Under Automatic and Approval Routes (As per FEMA & FDI Policy)

India’s Foreign Direct Investment (FDI) regime allows foreign investment either under the Automatic Route (no prior government approval required) or under the Approval Route (requires prior government approval). Both routes have distinct compliance requirements under the Foreign Exchange Management Act (FEMA), RBI regulations, and the FDI Policy issued by DPIIT.

This article provides a step-by-step compliance checklist for both routes to ensure a smooth investment process and avoid regulatory pitfalls.

✅ Foreign Investment Under the Automatic Route

Under this route, foreign investment in eligible sectors does not require prior approval from the central government. However, specific post-investment compliances are mandatory.

1. Sectoral Caps & Eligibility

• Verify whether the target sector allows FDI under the Automatic Route.
• Ensure the FDI limit (cap) and any sector-specific conditions are met.

2. KYC Compliance

• Obtain Know Your Customer (KYC) documentation of the foreign investor from the Authorised Dealer (AD) Bank receiving the remittance.

3. Pricing Guidelines

• The issuance of shares must comply with the RBI-prescribed pricing guidelines, typically based on a fair valuation by a SEBI-registered Merchant Banker or Chartered Accountant.

4. Equity Allotment & Timelines

• Pass board resolutions for share issuance.
• Allot shares within 60 days of receiving funds.
  • If not allotted within 60 days, refund the amount within the next 15 days.
  • Failure to refund will attract interest @12% p.a. from the 60th day until the refund date.

5. Reporting Requirements

• File Form FC-GPR within 30 days of share allotment via the Single Master Form (SMF) on the FIRMS Portal.
• Submit the Annual Foreign Liabilities and Assets (FLA) Return by July 15 every year on the FLAIR portal.

6. Statutory Filings

• Update statutory records under the Companies Act, 2013.
• File relevant forms and returns with the Registrar of Companies (RoC) (e.g., PAS-3 for allotment).

7. Tax Compliances

• Ensure compliance with:
  • Withholding Tax (TDS) rules.
  • Transfer Pricing regulations (especially for intercompany transactions).

8. Record Maintenance

• Maintain a comprehensive audit trail of FDI-related documents, including:
  • FIRC (Foreign Inward Remittance Certificate)
  • KYC reports
  • Valuation certificates
  • Board and shareholder resolutions
  • RBI and RoC filings

📝 Foreign Investment Under the Approval Route

FDI in certain sensitive sectors requires prior approval from the Central Government via the National Single Window System (NSWS) portal.

1. Application Submission

• Submit the application for approval through the NSWS portal.
• Upload:
  • Company’s MoA, AoA
  • Board resolutions
  • Audited financials
  • Project report and other relevant documents

2. Approval Process

• The proposal is reviewed by the concerned administrative ministry/department.
• The ministry processes the application per the Standard Operating Procedure (SOP) and issues an approval letter if found suitable.

3. Post-Approval Compliance

• Comply with all conditions laid down in the approval letter.
• Report:
  • Receipt of funds
  • Issuance of shares via Form FC-GPR within 30 days of allotment.

4. Sectoral Conditions

• Comply with additional performance conditions or caps applicable to sectors like:
  • Defence
  • Broadcasting
  • Insurance
  • Pharmaceuticals, etc.

5. Statutory Filings

• Make relevant entries in statutory registers (Register of Members, Register of Allotments).
• File RoC forms, including PAS-3, and any forms required under the Companies Act.

6. Tax Compliances

• Comply with:
  • TDS on payments to foreign investors
  • Transfer Pricing norms (where applicable)
  • Filing of tax returns, Form 15CA/CB for remittances

7. Record Maintenance

• Maintain a compliance file including:
  • Government approval copy
  • All filed forms and receipts
  • Board meeting minutes and valuation reports
  • Communications with RBI and ministry

📌 Conclusion

FDI in India, whether under the Automatic or Approval Route, involves multi-layered regulatory compliance. Companies must strictly adhere to RBI timelines, sectoral guidelines, and maintain proper documentation to ensure regulatory and legal peace of mind.

For smooth execution, investors and investee companies are advised to consult:

• Authorised Dealer Banks
• Chartered Accountants and Company Secretaries
• Legal advisors with FEMA/FDI expertise