Ministry of Finance, through Notification No. 1/9/2024 dated 11 June 2025, has issued the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2025. These rules amend the 2019 framework under the Foreign Exchange Management Act, 1999, particularly focusing on foreign direct investment (FDI) in prohibited sectors. A new sub-rule (2) has been added under Rule 7, permitting Indian companies operating in sectors where FDI is prohibited to issue bonus shares to their existing non-resident shareholders. This is subject to the condition that the issuance does not alter the existing shareholding pattern. Furthermore, any bonus shares previously issued to such shareholders before the notification’s commencement will be considered compliant with relevant FEMA regulations of 2000, 2017, or 2019. The amendment essentially allows non-debt equity structuring through bonus share issuances without violating FDI restrictions, provided there is no fresh foreign investment or change in ownership structure. These rules come into effect from the date of their publication in the Official Gazette. The original 2019 rules and their prior amendments between 2019 and 2024 are referenced for continuity and legal clarity.
MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION
New Delhi, the 11th June, 2025
S.O. 2549(E).— In exercise of the powers conferred by clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Central Government hereby makes the following rules further to amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, namely:––
1. (1) These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2025.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. In the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, rule 7 shall be renumbered as 7(1) thereof and after clause (h) of sub-rule (1) as so renumbered, the following sub-rule shall be inserted, namely:––
“(2) An Indian company, engaged in a sector or activity prohibited for foreign direct investment, may issue bonus shares to its pre-existing shareholders who are persons resident outside India, provided that the shareholding pattern of such shareholders is not changed pursuant to the issuance of bonus shares and any bonus shares issued to such shareholders prior to the date of commencement of this sub-rule shall be deemed to have been issued in accordance with the provisions of these rules or the Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000 or the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, as the case may be.”.
[F. No. 1/9/2024-EM]
REETU JAIN, Economic Adviser
Note: The Foreign Exchange Management (Non-debt Instruments) Rules, 2019 were published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii) vide number S.O.3732 (E), dated the 17th October, 2019 and subsequently amended vide the following notification numbers:
(i)S.O. 4355 (E), dated the 5th December 2019;
(ii) S.O. 1278 (E), dated the 22nd April, 2020;
(iii) S.O. 1374 (E), dated the 27th April, 2020;
(iv) S.O. 2442 (E), dated the 27th July, 2020;
(v) S.O. 4441 (E), dated the 8th December, 2020;
(vi) S.O. 3206 (E), dated the 9th August, 2021;
(vii) S.O. 3206 (E), dated the 9th August, 2021;
(viii) S.O. 4091 (E), dated the 5th October 2021;
(ix) S.O. 4242 (E), dated the 12th October 2021;
(x) S.O. 1802 (E), dated 12th April 2022;
(xi) S.O. 332(E), dated 24th January 2024.
(xii) O. 1361 (E), dated 14th March 2024;
(xiii) O. 1722 (E), dated 16th April 2024; and
(xiv) O. 3492 (E), dated 16th August 2024.
