FC-TRS Reporting Checklist for Share Transfers Under FEMA

Summary: FC-TRS is the reporting mechanism for specified transfers of equity instruments between residents and non-residents under FEMA. Compliance begins by determining whether the transaction attracts reporting under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 and the FEMA reporting regulations. The parties must examine investor eligibility, sectoral caps, ownership and control restrictions, beneficial ownership, land-border-country requirements and whether Government approval is necessary. Pricing and valuation requirements differ for listed and unlisted companies, while consideration must move through permitted banking channels or eligible accounts. Transactions may also involve deferred consideration, escrow or indemnity arrangements subject to the applicable limits and timelines. KYC documents, transaction agreements, corporate approvals and payment evidence should be assembled before reporting. Share transfers may additionally require compliance with the Companies Act, 2013, including transfer documentation, maintenance of the register of members and significant beneficial ownership requirements, while listed companies must consider applicable SAST, PIT and LODR requirements. FC-TRS reporting is undertaken through RBI’s FIRMS Portal and processed through the designated AD Category-I bank. The prescribed filing timeline must be monitored from the relevant transfer/payment event. Delayed reporting may require payment of the applicable Late Submission Fee and examination of whether any separate FEMA contravention requires regularisation or compounding.

Compliance Checklist: FC-TRS Reporting For Transfer of Shares By Way of Sale Under FEMA

INTRODUCTION

FC-TRS is an online reporting mechanism implemented by RBI to monitor foreign currency transactions in India. It is a part of the RBI’s initiative to enhance transparency and maintain an orderly exchange market. The FC-TRS reporting requirement is governed by the Foreign Exchange Management Act (FEMA), which is a framework established by RBI to regulate foreign exchange transactions in the country. It is a form used by shareholder resident outside India and resident Indian or vice versa when they transfer their shares.

COMPLIANCE REQUIREMENTS

1. Determining applicability of FC-TRS Reporting

It starts with determining whether the transfer falls under any of the transactions which mandates the filing under FEM (Non-Debt Instruments) Rules, 2019. They are as follows –

S.no.	Parties Involved	Law Applicable	Reporting Requirement
1.	Resident → Non-resident	Rule 9(3) requires the transfer to comply with the applicable foreign-investment conditions, pricing.	FC-TRS Reporting required
2.	Non-resident → Resident	Rule 9(2) specifically subjects such sale to pricing, documentation and reporting requirements	FC-TRS Reporting required
3.	Non-repatriable holding → Resident	RBI regulates specific modes of payment, pricing guidelines, tax compliances, and reporting mechanisms.	As per Regulation 4(3)(a) of FEMA (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, no FC-TRS Reporting is required.
4.	Non-resident → Non-resident	Rule 9 applies sectoral restrictions, government approval requirements and other FEMA conditions.	No Reporting required

2. Investor Eligibility

Establishing buyer’s eligibility through these factors –

a. Buyer is a person resident outside India.

b. Buyer is eligible to acquire equity instruments under NDI Rules.

c. Buyer is not prohibited from investing in the sector.

d. Buyer satisfies applicable ownership/control restrictions.

e. Ultimate Beneficial Ownership has been identified.

f. Investor’s nationality has been checked.

g. Beneficial ownership has been checked.

h. Land-border country rules have been considered.

3. Investment Limit

Check the limit on investment as per applicable sectoral requirements. The factors to consider are as follows –

a. Principal business/activity of investee company.

b. Applicable FDI sector.

c. Whether FDI is permitted.

d. Automatic Route or Government Route.

e. Sectoral cap.

f. Statutory limit.

g. Aggregate foreign investment.

h. FPI limit, if relevant.

i. NRI/OCI limits, if relevant.

j. Fully diluted share capital.

k. Pre-transaction foreign investment.

l. Post-transaction foreign investment.

