FDI in India is governed by the Foreign Exchange Management Act 1999 (FEMA) and the Consolidated FDI Policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT). The policy classifies every sector into either 'automatic route' (no prior approval) or 'approval route' (prior government clearance). For tech / SaaS / IT services, automatic route applies; for sensitive sectors (defence, telecom, broadcasting), approval route applies.
Automatic route — the default for tech
Under the automatic route, a foreign company can invest in an Indian company / WOS without any prior approval from the Reserve Bank of India or government. The only requirement is post-investment reporting via Form FC-GPR through the AD bank within 30 days of share allotment.
- Information Technology and IT-enabled Services — 100% under automatic route.
- Software development and SaaS — 100% under automatic route.
- E-commerce (marketplace model, B2B) — 100% under automatic route.
- Manufacturing — 100% under automatic route for most categories.
- Single-brand retail (>51% foreign equity earlier required approval, now under automatic with conditions).
Approval route — when it applies
Approval route requires prior government clearance via the Foreign Investment Facilitation Portal (FIFP). Approvals take 8-16 weeks and the application is reviewed by the relevant sectoral ministry (DPIIT routing to the right ministry).
- Defence — up to 74% automatic, beyond that approval route.
- Broadcasting (FM radio, news channels) — approval route with caps.
- Print media — capped, approval route.
- Telecom — automatic up to 100% in many segments, approval for some.
- Multi-brand retail — 51% with prior approval and conditions.
- Banking (private sector) — up to 74% automatic; beyond requires approval.
- B2C e-commerce (inventory model) — approval route in most cases.
FDI route check + filing run by your consultant
FastLegal's tax consultant maps your business activity to the FDI policy schedule, confirms automatic vs approval route, files Form FC-GPR through the AD bank within 30 days of share allotment, and maintains the FEMA documentation that's required at every future audit.
FC-GPR — the post-investment reporting
Once the foreign parent has remitted capital to the Indian WOS and shares have been allotted, Form FC-GPR (Foreign Currency-Gross Provisional Return) is filed with RBI through the company's AD bank within 30 days of allotment.
- Receive inward remittance from foreign parent into the company's INR or FC account.
- Issue shares to the parent within 60 days of receipt (per FEMA 20).
- Hold a board meeting to approve the allotment; pass the allotment resolution.
- File FC-GPR via the AD bank within 30 days of allotment with: foreign parent details, share certificate copy, FIRC (Foreign Inward Remittance Certificate), valuation certificate from a SEBI-registered merchant banker or Category I valuer, declaration on pricing guidelines.
- Bank acknowledges via the RBI system; permanent ID is generated.
Pricing guidelines — valuation matters
FEMA requires that shares issued to non-residents be priced at not less than the fair valuation as per internationally accepted methodology (DCF, NAV, comparable companies). The valuation is by a SEBI-registered merchant banker or a Category I valuer. For a newly incorporated company with no operating history, face value pricing is permissible.
Subsequent share issuances (rounds 2, 3 etc.) must be at or above the fair valuation. The valuation certificate is part of the FC-GPR filing.
Annual FEMA reporting
- Foreign Liabilities and Assets (FLA) Return — annual filing with RBI by 15 July each year covering the foreign-owned entity's outstanding FDI, ODI, and reportable foreign assets / liabilities.
- Annual Return on Foreign Investment — if requested by RBI.
- Form FC-TRS if any transfer of shares between residents and non-residents has happened during the year.
Frequently asked questions
What if our business straddles multiple sectors?+
The dominant activity determines the FDI route. Tech / SaaS dominant = automatic route. If you also have a small e-commerce component, that doesn't change the dominant classification.
Can our foreign parent later sell its stake to another foreign investor?+
Yes — transfer between two non-residents is permitted under automatic route. Transfer between non-resident and resident requires FC-TRS filing and valuation compliance.
Do we need a TRC of the foreign parent for FC-GPR?+
Not for FC-GPR specifically. TRC is needed for DTAA-rate withholding on subsequent payments (dividends, royalties).
What's the FEMA penalty for missing FC-GPR?+
Late filing fee per RBI's compounding regime — typically ₹5,000-50,000 depending on delay. Material non-compliance can trigger a compounding application to RBI which is settled with a structured penalty.
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