The Foreign Exchange Management Act, 1999 (FEMA) is India's main law relating to foreign exchange transactions and cross-border movement of money, assets and investments.

For individuals and businesses, FEMA can cover foreign investment, overseas investment, export and import trade, foreign loans, remittances, guarantees, transfer of shares to or from non-residents and several other cross-border transactions.

FEMA applies not only to Indian companies but also to individuals, LLPs, partnerships and other persons undertaking transactions involving foreign exchange or cross-border assets and liabilities. It can also apply to persons and entities outside India in circumstances specifically covered by FEMA.

FEMA primarily regulates foreign exchange transactions, cross-border assets and liabilities, investments, remittances and related reporting. Income-tax law determines the taxation of income, capital gains and other taxable transactions.

A single transaction can therefore have both FEMA and income-tax implications. For example, a non-resident selling shares of an Indian company may need to consider FEMA transfer and reporting requirements as well as capital gains taxation.

FEMA has its own definition of a person resident in India, based principally on the period of residence and the purpose or circumstances of the individual's stay in India, together with specific statutory exclusions and exceptions.

Therefore, you should not determine FEMA residency merely by looking at your income-tax residential status. The two tests need to be examined separately.

Under FEMA, the general principle is that all current account transactions are permitted unless expressly prohibited and all Capital account transactions are prohibited unless expressly permitted. (see Sections 5 and 6 of FEMA)

“Capital account transaction” means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India.

It generally refers to Capital inflows like Equities, Grants and Debt. Inflows within the country are called as 'Foreign Direct Investment' (FDI). Capital debt is termed – External Commercial Borrowings (ECB). Outflows towards investments outside India are called as Outbound Investments.

Current Account transaction are defined as transactions other than capital account transactions. Mainly include revenue or recurring transactions pertaining to individual remittances, trade, student remittances etc.

No. A payment to a foreign company is not automatically a capital account transaction.

For example, an Indian company paying a foreign vendor for legitimate software development, consulting, advertising or other services may be making a current account transaction, subject to the applicable FEMA and tax requirements.

The nature and substance of the transaction should be examined rather than classifying it solely because the recipient is located outside India.

Incorrect classification can result in the wrong FEMA provisions being applied, inappropriate documentation, incorrect reporting or missed regulatory filings.

For example, treating a foreign loan as an ordinary business receipt when it is actually an External Commercial Borrowing can create significant FEMA compliance issues.

Yes, subject to the Companies Act requirements for becoming a director and the applicable FEMA rules for holding shares.

It is therefore necessary to examine the director position and shareholding position separately. Being eligible to become a director does not by itself determine whether the proposed shareholding is permissible under FEMA. Please see our International Desk page for more information.

No.

Mostly all foreign investments can be made under the automatic route, subject to the applicable conditions. Other investments may require Government approval.

It mainly depends on the sector, residency status of the investor, what percentage is being invested, what instrument is being issued or transferred, and what route and conditions apply?

If the shares are freshly issued or allotted by the Company, generally the FC-GPR form is filed with the RBI via the AD reporting bank.

If the shares are purchased from an existing bank, the FC-TRS form is filed with the RBI via the AD reporting bank.

Depending on the facts, the matter may involve late submission fees, additional reporting, rectification or compounding of a FEMA contravention.

It can be, subject to your status under FEMA, the nature of the investment, the sector and the applicable rules for NRI/OCI or other non-resident investment,  source of funds and the route through which the investment has been made.

Potentially, yes, but the transaction cannot simply be documented as an ordinary inter-company loan without considering FEMA.

The above loan is usually classified as External Commercial Borowings (ECB) triggering the requirements relating to eligible borrowers, recognised lenders, permitted end-use, pricing, maturity and reporting.

A foreign parent cannot simply transfer money to its Indian subsidiary and decide later whether it was equity, loan or revenue. The transaction should be characterised correctly before the funds move, with appropriate corporate approvals, agreements, banking documentation, FEMA analysis and reporting.

Yes. Indian entities can make overseas investments subject to the Foreign Exchange Management (Overseas Investment) Rules, Regulations and Directions, 2022, and the applicable eligibility, financial commitment, reporting and other conditions. RBI's current overseas investment framework expressly governs financial commitments by Indian entities in foreign entities. Please see our International desk page.

FLA reporting is an RBI reporting requirement relating to an Indian entity's foreign liabilities and assets. It is particularly relevant to entities that have foreign investment or certain overseas investment exposures. Due date is usually 15^th July after the year has ended.

The applicability should be assessed based on the entity's foreign assets/liabilities and the applicable RBI reporting framework.

Generally, an Indian business can make legitimate payments for overseas services through authorised banking channels, subject to FEMA, tax and documentation requirements.

The banks will invariably require Forms 146/145 (old forms 15CB/15CA) which will require studying invoice/agreement and appropriately evaluate withholding tax under Tax treaties and tax laws, GST and other applicable considerations in addition to FEMA. You can check income tax consultancy page here.

Yes. Export receipts and other legitimate business receipts from overseas customers are subject to the applicable FEMA, export, banking and tax rules.

The company should ensure that the transaction is correctly documented and that the foreign exchange proceeds are received and accounted for in accordance with the applicable framework.

Not simply.

If the money represents equity investment, its classified as Foreign Direct Investment (FDI). If it is intended as a loan, a different FEMA framework may apply.

The first step should be deciding what the money legally represents—not transferring the money first and documenting it later.

No. Common ownership does not make the two companies the same legal entity for FEMA purposes. All transactions like loans, guarantees, equity, service agreements, trade of goods etc will have to comply with FEMA and taxation.

Yes, FEMA should ideally be considered before the fundraising round, not after the term sheet is signed.

The proposed investor, sector, ownership percentage, investment instrument, valuation, entry route, downstream structure and reporting requirements can affect the transaction.

Early FEMA planning can prevent a situation where commercial terms are agreed but the proposed investment structure cannot be implemented as originally planned.

The LRS lets every resident individual — including minors — remit up to USD 250,000 per financial year abroad for permitted current and capital account purposes: travel, education, medical treatment, gifts, investment in overseas shares or property, and more. It's the main channel through which resident Indians legally move money out of the country, within a clear annual ceiling.

Yes. Entrecap Business Services provides FEMA consultancy and compliance support for Indian businesses, founders, NRIs and non-resident investors dealing with cross-border transactions in Mumbai and all over India, including countries globally. Please see our international desk page for countries covered.

Yes. FEMA is a central regulatory framework applicable across India, and the relevant compliance does not depend on whether the business is located in Mumbai, Pune, Delhi, Bengaluru or another city.

Entrecap regularly assists clients from Punjab, Gujarat and other states and even nations for FEMA Compliance.

The full spread. We advise on FDI structuring and reporting, external commercial borrowings and obtaining the LRN, transfer of shares between residents and non-residents, inward and outward remittances (Forms 15CA/15CB, now 145/146), branch and liaison office compliance, banking negotiations, and compounding to regularise inadvertent errors. If it involves cross-border money and Indian law, it sits within our FEMA practice.

Because with FEMA, timing is the whole game. Every capital event starts a clock — a form usually falls due in days, not months — and a missed window pushes you into compounding. Getting advice before the money moves means the transaction is structured on a permitted route, reported on time, and never becomes a problem to unwind later. Cheaper to plan than to fix.