Artices

When an Indian company raises share capital from a foreign company, it must comply with several legal, regulatory, and tax-related requirements — overlooking these can lead to hefty penalties, delays, or even rejection of the investment.

Here are the most important things to consider:

✅ 1. Check Sectoral Cap & FDI Eligibility

• Is the business sector eligible for FDI (Foreign Direct Investment)?
• Is it under the automatic route or government approval route?
• Does the investment exceed the sectoral cap?

🛑 Certain sectors like defense, telecom, or media have caps and require approvals.

✅ 2. Valuation of Shares

• Shares must be issued at or above fair market value (FMV).
• A valuation report from a merchant banker or CA (as per FEMA and Income Tax Act) is usually required.

📌 Issuing shares at lower than FMV can lead to tax implications under section 56(2)(viib).

✅ 3. Filing with RBI (FEMA Compliance)

• File Form FC-GPR within 30 days of share allotment with RBI via the FIRMS portal.
• Ensure compliance under the Foreign Exchange Management Act (FEMA), 1999.

📌 Delayed filings may attract late submission fees and scrutiny.

✅ 4. KYC & PAN Requirements

• The foreign investor must submit Know Your Customer (KYC) documents through their AD Bank.
• It's advisable (and often required) for the foreign entity to have a PAN in India for regulatory and tax compliance.

✅ 5. Board & Shareholder Approvals

• Obtain necessary board resolutions, shareholder approvals, and update the shareholders’ agreement (if any).

📝 Changes in ownership/control may also trigger additional disclosures or reporting requirements.

✅ 6. ROC Filings (Company Law Compliance)

• File Form PAS-3 with the Ministry of Corporate Affairs (MCA) for return of allotment.
• Ensure updated Register of Members and other statutory records.

✅ 7. Reporting under Income Tax (SFT)

• If the amount received is ₹10 lakh or more, report the capital raise in Form 61A (SFT).
• This is a mandatory annual filing under Rule 114E.

✅ 8. Check for Transfer Pricing Applicability

• If there’s any intragroup investment or pricing involved, ensure compliance with Transfer Pricing regulations under the Income Tax Act.

✅ 9. Anti-Money Laundering & FDI Monitoring

• Be aware of source of funds, ensure genuine commercial substance, and avoid routing through blacklisted or high-risk jurisdictions.

📌 Final Tip:

Work with professionals (CA, CS, FEMA consultants, lawyers) early in the process to ensure all approvals, documentation, and filings are handled smoothly.