Editor's note (updated 27 Sep 2026). This post was first published on 4 May 2026. We have corrected or updated the following points.
- APR corrected. The Annual Performance Report is filed by Indian entities that have made overseas (ODI) investments. An Indian company that receives FDI files the Foreign Liabilities and Assets (FLA) return with RBI by 15 July each year. The original text confused the two.
- The penalty example was overstated. Reporting delays attract RBI's Late Submission Fee: ₹7,500 + 0.025% × amount × years of delay. For a US$500,000 investment reported two years late, that is roughly ₹29,000 (about US$340), not US$25,000–50,000. Compounding, which costs more, applies to delays beyond three years or to substantive contraventions.
- Brownfield pharma needs government approval only above 74%, not above 26%. We have also added the land-border-country rule.
- Dividend treaty rate. 15% under the India–US treaty applies only to a company holding at least 10% of voting stock. Otherwise the rate is 25%. The domestic rate is 20% plus surcharge and cess. Dividends have been taxed in the shareholder's hands since Dividend Distribution Tax was abolished from 1 April 2020.
- Forms renumbered. From 1 Apr 2026, under the Income-tax Act 2025, Forms 15CA / 15CB are Forms 145 / 146.
- FMV methods. Pricing is not limited to DCF. Any internationally accepted method on an arm's-length basis may be used, certified by a CA, a SEBI-registered merchant banker or a practising cost accountant.
- ESOP item reframed. ESOPs granted by the Indian company, and ESOPs granted by the foreign parent to Indian employees, follow different FEMA rules and reporting. The original wording has been clarified.
US companies investing in India meet two frameworks that are often confused. The Foreign Exchange Management Act (FEMA) governs capital flows. India's FDI Policy governs who may invest, in which sector and how much. You need to understand both before the first dollar moves.
FDI Policy vs FEMA: the core distinction
- FDI Policy is administered by DPIIT. It decides whether foreign investment is allowed in a sector, up to what percentage, and whether prior approval is needed.
- FEMA is administered by RBI, mainly through the Foreign Exchange Management (Non-Debt Instruments) Rules 2019 and the reporting regulations. It governs how the money comes in and goes out.
Think of the FDI Policy as the permission and FEMA as the plumbing. A US company investing in Indian software development may be fully permitted (100% automatic) and still breach FEMA in three common ways:
- shares allotted below fair value
- shares not allotted within 60 days of receiving the money
- a late FC-GPR
Automatic route vs government route
- Automatic route. No prior approval, only post-facto reporting. It covers most sectors, including IT, manufacturing, services, marketplace e-commerce, telecom and many financial services, with sectoral caps.
- Government route. Prior approval from the administrative ministry through the Foreign Investment Facilitation Portal (FIFP), which replaced FIPB in 2017. Examples:
- defence above 74%
- print media and news broadcasting
- multi-brand retail
- brownfield pharmaceuticals above 74%
- private banks above 49%
- Land-border countries. Investment from an entity in, or beneficially owned from, a country sharing a land border with India always needs government approval (Press Note 3 of 2020). US investors should check this for Asian co-investors in the cap table.
FC-GPR: the most commonly missed requirement
After shares are issued to a foreign investor, the Indian company must file Form FC-GPR on RBI's FIRMS portal through its AD bank within 30 days of allotment. Shares must be allotted within 60 days of receiving the funds. Otherwise the money must be refunded.
Late filing. RBI allows regularisation for up to three years through a Late Submission Fee: ₹7,500 + 0.025% × amount × years of delay.
Worked example. US$500,000 is about ₹4.25 crore at an illustrative ₹85 per dollar. Filed two years late, the fee is 7,500 + 0.00025 × 4,25,00,000 × 2 = ₹28,750.
The fee is modest, but the problem compounds. Banks will not process later remittances until reporting is clean. Due diligence flags the gap, and delays over three years need formal compounding.
Annual reporting: the FLA return
Every Indian company that has received FDI, or made overseas investment, must file the Foreign Liabilities and Assets (FLA) return on RBI's FLAIR portal by 15 July each year. It is based on the March financials. Unaudited figures are allowed, with a revision once the accounts are audited.
The Annual Performance Report (APR) is a different filing. It applies to Indian entities with overseas direct investment, not to recipients of FDI.
Pricing FDI transactions
Shares issued to a non-resident must be priced at or above fair value. For unlisted companies, fair value is determined by any internationally accepted pricing methodology on an arm's-length basis, certified by a CA, a SEBI-registered merchant banker or a practising cost accountant. DCF is the usual choice.
Issuing below fair value is a FEMA violation, even as a "founder-friendly" or friends-and-family price. Keep the valuation report on file for every allotment. Remember that income-tax valuation rules can also apply.
Dividend repatriation and other remittances
Dividends. DDT was abolished from 1 April 2020, so dividends are taxed in the shareholder's hands through withholding.
| Recipient | Rate |
|---|---|
| Under Indian law (non-resident company) | 20% plus surcharge and 4% cess |
| US company holding 10% or more of voting stock, under the India–US DTAA | 15% |
| Other US shareholders, under the DTAA | 25% |
To claim the treaty rate, the recipient needs a Tax Residency Certificate, the Form 10F information (check the renumbered form under the Income-tax Rules 2026) and a beneficial-ownership declaration.
Royalties, fees for technical services and interest. These carry their own treaty rates and conditions.
Remittance paperwork. From 1 April 2026, Forms 15CA and 15CB are Form 145 (the remitter's declaration) and Form 146 (the CA's certificate) under the Income-tax Rules 2026. Put them in place before any remittance.
Common mistakes US companies make
- Incorporating before checking sector eligibility and the land-border rule.
- Missing the 60-day allotment or the 30-day FC-GPR deadline.
- Mishandling ESOPs. An Indian company granting ESOPs to employees, including non-resident employees, must report in Form ESOP. A US parent granting stock to Indian employees falls under the overseas investment rules and has its own reporting. Neither is "FEMA-free".
- Lending from the parent without following RBI's ECB framework (eligible lender, cost ceiling, reporting in Form ECB-2).
- Not filing the FLA return by 15 July.
- Not documenting fair value for each issuance.
Getting FEMA right from day one matters. Shardhan's FEMA team supports US companies through the full investment cycle, from FDI structuring to FC-GPR and annual FLA reporting. Contact our team for a FEMA compliance assessment.
General information, not legal advice. Last reviewed 27 Sep 2026.