Since 22 August 2022, outbound investment from India is governed by the Foreign Exchange Management (Overseas Investment) Rules, 2022, the Overseas Investment Regulations, 2022 and the RBI's Overseas Investment Directions. An Indian company may make Overseas Direct Investment — acquiring unlisted equity, or 10% or more of listed equity, or control, in a foreign entity — under the automatic route up to a total financial commitment of 400% of its net worth per its last audited balance sheet, by filing Form FC with its bank before the remittance and obtaining a Unique Identification Number. It must then file an Annual Performance Report by 31 December each year based on the foreign entity's audited accounts. A resident individual may make ODI only within the USD 250,000 Liberalised Remittance Scheme limit, in an operating foreign entity not engaged in financial services. Investment of less than 10% in listed foreign equity without control is Overseas Portfolio Investment, reported in Form OPI.
Key facts
| Provision | Old reference (to 31 Mar 2026) | New reference (from 1 Apr 2026) | Rate / threshold | Timing | Form |
|---|---|---|---|---|---|
| Framework | FEMA Notification 120/2004 (old ODI regulations) | FEM (Overseas Investment) Rules, 2022; OI Regulations, 2022; OI Directions (22 Aug 2022) | — | — | — |
| ODI definition | JV/WOS investment | Unlisted equity; ≥10% of listed equity; or control | — | — | — |
| Financial commitment limit — Indian entity | 400% of net worth (automatic) | 400% of net worth per last audited balance sheet (automatic); beyond with RBI approval | Equity + loans + guarantees | — | — |
| Pre-remittance reporting | Form ODI Part I | Form FC via AD bank; UIN allotted | — | Before remittance | Form FC |
| Annual Performance Report | APR by 31 December | APR by 31 December | Based on audited accounts of the foreign entity | 31 December each year | APR (Form FC Part II) |
| Overseas Portfolio Investment reporting | — | Form OPI | Listed equity < 10% without control; ESOPs of foreign parent | Within 60 days of half-year end (30 Sept / 31 Mar) | Form OPI |
| Resident individuals | LRS USD 250,000; ODI permitted | LRS USD 250,000; ODI only in operating entity not in financial services; no step-down subsidiary where control acquired | — | — | Form FC, APR |
| Round-tripping | Prohibited without approval | Permitted where structure has not more than two layers of subsidiaries | — | — | — |
| Disinvestment | — | Permitted subject to conditions (no write-off beyond limits without approval; proceeds repatriated within 90 days) | — | 90 days | Form FC (disinvestment) |
| Late submission fee | — | ₹7,500 + 0.025% × amount × years (Form FC); ₹7,500 flat (APR) | — | Up to 3 years; compounding thereafter | — |
ODI or OPI?
The 2022 framework draws a bright line. ODI is investment by way of acquisition of unlisted equity capital of a foreign entity, or subscription to a foreign entity's memorandum, or 10% or more of the paid-up equity of a listed foreign entity, or investment with control (regardless of percentage). Everything else in foreign securities — under 10% of a listed company without control, foreign mutual funds, shares received under a foreign parent's ESOP — is OPI. ODI carries the Form FC, UIN and APR obligations; OPI is reported in Form OPI by the Indian entity or employer.
Who can make ODI and how much
- Indian entities (companies, LLPs, registered partnerships) may invest in foreign entities engaged in bona fide business activity under the automatic route up to a total financial commitment — equity, loans and guarantees taken together — of 400% of net worth as per the last audited balance sheet. Investment in financial services abroad is allowed only for Indian entities themselves in financial services (with conditions). Entities under investigation by a financial regulator or with NPA accounts face restrictions.
- Resident individuals may make ODI and OPI within the LRS limit of USD 250,000 per financial year, in an operating foreign entity that is not engaged in financial services; where the individual acquires control, the foreign entity may not have a step-down subsidiary. Individuals may also receive foreign shares by inheritance, gift (with conditions) or under ESOPs.
The ODI process
- Board approval and a valuation of the foreign entity (by a Category I merchant banker or a CA/CPA in the host country for investments above the prescribed threshold; a CA for smaller investments) where shares are acquired from existing holders or issued at a price.
- Form FC filed with the AD bank before the remittance, with the foreign entity's documents, the valuation and the financial-commitment computation. The bank reports to the RBI and a UIN is allotted to the foreign entity.
- Remittance through the designated AD bank; all transactions with that foreign entity must route through the same bank.
- Share certificates or evidence of investment within six months of remittance.
- APR by 31 December each year, based on the foreign entity's audited financial statements for its accounting year ending in the preceding Indian financial year; where the host country does not mandate audit, unaudited accounts certified by the Indian entity's statutory auditor may be used.
- FLA return by 15 July if the Indian entity has outstanding ODI.
