FEMA Compliance & Advisory Services | Savlana Init

International Tax & Estate · Exchange Control

FEMA — Every Rupee That Crosses a Border.

Foreign exchange law governs what you may hold, remit, invest and repatriate — and it operates independently of tax. A correct tax position does not make a transaction FEMA-compliant.

The Foreign Exchange Management Act, 1999 replaced the earlier control-based regime with a management framework, but it remains a permission-based law. Its central architecture is a division between current account transactions, which are generally free subject to the restrictions notified under the Current Account Transaction Rules, and capital account transactions, which are permitted only to the extent specifically allowed. Anything not permitted is prohibited — the burden runs the other way from tax law, and that reversal is where most contraventions originate.

The capital account rules have been substantially restructured. Investment into India in non-debt instruments is now governed by the Non-Debt Instruments Rules notified by the Central Government, with debt instruments regulated separately by the Reserve Bank; investment abroad by Indian residents and entities is governed by the Overseas Investment Rules and Regulations of 2022, which consolidated the earlier direct and portfolio investment framework. Each route carries its own reporting: Form FC-GPR on allotment of shares to a non-resident, Form FC-TRS on transfer between resident and non-resident, the annual Foreign Liabilities and Assets return, Form FLA, and the Annual Performance Report for overseas investments.

Consequences are meaningful. A contravention attracts a penalty of up to three times the sum involved, or up to two lakh rupees where the amount is not quantifiable, with a further daily penalty for continuing contraventions. The remedy is compounding — a voluntary application to the Reserve Bank admitting the contravention and paying a compounding amount, which brings finality and closes the exposure. Compounding is far cheaper when the applicant comes forward than when the contravention is discovered. We advise on structuring transactions correctly, complete the reporting, and handle compounding where something has already gone wrong.

Our FEMA Services

Transaction Classification

Determination of whether a proposed transaction is on current or capital account, and whether it is permitted, restricted or requires prior approval.

FDI Structuring and Reporting

Sectoral cap and entry route analysis for foreign investment, with filing of Form FC-GPR, Form FC-TRS and the entity master on the reporting portal.

Annual FLA Return

Preparation and filing of the Foreign Liabilities and Assets return for entities that have received foreign investment or made overseas investment.

Overseas Investment Compliance

Advisory and filing under the Overseas Investment Rules and Regulations, including Annual Performance Reports and the unique identification number process.

External Commercial Borrowing

Guidance on eligible borrowers and lenders, end-use restrictions, all-in-cost ceilings, Form ECB filing and monthly return in Form ECB-2.

Immovable Property Advisory

Acquisition, holding, transfer and repatriation rules for immovable property held by non-residents and by residents outside India.

Compounding Applications

Preparation and filing of compounding applications to the Reserve Bank, with the contravention analysis, computation and representation at the hearing.

FEMA Health Check

Review of past transactions and filings to identify unreported or wrongly reported items before they are found in an audit or a due diligence exercise.

Our Process

Transaction Review

We examine the transaction, the parties and the funding to determine which regulation governs it and what is permitted under that route.

Route and Approval Determination

The automatic route, government approval route or prior Reserve Bank approval requirement is identified before the transaction is executed.

Documentation and Execution

Agreements, valuation reports, declarations and bank forms are prepared so that the authorised dealer can process without repeated queries.

Reporting and Filing

The applicable returns — FC-GPR, FC-TRS, FLA, APR, ECB-2 and others — are filed within their respective deadlines on the relevant portal.

Remediation Where Needed

Where a contravention has already occurred, a compounding application is prepared and pursued to a compounding order and closure.

Why It Matters

✓Transactions structured under a permitted route, not assumed to be free

✓Sectoral caps and entry routes checked before money moves

✓FC-GPR, FC-TRS and FLA filings made within their deadlines

✓Overseas investment reporting kept current, including annual APRs

✓Property acquisition and repatriation rules applied correctly

✓Past contraventions found in a health check, not in due diligence

✓Compounding pursued voluntarily, where the outcome is far better

✓Tax and exchange control positions aligned rather than contradictory

Frequently Asked Questions

A capital account transaction alters the assets or liabilities outside India of a person resident in India, or assets or liabilities in India of a person resident outside India. Everything else is a current account transaction. Current account transactions are generally permitted subject to notified restrictions, whereas capital account transactions are permitted only to the extent specifically allowed — so anything not expressly permitted on capital account is prohibited.

Form FC-GPR within thirty days of allotting shares to a non-resident, Form FC-TRS within sixty days on transfer of shares between a resident and a non-resident, and the annual Foreign Liabilities and Assets return by 15 July each year based on the previous year’s figures. Entities must also register on the reporting portal and keep the entity master updated.

It can be compounded. A compounding application is made to the Reserve Bank admitting the contravention, setting out the facts and the amount involved, and the Bank passes a compounding order fixing an amount which, once paid, closes the matter. Coming forward voluntarily generally produces a materially better outcome than waiting for the contravention to be discovered in an audit or a transaction due diligence.

On adjudication, a penalty of up to three times the sum involved where the amount is quantifiable, and up to two lakh rupees where it is not, with a further daily penalty for a continuing contravention. FEMA is a civil law rather than a criminal one, which is why compounding is available, but the amounts are calculated on the sum involved and can therefore be very large relative to the underlying error.

A non-resident Indian or an Overseas Citizen of India cardholder may acquire residential and commercial immovable property without prior approval. Agricultural land, plantation property and farmhouses cannot be purchased, though they may be inherited or received as gift. Payment must come through normal banking channels from NRE, NRO or FCNR funds. Other foreign nationals face materially tighter restrictions.

No, and treating them as one is a common and expensive error. The two laws operate independently: a remittance can be fully taxed and certified in Form 15CB yet still breach the exchange control rules on route, limit or reporting, and equally a FEMA-compliant transaction can carry an unmet withholding obligation. Both have to be cleared separately for the same transaction.

Planning a cross-border transaction, or worried about a past one?

Tell us what moved, when and between whom. We will confirm the route and the filings, complete the reporting, and pursue compounding where something needs regularising.