4. Government Approval

Rule 9 expressly requires prior Government approval wherever Government approval is applicable. The potential triggers for the same are –

a. Government Route sector.

b. Foreign investment exceeding applicable sectoral limit.

c. Applicable land-border-country/beneficial ownership restriction.

d. Sector-specific approval.

e. Financial-sector regulatory approval.

f. Change in control requiring regulatory approval.

Documents required during this process are as follows –

a. Government approval.

b. Approval letter.

c. Conditions attached to approval.

d. Evidence of compliance with approval condition

5. Valuation

The guidelines for valuation are as follows-

In case of listed company, pricing is prescribed by SEBI, FEMA pricing guidelines, in addition, RBI requires a CA Certificate confirming compliance with the applicable SEBI regulations/guidelines to be attached to FC-TRS. The aspects to consider are as follows –

a. Determine applicable SEBI pricing framework.

b. Check whether transaction is through recognized stock exchange.

c. Check block-deal requirements.

d. Check preferential transaction requirements.

e. Check takeover regulations.

f. Check delisting regulations, if applicable.

g. Obtain relevant pricing computation.

In case of an unlisted company, the valuation is done to obtain Valuation Certificate which must be generated in not more than 90 days old as on the date of investment. The valuation is done considering the following factors –

a. Use internationally accepted valuation methodology.

b. Ensure arm’s-length basis.

c. Identify valuation date.

d. Determine equity value.

e. Determine per-share fair value.

f. Compare pricing with FEMA floor/ceiling.

The valuation can be certified by:

a. Chartered Accountant.

b. SEBI-registered Merchant Banker.

c. Cost Accountant.

6. Mode of Payment

For a resident/non-resident transfer, consideration must generally be-

a. Received from abroad/remitted from India through banking channelsor

b. Paid from/received into a permitted repatriable foreign-currency or rupee account.

The Payment documents will include

a. Bank statement.

b. SWIFT confirmation.

c. FIRC, wherever applicable.

d. Remittance advice.

e. Debit confirmation.

f. NRE/FNCR/Rupee account statement.

g. NRO account statement, where applicable.

h. Escrow statement.

i. Payment confirmation from buyer.

7. Post Closing Arrangement – Escrow, Deferred Consideration or Indemnity

Under Rule 9(6) NDI Rules, up to 25% of total consideration may be:

a. Deferred Consideration– within 18 months from the date of the transfer agreement.

b. Escrow– settled through escrow for a period not exceeding 18 months from the transfer agreement.

c. Seller indemnification– for a period not exceeding 18 months from payment of full consideration.

Must check the following requirements –

a. SPA contains deferred consideration provision.

b. Amount deferred ≤ 25%.

c. 18-month period complied with.

d. Escrow period ≤ 18 months.

e. Indemnification period ≤ 18 months.

f. Total final consideration satisfies FEMA pricing.

g. Payment schedule reconciled with FC-TRS.

h. AD bank informed of arrangement.

8. KYC Compliance

The documents required for the same are as follows –

a. Certificate of incorporation.

b. Memorandum/articles or equivalent constitutional documents.

c. Registered address.

d. Certificate of incumbency, where applicable.

e. Board resolution.

f. Authorised signatory proof.

g. Passport/identity documents.

h. Tax identification number.

i. UBO declaration.

j. Group structure chart.

k. Beneficial ownership declaration.

l. FATCA/CRS documents, where applicable.

m. Bank KYC.

n. AD-bank KYC report.

9. Transaction Documents-

Prepare the following documents:

a. Share Purchase Agreement.

b. Share Transfer Agreement, if separate.

c. Completion/closing certificate.

d. Consent letter.

e. Board resolutions.

f. Power of Attorney, if agent signs.

g. Escrow agreement.

h. Indemnity agreement, if separate.

i. Amendment agreements.

j. Consideration schedule.

k. Payment schedule.

l. Disclosure schedule relevant to FEMA.

