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.
