to the conditions laid down by the Reserve
Bank under applicable laws in this regard.

3. Limit for financial commitment.– (1) The total financial commitment made by an Indian entity in all the
foreign entities taken together at the time of undertaking such commitment shall not exceed 400 percent of its net
worth as on the date of the last audited balance sheet or as directed by the Reserve Bank, in consultation with
Central Government from time to time.

(2) The total financial commitment referred to in sub-paragraph (1) shall not include capitalisation of retained
earnings for reckoning such limit but shall include–

(i) utilisation of the amount raised by the issue of American Depository Receipts or Global Depositary
Receipts and stock-swap of such receipts; and

(ii) utilisation of the proceeds from External Commercial Borrowings to the extent the corresponding
pledge or creation of charge on assets to raise such borrowings has not already been reckoned towards the
above limit:

Provided that the financial commitment made by Maharatna or Navratna or Miniratna or subsidiaries of such
public sector undertakings in foreign entities outside India engaged in strategic sectors shall not be subject to the
limits laid down under this paragraph.

Explanation.– For the purposes of this Schedule, a foreign entity shall be considered to be engaged in the
business of financial services activity if it undertakes an activity, which if carried out by an

entity in India, requires registration with or is regulated by a financial sector regulator in India.

Schedule II

[See rule 12]

Manner of making Overseas Portfolio Investment by an Indian entity

1. OPI by an Indian entity.– (1) An Indian entity may make OPI which shall not exceed fifty percent of its net
worth as on the date of its last audited balance sheet, in the manner and subject to the conditions laid down in
this Schedule.

(2) A listed Indian company may make OPI including by way of reinvestment.

(3) An unlisted Indian entity may make OPI only under clauses (iii), (iv), (v) and (vi) of sub-paragraph (2) of
paragraph 1 of Schedule I.

Schedule III
 [See rule 13]

Manner of making Overseas Investment by resident individual

1. Manner of making OI.– (1) Any resident individual may make ODI by way of investment in equity capital
or OPI in the manner provided in this Schedule and unless otherwise provided hereunder, shall be subject to the
overall ceiling under the Liberalised Remittance Scheme of the Reserve Bank.

(2) A resident individual may make or hold Overseas Investment by way of,–

(i) ODI in an operating foreign entity not engaged in financial services activity and which does not have
subsidiary or step down subsidiary where the resident individual has control in the foreign entity:

(ii) OPI, including by way of reinvestment;

(iii) ODI or OPI, as the case may be, by way of–

(a) capitalisation, within the time period, if any, specified for realisation under the Act, of any amount due
from the foreign entity the remittance of which is permitted under the Act or does not require prior
permission of the Central Government or the Reserve Bank;

(b) swap of securities on account of a merger, demerger, amalgamation or liquidation;

(c) acquisition of equity capital through rights issue or allotment of bonus shares;

(d) gift as per the conditions laid down under this Schedule;

(e) inheritance;

(f) acquisition of sweat equity shares;

(g) acquisition of minimum qualification shares issued for holding a management post in a a. foreign
entity;

(h) acquisition of shares or interest under Employee Stock Ownership Plan or Employee Benefits Scheme:

Provided that ODI in respect of clauses (e), (f), (g) and (h) may be made in a foreign entity whether or not such
foreign entity is engaged in financial services activity or has subsidiary or step down subsidiary where the
resident individual has control:

Provided further that the acquisition of less than ten per cent. of the equity capital, whether listed or unlisted, of a
foreign entity without control under clauses (f), (g) and (h), shall be treated as OPI.

Explanation.–– For the purposes of this Schedule, a foreign entity will be considered to be engaged in the
business of financial services activity if it undertakes an activity, which if carried out by an entity in India,
requires registration with or is regulated by a financial sector regulator in India.

2. Acquisition by way of gift or inheritance.– (1) A resident individual may, without any limit, acquire foreign
securities by way of inheritance from a person resident in India who is holding such securities in accordance
with the provisions of the Act or from a person resident outside India.
(2) A resident individual, without any limit, may acquire foreign securities by way of gift from a person
resident in India who is a relative and holding such securities in accordance with the provisions of the Act.

(3) A resident individual may acquire foreign securities by way of gift from a person resident outside India in
accordance with the provisions of the Foreign Contribution (Regulation) Act, 2010 ( 42 of 2010) and the rules
and regulations made thereunder.

3. Acquisition of shares or interest under Employee Stock Ownership Plan or Employee Benefits Scheme
or sweat equity shares.– (1) A resident individual, who is an employee or a director of an office in India or
branch of an overseas entity or a subsidiary in India of an overseas entity or of an Indian entity in which the
overseas entity has direct or indirect equity holding, may acquire, without limit, shares or interest under
Employee Stock Ownership Plan or Employee Benefits Scheme or sweat equity shares offered by such overseas
entity, provided that the issue of Employee Stock Ownership Plan or Employee Benefits Scheme are offered by
the issuing overseas entity globally on a uniform basis.

