The regulatory framework governing cross-border movement of money, assets, and ownership in India — principally FEMA and the directions issued by RBI — is detailed, frequently updated, and unforgiving of technical lapses even when the underlying transaction is entirely legitimate.
FEMA and RBI compliance spans a wide range of situations that businesses and individuals encounter regularly: residents making overseas direct investments, foreign entities investing into India, individuals remitting funds under the Liberalised Remittance Scheme, companies raising external commercial borrowings, and cases where historical transactions require compounding because an obligation was not met on time.
The 2022 revisions to the overseas direct investment framework brought welcome flexibility but also introduced new structures, new thresholds, and new compliance obligations that are not yet universally understood. Many businesses and individuals continue to operate under positions established under the old framework that warrant review.
Our approach to FEMA and RBI work is integrated with our international tax advisory — because in most cross-border contexts the two are inseparable. A transaction that is tax-efficient but regulatory non-compliant is not a good outcome. We address both dimensions from the outset.
Questions we are asked regularly on this subject. Every situation differs — these are a starting point, not advice.
Most overseas investment by a resident is permitted without prior approval, but it must be routed through an authorised dealer bank and reported correctly, and the structure determines whether it falls under the direct investment route or the portfolio route. Reporting obligations then continue annually for as long as the investment is held. Getting the classification right at the outset avoids a compounding application later.
A missed filing is a contravention even where the underlying transaction was entirely legitimate, but it is usually regularised through compounding with the Reserve Bank rather than treated as a dispute. Voluntary disclosure before the matter is noticed generally produces a better outcome than waiting. The practical questions are which contravention has occurred, over what period, and what the exposure is.
Resident individuals may remit up to the annual limit under the Liberalised Remittance Scheme for permitted purposes without prior approval, subject to bank documentation and tax collected at source above certain thresholds. Complications usually arise from the purpose code chosen, remittances made on behalf of family members, or funds being applied to a purpose other than the one declared.
Every matter has its own context. Reach out and we will be glad to understand yours.