FEMA & RBI — Foreign Exchange & Overseas

The RBI has withdrawn seven outdated ECB and MTSS circulars via A.P. (DIR) Circular No 21. Learn how this affects your foreign borrowing, masala bond issuances, and money‑transfer service compliance, and what the current regulatory framework is.

The FEM(NDI) Third Amendment Rules, 2026 open Schedule III of the FEM(NDI) Rules, 2019 to all non-resident individuals, not just NRIs and OCIs, letting them buy Indian listed shares through an Authorised Dealer bank instead of registering as a Foreign Portfolio Investor. Thresholds, the border-country safeguard, and what listed Indian companies must now track are explained below.

DPIIT Press Note 3 (2026 Series) permits 100% automatic-route FDI in inventory-based e-commerce entities, but only where the entity exclusively exports domestically manufactured goods. The carve-out is not yet FEMA-legal until the corresponding FEM (NDI) Amendment notification is confirmed in the Gazette of India.

FEMA contraventions are civil, not criminal — FERA and its jail provisions were repealed in 1999. Yet NRIs routinely sit on unconverted resident accounts and demat holdings for years because someone warned them that disclosure invites prosecution. It does the opposite. Section 15 of FEMA 1999 exists precisely so a past contravention can be voluntarily settled, and the cost bears little resemblance to the three-times-the-amount ceiling in Section 13. For the reporting-delay category that captures most NRI cases, the RBI compounding matrix works out to a fixed Rs.1,00,000 plus a variable component in the 0.025 to 0.15 percent range per year of delay. This guide covers the jurisdiction thresholds by amount, the Foreign Exchange (Compounding Proceedings) Rules 2024 including the raised Rs.10,000 fee and the April 2025 deletion of the 50 percent repeat-applicant enhancement, the common NRI contraventions — account conversion, demat status, the USD 1 million NRO limit, agricultural land — and the exact eight-step process from regularisation through the AD Bank contravention letter to the 15-day payment window.

Most founders believe receiving foreign funds into an Indian company is a banking transaction. It is not. The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 — commonly called FEMA Notification 20(R) by practitioners — require prior compliance checks, a FEMA-compliant valuation, and a Form FC-GPR filing with the RBI within 30 days of share allotment. Nine sectors are completely barred from FDI. Investments from entities in countries sharing a land border with India now require government approval under Press Note 2 (2026). Missing the 30-day FC-GPR deadline triggers late fees, compounding applications, and compliance flags that scare future investors.

Founders routinely treat money sent from an Indian company to its own Dubai or Singapore entity as an ordinary outward remittance. It is not. Under the Foreign Exchange Management (Overseas Investment) Rules, Regulations and Directions, 2022, it is Overseas Direct Investment, and it carries a filing chain that begins before the money leaves. This piece draws the line between ODI and Overseas Portfolio Investment, explains why any investment in an unlisted foreign entity is ODI regardless of ticket size, and shows why the 400%-of-net-worth automatic route ceiling is a cap on financial commitment rather than cash — counting 100% of corporate guarantees, 50% of performance guarantees, and charges created on assets. It sets out the current reporting forms — Form FC, Form APR due 31 December, Form FC-TRS on disinvestment — the Unique Identification Number requirement, and the difference between regularising a delay through the Late Submission Fee and compounding a substantive contravention under Section 15 of FEMA. Includes a seven-step pre-remittance checklist and four FAQs covering LRS by individuals, unfiled Form FC exposure, dormant subsidiaries, and overseas branch offices.

An NRI can invest in an Indian company without prior RBI approval — but compliance happens after the money lands. Miss the FC-GPR deadline or skip the FLA return and you are looking at a compounding application. Here is exactly what the sequence requires.