RBI / FEMA Compliance for Startups

Form FC-GPR (Foreign Currency — Gross Provisional Return) is the reporting form prescribed by the RBI under Regulation 4 of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. It must be filed with the RBI through the company's authorised dealer bank within thirty days of the issue of equity instruments to a person resident outside India. The form captures the details of the foreign investor, the amount remitted, the number and class of shares allotted, and the basis of valuation. Delayed filing requires compounding with the RBI.

A delay in filing FC-GPR is a contravention of FEMA and requires compounding under Section 15 of the Foreign Exchange Management Act, 1999. The compounding application is filed with the RBI Compounding Cell with full details of the contravention including the amount involved and the period of delay. The RBI issues a compounding order specifying the penalty amount, which is computed based on the published RBI compounding guidelines (a percentage of the amount involved, varying with the delay period). Payment of the compounding amount and acceptance of the order regularises the position.

Yes. Investment by a Non-Resident Indian (NRI) or an Overseas Citizen of India (OCI) in an Indian company is permitted under the automatic route on a non-repatriation basis without any limit in sectors open to foreign investment, and on a repatriation basis subject to the applicable sectoral cap and entry route under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. The investment must be received through the banking channel, the price must meet the fair market value floor, and Form FC-GPR must be filed within thirty days of allotment.

Form FC-TRS (Foreign Currency — Transfer of Shares) must be filed when shares of an Indian company are transferred between a resident and a non-resident or vice versa in a secondary transaction. Under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, the form must be filed within sixty days of receipt of the consideration or transfer of shares, whichever is earlier. It applies to secondary sales by foreign investors to Indian buyers, purchases by foreign investors from Indian shareholders, and transfers between two foreign entities where the company has compliance reporting obligations.

The Overseas Investment framework consolidated under the Foreign Exchange Management (Overseas Investment) Rules, 2022 and the RBI's Master Direction on Overseas Investment governs investments made by Indian residents in foreign entities. An Indian company setting up a wholly owned subsidiary or joint venture abroad must file Form ODI with the RBI through its authorised dealer bank, prior to remitting the investment amount. Annual Performance Reports must be filed for each overseas entity every year by 31 December. The total financial commitment (equity plus loans plus guarantees) must not exceed four hundred percent of the Indian company's net worth without RBI approval.

Yes. A startup exporting software or IT-enabled services and receiving payment in foreign exchange must receive the payment through the banking channel. Where the value of software exports exceeds the threshold prescribed by the RBI (currently one lakh US dollars per export declaration or as revised), the startup may be required to file a SOFTEX form through the Special Economic Zone authority or through the Software Technology Parks of India unit, certifying the export. The authorised dealer bank is required to monitor inward remittances against export invoices, and the startup must provide the underlying contract and invoice documentation to the bank.

Yes. Section 15 of the Foreign Exchange Management Act, 1999 permits compounding of contraventions that are not wilful and do not involve money laundering. The RBI Compounding Cell processes applications filed by the contravening entity voluntarily. Voluntary compounding is generally preferable to waiting for the RBI or Enforcement Directorate to initiate proceedings, because the compounding amount in a voluntary application is typically lower than in an enforcement-initiated proceeding, and the expedited resolution avoids the uncertainty and distraction of protracted proceedings. Most startups regularising old FEMA positions proceed through voluntary compounding.

Under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, an Indian company issuing equity shares to a person resident outside India must ensure that the price per share is not less than the fair market value of the shares. For unlisted companies, fair market value is determined by a SEBI-registered Category I Merchant Banker or a Chartered Accountant using the internationally accepted pricing methodology, typically the Discounted Cash Flow method. The valuation report must be contemporaneous with the allotment and must be retained as documentation for the FC-GPR filing. Allotment below fair market value is a FEMA contravention.

Yes. An Indian company with foreign investment must maintain a Register of Foreign Members recording the details of each foreign shareholder, the date and amount of investment, the class and number of shares held, and the applicable entry route and sectoral cap. This register is a statutory requirement under the Companies Act, 2013 and the FEMA Rules. The company must also retain all FIRCs (Foreign Inward Remittance Certificates) issued by the authorised dealer bank for each foreign investment receipt, all share subscription agreements with foreign investors, and all FC-GPR filing acknowledgements. These documents form the basis of future FEMA due diligence by investors and acquirers.

Convertible instruments issued to foreign investors, including Compulsorily Convertible Debentures and Optionally Convertible Debentures, are governed by the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. CCDs are treated as equity for FEMA purposes at the time of issuance, and a Form FC-GPR reporting the receipt of the CCD subscription amount must be filed within thirty days. SAFEs structured as non-debt instruments with a conversion trigger are treated similarly. The conversion of CCDs or SAFEs into equity shares requires a further FC-GPR filing at the time of conversion, reporting the allotment of shares. The RBI has issued specific guidance on the treatment of SAFEs, and the precise reporting obligation should be confirmed with an advisor at the time of issuance.