- Repatriation of dividends, royalties, fees and sale proceeds within 90 days of becoming due.
Round-tripping and layers
The old prohibition on structures where the foreign entity invests back into India has been replaced with a rule: an Indian entity may invest in a foreign entity that has or will have an Indian subsidiary, provided the structure does not result in more than two layers of subsidiaries. The Indian subsidiary's own FDI reporting (FC-GPR) continues. Structures designed to disguise round-tripping remain open to challenge under FEMA's general anti-evasion provisions and income-tax anti-avoidance rules.
What goes wrong
Most ODI contraventions are reporting failures: a US holding company incorporated by founders with a credit-card payment of the registered agent's fee and no Form FC; APRs never filed because the foreign entity had no audit; shares in a foreign startup received for services without reporting. The late submission fee route handles delays up to three years; older failures require compounding with the RBI, which is a formal process with a published matrix of amounts. Regularise voluntarily — compounding applications that follow a notice are treated less kindly.
Worked example
An Indian software company (net worth ₹25 crore per its March 2026 audited balance sheet) wants to incorporate a Delaware subsidiary with USD 300,000 of equity and give a USD 200,000 corporate guarantee for the subsidiary's office lease.
- Financial commitment: USD 500,000 ≈ ₹4.2 crore — well within 400% of ₹25 crore (₹100 crore).
- Board resolution; Form FC filed with the AD bank before remitting the first USD 100,000; UIN allotted; remaining equity remitted against the same UIN.
- Share certificates uploaded within six months; the guarantee reported as part of financial commitment.
- APR by 31 December 2027 for the Delaware entity's 2026 accounts (unaudited, certified by the Indian statutory auditor, as Delaware does not mandate an audit).
- FLA return by 15 July 2027. Transfer pricing applies to all dealings with the subsidiary from day one.
Had the founders instead set up the Delaware company personally, each would be limited to USD 250,000 under LRS and could not hold control if the US company later set up a step-down subsidiary — which is why the company-level route is usually preferred for operating structures.
Common mistakes we see
- Paying the incorporation agent or the first capital from a personal card or an Indian account without filing Form FC first.
- Treating the US entity as 'dormant' and never filing APRs; the obligation runs from the first investment.
- Giving a guarantee for the foreign subsidiary's lease or loan without counting it in financial commitment or reporting it.
- Routing transactions through a second bank after the UIN was allotted through the first.
- Founders holding the foreign holding company personally and then letting it acquire a subsidiary, breaching the no-step-down condition for individuals with control.
- Receiving foreign startup shares as advisor compensation and not reporting them.
Frequently asked questions
What is the limit for ODI by an Indian company?
A total financial commitment — equity, loans and guarantees — of up to 400% of net worth as per the last audited balance sheet under the automatic route; beyond that, RBI approval.
Can an Indian resident individual set up a company abroad?
Yes, within the USD 250,000 per financial year LRS limit, in an operating foreign entity not engaged in financial services. If the individual acquires control, the foreign entity may not have a step-down subsidiary. Form FC, UIN and APR obligations apply.
When is the Annual Performance Report due?
By 31 December each year, filed through the designated AD bank, based on the foreign entity's audited accounts (or unaudited accounts certified by the Indian entity's statutory auditor where the host country does not require audit).
Is round-tripping allowed under the 2022 rules?
Investment in a foreign entity that invests back into India is permitted where the structure has not more than two layers of subsidiaries. Structures intended to evade FEMA or tax remain open to challenge.
What is the difference between Form FC and Form OPI?
Form FC reports Overseas Direct Investment (and its disinvestment) and is filed before remittance to obtain a UIN. Form OPI reports Overseas Portfolio Investment — including shares of a foreign parent acquired by Indian employees under ESOPs — half-yearly within 60 days of 30 September and 31 March.
What happens if Form FC or the APR was never filed?
Delays up to three years can be regularised by paying the late submission fee (₹7,500 plus 0.025% of the amount per year for Form FC; ₹7,500 per APR). Older contraventions require compounding with the RBI.
Sources
Primary sources only. Statutory text is read from the official publication; where a provision has been renumbered, the pre-2026 reference is given alongside so older material can be reconciled.
- FEMA notifications — Reserve Bank of India
- RBI Master Directions — Reporting under FEMA; External Commercial Borrowings; Overseas Investment; Export of Goods and Services; LRS
- e-Gazette of India — Finance Act, 2026; Income-tax Rules, 2026; FEMA notifications
Last reviewed on 1 November 2026 by Suchit Jhunjhunwala, FCA, VMS Jhunjhunwala & Co. Law stated as at that date; the Income-tax Act, 2025 and Income-tax Rules, 2026 apply from 1 April 2026.
