Overseas Investment (OI) refers to investments made by Indian entities or eligible investors in foreign businesses with the objective of driving foreign trade by way of increased exports and earn foreign exchange by way of dividend earnings, royalty, technical know how and other entitlements on such Overseas investment. These investments may be made through equity/security participation, loans, or guarantees.
In India, OI is governed by the Foreign Exchange Management Act, 1999 (FEMA), along with the rules, regulations, and directions issued thereunder by the Reserve Bank of India (RBI). The framework is designed to facilitate Indian participation in global markets while ensuring regulatory compliance, transparency, and prudent financial exposure. In keeping with the spirit of liberalisation, the RBI has progressively furthered the regulatory and reporting framework by notifying the new overseas investment framework in August 2022. This article will encapsulate some of the essential elements of the new OI framework.
Eligibility
‘Indian Entity’ as defined in Foreign Exchange Management (Overseas Investment) Rules, 2022 are eligible to make Overseas Direct Investments
- Company as defined Companies Act, 2012
- Body Corporate incorporated by way of any law for the time being in force
- Limited Liability Partnership (LLP) duly formed and incorporated under the Limited Liability Partnership Act, 2008
- Partnership firms registered under the Indian Partnership Act, 1932
- Resident Individual: natural person who is resident in India (allowed to make Overseas Investment)
- Registered Trust or Society engaged in educational sector or which has set up hospitals in India (only under Approval Route subject to conditions)
- Mutual Funds or Venture Capital Funds or Alternative Investment Funds [allowed to make Overseas Portfolio Investment (OPI) only]
Modes of Making Overseas Investment (OI)
Overseas Investment means Financial Commitment and Overseas Portfolio Investment (OPI) by a person resident in India. Financial Commitment refers to aggregate amount of investment made by a person resident in Indian by way of Overseas Direct Investment (ODI), debt other than OPI in a foreign entity and includes non-fund based facilities extended by such person to or on behalf of the foreign entity Overseas Direct Investment can be made in the following ways:
- Acquisition of unlisted equity capital of a foreign entity
- Subscription to the Memorandum of Association (MOA) of a foreign entity
- Investment of 10% or more of the paid-up equity capital of a listed foreign entity or
- Investment with control where investment is less than 10% of the paid-up equity capital of the listed foreign entity
Overseas Portfolio Investment (OPI) means investment other than OI in foreign securities but not in any unlisted debt instruments or any security issued by a person resident in India who is not in an International Financial Service Centre (IFSC)
Total Financial Commitment made by an Indian Entity in all Foreign Entities taken together shall not exceed 400% of its Net Worth as on late date of audited balance sheet subject to an overall limit of USD 1 billion per financial year.
Key Restrictions/Prohibited sectors under OI
- Real Estate (does not include development of townships, construction of residential or commercial premises, roads or bridges for selling or leasing)
- Gambling in any form
- Dealing with financial product linked to Indian Rupees without having specific approval of the RBI
- Investment in a foreign entity that has investment or invests into India (i.e. a structure with more than two layers of subsidiaries)
- Resident Individuals are not allowed to invest in financial sector and set up any Step Down Subsidiary (SDS) subject to certain conditions.
Comprehensive Process for Making Overseas Direct Investments by Indian Entities and Resident Individuals
Determination of the Investment Route: Under FEMA, the Reserve Bank of India mandates prior approval for certain overseas investments. Accordingly, based on the nature and sector of the investment, OI can be undertaken through one of the following two routes:
Automatic Route
The Automatic Route allows eligible Indian Party to make Overseas Direct Investments (ODI) in Joint Ventures (JV)/Wholly Owned Subsidiary (WOS) without obtaining prior approval from the RBI. This route is intended to promote ease of doing business and facilitate faster global expansion, provided all prescribed conditions and limits are met. Any Indian entity can go through this route for investment that–
- Do not exceed 400% of Net Worth of the Indian entity
- Do not fall under restricted sectors of investment
- Total is within Liberalised Remittance Scheme limit i.e. $ 2,50,000 per financial year for resident individuals
Setting up of an SPV (Special Purpose Vehicle) under the automatic route is also permitted for the purpose of making an investment in JV/WOS overseas.
