ODI: Overseas Direct Investment

Overseas Direct Investment (ODI) refers to an investment made by a person resident in India in the equity capital or loan capital of a foreign entity. It is governed by the FEMA (Overseas Investment) Rules, 2022 and Regulations issued by RBI.

ODI can be made in the form of:

• Equity shares of a foreign entity

• Compulsorily Convertible Preference Shares (CCPS)

• Debt instruments (loans to foreign subsidiaries)

The investment can be made under the Automatic Route or Approval Route. Under the automatic route, no prior RBI approval is required if the Indian entity:

• Has a net worth as per the latest audited balance sheet,

• Is not on the RBI’s caution list,

• Does not invest in real estate or banking sectors abroad.

The ceiling for financial commitment is 400% of the net worth of the Indian entity (excluding guarantees) under the automatic route. Any investment beyond this limit requires RBI approval.

Under the 2022 reforms, ODI in strategic sectors and acquisition of foreign entities by issuance of Indian shares have been simplified. Investments must be reported to RBI through the Foreign Investment Reporting and Management System (FIRMS) portal in Form FC-ODI within 30 days from the date of remittance or acquisition.

FC-GPR: Foreign Currency – General Permission Route

FC-GPR is a compliance form that must be filed when a foreign investor is allotted shares by an Indian company. It stands for “Foreign Currency General Permission Route” and is governed by the FEMA (Non-Debt Instruments) Rules, 2019.

Whenever a company receives foreign direct investment (FDI) in return for equity shares, compulsorily convertible preference shares (CCPS), or compulsorily convertible debentures (CCD), it is mandatory to file Form FC-GPR with the RBI.

Key Requirements:

• Filing must be done within 30 days of share allotment.

• Valuation report from a SEBI-registered Merchant Banker or Chartered Accountant is required to ensure compliance with pricing guidelines.

• Know Your Customer (KYC) report of the foreign investor must be obtained from the remitting bank.

• A resolution of the board approving the allotment is also necessary.

Recent updates under the FIRMS platform have introduced digital verification and tracking, improving ease of compliance. Failure to file FC-GPR within the stipulated time may result in penalties under FEMA, including compounding proceedings.

FC-TRS: Foreign Currency – Transfer of Shares

FC-TRS refers to “Foreign Currency – Transfer of Shares” and is used when shares or convertible securities of an Indian company are transferred between a resident and a non-resident (or vice versa).

Common transactions requiring FC-TRS include:

• Sale of shares by a resident to a foreign investor

• Exit of a foreign investor by selling shares to an Indian resident

• Transfer of shares between two foreign investors in India

The transfer must comply with pricing guidelines laid down by RBI, and the remittance of funds must be through the banking channel. FC-TRS must be filed within 60 days of receipt/remittance of consideration using the FIRMS portal.

Supporting documents include:

• Transfer agreement

• Valuation certificate

• Board resolutions

• KYC documents

If not filed timely, such transactions may be deemed non-compliant under FEMA, leading to regulatory scrutiny and penalties.

Recent Updates and Simplification Measures

• In August 2022, the Indian government notified the Overseas Investment Rules, 2022, replacing the earlier ODI guidelines. These rules provide greater clarity on round-tripping, step-down subsidiaries, and acquisition of foreign entities.

• RBI has introduced the FIRMS portal as a unified platform for filing all foreign investment-related forms, including FC-GPR, FC-TRS, and FC-ODI.

• The RBI also relaxed investment norms for startups and fintech firms, allowing easier issuance of shares against foreign investments or services rendered.

These reforms are aimed at easing the compliance burden, enhancing digital governance, and aligning Indian foreign investment regulations with international best practices.

Conclusion

ODI, FC-GPR, and FC-TRS form the backbone of India’s foreign investment compliance ecosystem. While ODI enables Indian businesses to expand globally, FC-GPR ensures transparency and control over incoming FDI, and FC-TRS regulates share transfers involving foreign investors. Businesses and professionals must understand the legal frameworks and timelines under FEMA to avoid penalties and ensure seamless foreign exchange operations. With digitization through the FIRMS portal and streamlined rules under the 2022 framework, India is paving the way for a more transparent, efficient, and globally competitive investment climate.

Frequently Asked Questions (FAQs)

Q1. What is the timeline for filing FC-GPR?

Ans. Form FC-GPR must be filed within 30 days of the date of share allotment made to a foreign investor.

Q2. Is RBI approval required for ODI under the automatic route?

Ans. No, ODI under the automatic route does not require RBI approval, provided it complies with FEMA rules and remains within the prescribed net worth ceiling.

Q3. When is FC-TRS required to be filed?

Ans. FC-TRS must be filed when there is a transfer of shares between a resident and a non-resident, and it should be submitted within 60 days of receipt or remittance of consideration.

Q4. What happens if FC-GPR or FC-TRS is not filed on time?

Ans. Delayed or non-filing may lead to FEMA contravention, requiring compounding by RBI and payment of penalties.

Q5. Can a resident individual make ODI?

Ans. Yes, a resident individual can make ODI in a foreign entity under the Liberalised Remittance Scheme (LRS), subject to specified limits and conditions.

Q6. Is valuation mandatory for FC-GPR and FC-TRS filings?

Ans. Yes, a valuation certificate from a SEBI-registered Merchant Banker or Chartered Accountant is mandatory to ensure the share price complies with RBI’s fair valuation norms.