FDI in Private Limited Companies: Routes, NRI Investment, Pricing and Reporting

Foreign investment into an Indian private limited company, whether from a foreign company, a foreign national or an NRI investing on a repatriable basis, is governed by the Foreign Exchange Management Act, 1999 and the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, read with the consolidated FDI Policy. For Kerala companies, the most common foreign investors are NRIs and family members settled abroad, particularly in the Gulf, and the rules apply to them as much as to any foreign investor.

This article explains the routes, limits, pricing and reporting for FDI in a private limited company, and the points that most often lead to defaults.

Automatic route and government route

• Automatic route: in most sectors, foreign investment up to 100% is permitted without prior approval, subject to sectoral conditions.
• Government route: some sectors, and investment above specified caps in others, need prior approval of the Government through the FDI portal.
• Prohibited sectors: FDI is not permitted in certain activities, such as lottery, gambling, chit funds, Nidhi companies, real estate business (as defined) and trading in transferable development rights.
• Investors from land-bordering countries: investment by an entity of, or with beneficial ownership in, a country sharing a land border with India requires government approval in all sectors (Press Note 3 of 2020).

The sector of the company’s actual business, and any conditions attached to it, should be checked before the investment is accepted. See sectoral caps and approval routes.

NRIs: repatriable and non-repatriable

Basis	Treatment	Reporting
Repatriable (Schedule I)	Treated as foreign direct investment; pricing guidelines, sectoral caps and reporting apply	FC-GPR on issue, FC-TRS on transfer
Non-repatriable (Schedule IV)	Treated on par with investment by residents; pricing guidelines and sectoral caps generally do not apply	No FC-GPR, but the investment must still come through NRO/NRE/FCNR channels and records should be kept

The choice affects whether the investor can take the money out of India later, and the compliance burden on the company. It should be made consciously and recorded in the documentation.

Instruments and pricing

• FDI can be made in equity shares, fully, compulsorily and mandatorily convertible preference shares, fully and compulsorily convertible debentures, and share warrants. Optionally convertible or redeemable instruments are treated as debt and fall under the external commercial borrowing rules.
• Shares issued to a non-resident must be priced at not less than the fair value, determined by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant using an internationally accepted pricing methodology. Transfers from residents to non-residents are similarly subject to a minimum price, and transfers from non-residents to residents to a maximum price.
• Under the Companies Act, the issue must follow the procedure for a preferential allotment or private placement, with the required valuation, resolutions and filings.

Receipt of money and allotment

• The investment must be received through normal banking channels, into the company’s account with an Authorised Dealer bank, or by debit to the investor’s NRE or FCNR account.
• Shares must be allotted within 60 days of receipt of the money. If they are not, the money must be refunded within 15 days after that.
• The bank completes KYC of the foreign investor and issues the documents needed for reporting.

Reporting

Event	Form	Time limit
Issue of shares to a non-resident	FC-GPR on the FIRMS portal	Within 30 days of allotment
Transfer of shares between resident and non-resident	FC-TRS	Within 60 days of receipt or remittance of consideration
Downstream investment by a company with foreign investment	DI	Within 30 days of the investment
Annual return on foreign liabilities and assets	FLA	By 15 July every year

Before the first filing, the company registers as an entity on the FIRMS portal. Delayed reporting can be regularised by paying a late submission fee, and other contraventions can be compounded by the RBI. See filing FC-GPR on the FIRMS portal and FC-TRS filing.

Common defaults

• Accepting money from an NRI relative without deciding or documenting whether it is repatriable or non-repatriable
• Shares not allotted within 60 days, or money retained as an advance for a long period
• Issue at a price below fair value, or without a valuation report
• FC-GPR not filed, or filed with errors, or FLA returns not filed
• Investment received in a sector with conditions that the company does not meet

See common FEMA violations.

Frequently asked questions

Can an NRI be a shareholder in a private limited company in Kerala?

Yes. An NRI can invest on a repatriable basis, which is treated as FDI, or on a non-repatriable basis, which is treated like domestic investment.

Is RBI approval needed for FDI?

Not under the automatic route. The company reports the investment to the RBI after allotment through the FIRMS portal.

What if FC-GPR was not filed on time?

The delay can be regularised by filing with a late submission fee, within the period allowed. Longer delays or other contraventions may need compounding by the RBI.

ചുരുക്കം (Summary in Malayalam)

വിദേശികളോ തിരിച്ചുകൊണ്ടുപോകാവുന്ന (repatriable) അടിസ്ഥാനത്തിൽ നിക്ഷേപിക്കുന്ന പ്രവാസികളോ ഇന്ത്യൻ പ്രൈവറ്റ് ലിമിറ്റഡ് കമ്പനിയിൽ നിക്ഷേപിക്കുമ്പോൾ FEMA നിയമങ്ങൾ ബാധകമാണ്. മിക്ക മേഖലകളിലും മുൻകൂർ അനുമതി ആവശ്യമില്ല. ഓഹരികൾ ന്യായവിലയിൽ കുറയാതെ നൽകണം; പണം ലഭിച്ച് 60 ദിവസത്തിനകം അലോട്ട് ചെയ്യണം; അലോട്ട്മെന്റ് കഴിഞ്ഞ് 30 ദിവസത്തിനകം FC-GPR ഫയൽ ചെയ്യണം. എല്ലാ വർഷവും ജൂലൈ 15-നകം FLA റിട്ടേൺ നൽകണം. തിരിച്ചുകൊണ്ടുപോകാനാവാത്ത (non-repatriable) പ്രവാസി നിക്ഷേപം ആഭ്യന്തര നിക്ഷേപം പോലെയാണ് കണക്കാക്കുന്നത്.

This article gives a general overview of FDI in private limited companies under FEMA. The FDI Policy, rules and RBI directions are revised from time to time; for accurate and current requirements, refer to the latest rules, directions and the FIRMS portal. The article is not advice on any particular case.