Explanation.– For the purposes of this paragraph, the expression,–

(i) “indirect equity holding” means indirect foreign equity holding through a special purpose vehicle or
step down subsidiary;

(ii) “Employee Benefit Scheme” means any compensation or incentive given to the directors or employees
of any entity which gives such directors or employees ownership interest in an overseas entity through
ESOP or any similar scheme.

(2) Notwithstanding anything contained in these rules, a resident individual may acquire Employee Stock
Ownership Plans under any scheme of the Central Government.

Schedule IV

[See rule 14]

Overseas Investment by person resident in India other than Indian entity and resident Individual

1. ODI by Registered Trust or Society.– Any person being a registered Trust or a registered Society engaged in
the educational sector or which has set up hospitals in India may make ODI in a foreign entity with the prior
approval of the Reserve Bank, subject to the following conditions, namely:–

(i) the foreign entity is engaged in the same sector that the Indian Trust or Society is engaged in;

(ii) the Trust or the Society, as the case may be, should have been in existence for at least three financial
years before the year in which such investment is being made;

(iii) the trust deed in case of a Trust, and the memorandum of association or rules or bye-laws in case of a
Society shall permit the proposed ODI;

(iv) such investment have the approval of the trustees in case of a Trust and the governing body or council
or managing or executive committee in case of a Society;

(v) in case the Trust or the Society require special licence or permission either from the Ministry of Home
Affairs, Central Government or from the relevant local authority, as the case may be, the special licence or
permission has been obtained and submitted to the designated AD bank.
2. OI by Mutual Funds or Venture Capital Funds or Alternative Investment Funds.– (1) A mutual fund or
Venture Capital Fund or Alternative Investment Fund may acquire or transfer foreign securities as stipulated by
SEBI from time to time in accordance with the provisions of these rules and subject to such other terms and
conditions as may be laid down by the Reserve Bank and the SEBI under applicable laws from time to time:

Provided that the aggregate limit for such investment shall be decided by the Reserve Bank in consultation with
the Central Government:

Provided further that the individual limits for such investments shall be as per the instructions issued by the
SEBI from time to time.

(2) Every transaction relating to the purchase and sale of foreign security by the funds referred to in sub-
paragraph (1) shall be routed through the designated AD bank in India:

(3) Notwithstanding anything contained in these rules, any investment under these rules by mutual funds,
Venture Capital Funds and Alternative Investment Funds shall be treated as OPI.

Explanation.– For the purposes of this paragraph, “Alternative Investment Fund” means any fund registered as
such with the SEBI.

3. Opening of Demat Accounts by clearing corporations of stock exchanges and clearing members.– Any
person, being a SEBI approved clearing corporation of a stock exchange and its clearing members, may acquire,
hold and transfer foreign securities, offered as collateral by foreign portfolio investors and, subject to the
guidelines issued by the SEBI from time to time,–

(i) open and maintain Demat Account with foreign depositories;

(ii) remit the proceeds arising due to such action, if any; and

(iii) liquidate such foreign securities and repatriate the proceeds thereof to India.

4. Acquisition and transfer of foreign securities by domestic depository.– A domestic depository may
acquire, hold and transfer foreign securities of a foreign entity, being the underlying security to issue Indian
Depository Receipts as may be authorised by such foreign entity or its overseas custodian bank and the person
investing in Indian Depository Receipts may either sell or continue to hold foreign securities in accordance with
the conditions provided in these rules and the Foreign Exchange Management (Overseas Investment)
Regulations, 2022 upon conversion of such depository receipts.

5. Acquisition and transfer of foreign securities by AD bank.– An AD bank including its overseas branch
may acquire or transfer foreign securities in accordance with the terms of the host country or host jurisdiction, as
the case may be, in the normal course of its banking business.

Schedule V

[See rule 15]

Overseas Investment in IFSC by person resident in India

1. Overseas Investment in IFSC by person resident in India.– (1) Subject to the provisions of these rules and
the Foreign Exchange Management (Overseas Investment) Regulations, 2022, a person resident in India may
make Overseas Investment in an IFSC in India within the limits provided in these rules .
(2) A person resident in India may make Overseas Investment in an IFSC in the manner as laid down in
Schedule I or Schedule II or Schedule III or Schedule IV:

Provided that –

(i) in the case of an ODI made in an IFSC, the approval by the financial services regulator
concerned, wherever applicable, shall be decided within forty-five days from the date of application
complete in all respects failing which it shall be deemed to be approved;

(ii) an Indian entity not engaged in financial services activity in India, making ODI in a foreign entity,
which is directly or indirectly engaged in financial services activity, except banking or insurance, who
does not meet the net profit condition as required under these rules, may make ODI in an IFSC.

(iii) a person resident in India may make contribution to an investment fund or vehicle set up in an IFSC as
OPI;

(iv) a resident individual may make ODI in a foreign entity, including an entity engaged in financial
services activity, (except in banking and insurance), in IFSC if such entity does not have subsidiary or step
down subsidiary outside IFSC where the resident individual has control in the foreign entity.

(3) A recognised stock exchange in the IFSC shall be treated as a recognised stock exchange outside India for
the purpose of these rules.

[[Link].27/4/2018 (E)-FT]

RAJEEV SAKSENA, Jt. Secy.