10. Company Law Compliance-

For a physical transfer, Section 56 of the Companies Act, 2013 and Rule 11 of the Companies (Share Capital and Debentures) Rules, 2014 will be referred – Form SH-4 is the prescribed format for transfer of securities held in physical form is required for valid transfer.

Documents to be prepared are:

a. Executed Form SH-4.

b. Share certificate.

c. Stamp duty.

d. Board approval, where applicable.

e. Transferor signature.

f. Transferee signature.

g. Witness.

h. Delivery of transfer instrument to company.

Additionally, under Section 88, the company must maintain its register of members, including separate identification of members residing inside/outside India.

Therefore, the compliance requirements broadly include –

a. Update Register of Members.

b. Update beneficial ownership records, where applicable.

c. Update demat records.

d. Update shareholding pattern.

In case, there occurs a change in the significant beneficial ownership pattern, then it will trigger Section 90. Form BEN-2 should be filed within 30 days of such change to the Registrar of Companies (RoC) on the MCA Portal.

If the Indian company is listed, then there are additional checks like

SAST Regulations

a. Acquisition threshold.

b. Persons Acting in Concert.

c. Change in voting rights.

d. Open-offer trigger.

e. Creeping acquisition.

f. Regulation 29 disclosures.

PIT Regulations

a. Insider status.

b. UPSI.

c. Trading-window restrictions.

d. Pre-clearance, where applicable.

e. Disclosure obligations.

LODR Regulations

a. Material transaction disclosure.

b. Change in promoter/promoter-group shareholding.

c. Change in control.

d. Board/shareholder disclosures.

PROCEDURE FOR FC-TRS REPORTING

Under Regulation 4(3) of FEM (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, FC-TRS must be filed within 60 days of transfer of equity instruments or receipt/remittance of funds, whichever is earlier.

The process for the same is as follows:

a. FIRMS Portal – The form FC-TRS shall be filed with the Authorized Dealer bankwithin 60 days of the transfer of capital instruments through RBI, specifically FIRMS Portal.

b. Entity User and Business User– Company should get the registration of Entity user on the FIRM Portal in case the reporting of FDI is being made the first time for the Company. After the creation of Entity User, the Company needs to register as a Business user.

c. Master Form– The applicant has Login to FIRM’s portal using his Business user Credentials for FC- TRS reporting into Single Master Form to fill all the details related to Transfer like Transferor details, Capital Instrument details, consideration, repatriability, valuation details, AD 1 Category Bank details, Sectoral classification etc. This form must be supplemented by attaching certain documents like

• Company Secretary compliance certificate (CS certificate).
• Valuation report from a registered valuer (IBBI-registered for unlisted companies).
• Share transfer deed or instrument of transfer.
• Board resolution or shareholder resolution (where applicable).
• Copy of the share purchase agreement or transfer agreement.
• Foreign inward remittance certificate (FIRC) or bank debit advice.
• Government or RBI approval letter (if the transaction is under the approval route).

d. Acceptance or Rejection – After filing the form, designated AD Category-1 Bank will check the same. The application can either be accepted or rejected. The applicant has no choice except to submit their application again if the same gets rejected due to discrepancies.

e. In case of Delay– Late Submission Fee (LSF) for delayed reporting.

• Calculate actual due date.
• Identify period of delay.
• Determine whether LSF mechanism is available.
• Calculate LSF as prescribed by RBI.
• Make payment through the appropriate AD bank/process.
• File FC-TRS.
• Preserve LSF payment proof.
• Determine whether the delay constitutes a separate FEMA contravention requiring regularization/compounding.

LSF as prescribed by RBI

Amount involved in Reporting (in INR)	LSF as % of amount involved*	The maximum amount of LSF applicable
Upto INR 10 million	0.05%	INR 1million or 300% of the amount involved whichever is less
More than INR 10 million	0.15%	INR 10 million or 300% of the amount involved whichever is less