Your start-up just received funding from a US-based VC, a Singapore angel, or a foreign accelerator. Congratulations — but the money hitting your bank account is just the beginning. FEMA requires you to complete a series of RBI filings within strict deadlines. Miss them, and the penalty can be up to 3 times the investment amount. Here is exactly what to file, when, and how.
India's FDI policy, administered by DPIIT and regulated by RBI under FEMA, allows foreign investment through two routes:
For most tech and service start-ups, the automatic route applies — meaning you can accept foreign investment without any pre-approval, as long as you complete the post-investment filings correctly.
| Sector | FDI Permitted | Route |
|---|---|---|
| IT / Software / SaaS | 100% | Automatic |
| E-commerce (marketplace) | 100% | Automatic |
| Fintech (NBFC) | 100% | Automatic |
| EdTech / HealthTech | 100% | Automatic |
| Manufacturing | 100% | Automatic |
| Defence | Up to 74% | Automatic; above 74% = Government |
| Insurance | Up to 74% | Automatic |
| Banking (Private) | Up to 74% | Automatic |
| Print Media | Up to 26% | Government |
| Multi-brand Retail | Up to 51% | Government |
| Atomic Energy / Railways (operations) | Prohibited | — |
| Lottery / Gambling / Casinos | Prohibited | — |
When your company receives foreign investment and issues shares (or other capital instruments) to the foreign investor, you must file Form FC-GPR (Foreign Currency — Gross Provisional Return) with the RBI. This is the most critical post-funding compliance step.
Deadline: Within 30 days of the date of allotment of shares. Note carefully — the 30-day clock starts from the date of allotment, not from the date of receiving the money. If you receive funds in November but allot shares in December, the 30-day period starts in December.
Many early-stage start-ups receive a foreign wire transfer and delay allotting shares for months while finalising cap tables or term sheets. This creates a compliance problem — under FEMA, shares must be issued within 60 days of receiving the funds. If not issued within 60 days, the amount must be refunded to the foreign investor. Funds held beyond 60 days without allotment are treated as an unauthorised foreign currency holding.
When existing shares are transferred between a resident and a non-resident (or vice versa), Form FC-TRS must be filed. This covers scenarios such as a founder selling shares to a foreign VC in a secondary transaction, a foreign investor transferring shares to an Indian buyer, and ESOPs exercised by a non-resident employee that are subsequently sold.
Deadline: Within 60 days of receipt/payment of funds or execution of the transfer deed, whichever is earlier. Like FC-GPR, filing is done through the RBI FIRMS portal via your AD bank. The responsibility to file typically rests with the resident party in the transaction.
Every Indian company, LLP, or entity that has received FDI or made overseas investment (ODI) — in the current year or any past year — must file the FLA (Foreign Liabilities and Assets) Return annually.
Due Date: July 15 every year, covering the preceding financial year (April–March). The FLA return is filed directly on the RBI's FLAIR portal (not through FIRMS). It requires details of your foreign shareholding, share capital, reserves, and any outstanding foreign liabilities or overseas assets.
If your start-up received FDI two years ago and has not had any new foreign investment since, you must still file the FLA return every year. Non-filing can result in penalties and — critically — may block your ability to receive future foreign investments, as RBI cross-checks FLA compliance before processing new FC-GPR filings.
Many early-stage start-ups receive foreign money via convertible instruments rather than immediate equity. FEMA has specific rules for each:
You cannot issue shares to a foreign investor at any price you choose. FEMA prescribes minimum pricing rules:
This means you need a valuation report before issuing shares to a foreign investor. If your VC comes in at a valuation of ₹100 crore, but a CA's DCF report says fair value is only ₹20 crore, you can still issue at ₹100 crore — but not below ₹20 crore. Issuing below fair value is a FEMA violation and can be treated as a disguised foreign exchange outflow.
| Violation | Penalty |
|---|---|
| Failure to file FC-GPR within 30 days | Up to 3x the FDI amount + ₹5,000/day of continuing violation |
| Failure to file FLA Return by July 15 | ₹2 lakh + ₹5,000/day (adjudication proceedings may be initiated) |
| Shares not allotted within 60 days of receiving funds | Funds must be refunded + penalty up to 3x amount |
| FDI in prohibited sector | Unwinding of transaction + penalty up to 3x amount |
| Shares issued below fair value | Treated as irregular FDI; compounding + penalty |
| Failure to file FC-TRS within 60 days | Late Submission Fee (LSF) based on delay period + possible adjudication |
If you have missed FEMA filing deadlines, all is not lost. RBI allows compounding of FEMA violations — a voluntary process where you disclose the violation, pay a compounding fee, and receive a closure order. This prevents the Enforcement Directorate from taking further action. Most late FC-GPR and FLA filings are compounded with manageable fees.
Our CA and legal team handles FEMA compliance, NRI financial planning, FDI reporting, FCRA registrations, and compounding applications. Confidential consultations, responses within one business day.
Our Start-up Advisory practice at Shahi & Co. assists businesses across New Delhi and Pan-India. Reach out for a confidential discussion.