Approval Route
The Approval Route applies to investments that do not qualify under the Automatic Route due to exceeding financial limits (threshold limit as well as annual limit), investment being in Strategic Sector, non-eligible investors, investment without equity commitment and investment in restricted jurisdictions and therefore require prior approval from the RBI. Under this route, the Indian entity or eligible investor must submit a detailed proposal through its designated Authorised Dealer (AD) Bank. The AD Bank undertakes due diligence, prepares reports on viability and economic rationality of the investment along with its observations and recommendations and forwards the application to the RBI. RBI will review the application and conduct in-depth analysis of Economic, Legal and Technical Feasibility of the proposed investment.
Documentation and Submission for OI by Indian Entity and Resident Individual
1. The Indian entity or resident individual is required to prepare and submit the following documents to the designated Authorised Dealer (AD) Bank:
- Customer’s Request Letter (CRL)
- Form Financial Commitment (FC)
- Board Resolution (if applicable)
- Latest audited financial statements
- Share valuation certificate (if applicable)
- Incorporation documents of the foreign entity
- Other relevant agreements and supporting documents
The AD bank might also request projections, net-worth, feasibility report, technical and regulatory evaluation reports of the OI.
2. Authorised Dealer Bank Scrutiny and Unique Identification Number (UIN) allotment
Post submission, the Authorised Dealer Bank scrutinizes the submitted documents to ensure compliance with the applicable rules and regulations. Upon being satisfied, the AD Bank forwards the details to the RBI for the allotment of a Unique Identification Number (UIN). UIN is mandatory and must be obtained before any outward remittance is made towards the overseas investment.
3. Outward Remittance and Execution of Investment
Once the UIN is obtained, the Authorised Dealer bank can process the outward remittance of funds. Permissible funding sources include drawal of foreign exchange from the Authorised Dealer bank, capitalization of exports, or using balances in an Exchange Earners Foreign Currency (EEFC) account, etc.
Post-Investment Compliance and Reporting
After the overseas investment is made, ongoing compliance becomes critical. The Indian entity and eligible investors must adhere to the following post-investment reporting and compliance requirements:
- Submission of Investment Evidence: Documentary evidence (share certificates or other relevant documents as per the applicable laws of the host country/jurisdiction) of the investment must be submitted to the designated AD Bank within six months from the date of remittance.
- Annual Performance Report (APR): An APR must be submitted annually for each foreign entity on or before 31 December with the AD Bank and where the accounting year of the foreign entity ends on 31 December, the APR shall be submitted by 31 December of the next year.
- Repatriation of Dues: All receivables from the foreign entity, such as dividends, royalties, or fees, must be repatriated to India within 90 days from the date they become due.
- Foreign Liabilities and Assets (FLA) Return: The Indian entity must file the FLA return to the RBI on or before 15 July every year.
Failure to comply with the prescribed reporting requirements may result in the levy of a Late Submission Fee and may restrict the Indian entity or eligible investor from making further financial commitments or OPI to the foreign entity.
Conclusion
Overseas Investment offers Indian entities and eligible investors a structured pathway to expand their global footprint while participating in international business opportunities. The FEMA-governed regulatory framework, supported by clear eligibility criteria, defined investment routes, and prescribed financial limits, ensures that such cross-border investments are carried out in a transparent and disciplined manner. By adhering to the prescribed processes, taking advantage of liberalised framework and increased ease of doing business, investors can effectively leverage OI as a strategic tool for global growth. Therefore, Indian investors must adopt a proactive compliance approach to ensure seamless overseas operations and long-term sustainability of their international ventures.
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Disclaimer: The above information is intended for academic guidance and is to be used for informative purpose only. The said information is not to be considered as an opinion or advice. The aforesaid information is proprietary and privileged and is not to be used, reproduced and disclosed without consent. It is advisable to check with a subject matter expert before concluding on applicability or non-applicability of any compliance under any legislature. The views expressed are strictly personal.
The above article is authored by CS Divya Suratwala, Yashika Gurav, and CA Shravan Suratwala. The authors may be contacted at contact@smsuratwala.com or shravan.suratwala@outlook.com. Yashika Gurav is currently pursuing the Chartered Accountancy course and is undergoing her internship with S.M. Suratwala & Co., Chartered Accountants, Pune. CS Divya Suratwala is an Associate at the firm with over five years of experience in regulatory, corporate law, compliance, and advisory services. CA Shravan Suratwala is a Partner at S.M. Suratwala & Co., with over ten years of post-qualification experience in advisory, litigation, and compliance in the areas of corporate and international taxation and assurance, and has also spent more than three years in internal and process audit during his chartered accountancy training.
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