Summary: Indian companies receiving foreign direct investment (FDI) from non-resident individuals must adhere to specific reporting requirements upon allotting capital instruments. A key obligation is submitting details of the allotment to the Reserve Bank of India (RBI) using Form FC-GPR within 30 days of the allotment date. FDI inflows are permissible under two frameworks: the Automatic Route, which requires no prior government or RBI approval but necessitates compliance with sectoral caps and pricing guidelines, and the Government Route, which mandates obtaining prior approval via the Foreign Investment Facilitation Portal (FIFP). Beyond transaction-specific reporting, companies that have received FDI or LLPs with foreign capital contributions in the current or preceding year must annually file the Foreign Liabilities and Assets (FLA) return with the RBI by July 15th. Handling funds received in excess of the agreed share subscription is also regulated; such excess amounts should ideally be adjusted against future share allotments or refunded to the foreign investor, subject to disclosure and compliance. A minor tolerance is allowed for excess amounts resulting from foreign currency fluctuations, typically up to 0.5% of the total consideration or a maximum of INR 10,000, though this specific limit may depend on the Authorized Dealer (AD) bank’s practice. If refund or adjustment is impractical, companies are advised to document the reasons, consult their AD bank for a formal view or No Objection Certificate, and appropriately report the situation in their FC-GPR or accompanying notes.
Routes to Receive FDI :- FDI under various sectors is permitted under 2 Routes:
a. AUTOMATIC ROUTE
b. GOVERNMENT ROUTE
Automatic Route: Under this route, no prior approval is required by non-resident or Indian companies from RBI or Government of India before investing in the Company. The company receiving FDI must comply with sectoral caps, pricing guidelines, and reporting requirements.
Government Route: Under this route, prior approval is required from Government of India before investing in the Company, through the Foreign Investment Facilitation Portal (FIFP).
(2) Annual Return on Foreign Liabilities and Assets (FLA): An Indian Company which has received FDI or an LLP which has received investment by way of capital contribution in the previous year including the current year, shall submit form FLA to the Reserve Bank on or before the 15th day of July of each year.
TREATMENT OF EXCESS AMOUNT RECEIVED:-
If company receive amount in excess of subscription money or foreign investment for which shares are issued to foreign investor then such excess amount should be used for future allotment of shares, or Refunded to the foreign investor subject to proper disclosure and compliance (as mentioned in Schedule 1 of FEMA.
EXCESS AMOUNT ALLOWED UNDER FDI DUE TO FOREIGN CURRENCY FLUCTUATIONS-:
According to the Reserve Bank of India’s (RBI) guidelines, in cases where excess or shortfall of funds occurs due to foreign exchange fluctuations, a deviation of up to 0.5% of the total consideration amount, subject to a maximum of INR 10,000, is permissible.
As Per FEMA (Non-Debt Instruments) Rules, 2019, and RBI FDI Master Direction, any amount received in excess of the share subscription:
a. Must be adjusted against future share allotments, or
b. Must be refunded to the foreign investor, unless the excess is within a tolerated threshold (usually ~0.5% or ₹10,000 as mentioned by some AD banks — not formally codified by RBI but accepted in practice).
What to Do When Refund or Allotment Is Not Feasible
If neither refund nor allotment is practical, the company should:
a. Document the Reason for Non-Refund
Maintain a board resolution or internal memo stating:
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- The reason the excess was received (e.g., currency fluctuation),
- Why it could not be refunded (e.g., high transaction cost), and
- Why it could not be adjusted against further allotment (e.g., no further round planned).
2. Consult the Authorized Dealer (AD) Bank
AD banks are the first-level regulators for FDI compliance.
- Write to your AD bank (the one that handled the FDI inflow) and:
- Disclose the facts,
- Request their formal view or No Objection Certificate (NOC) for retaining the excess amount
- Offer to keep the amount in a separate account or adjust against any future remittance charges, if possible.
3.Declare in FC-GPR or Reporting Notes (if still pending)
- If you’re still filing the Form FC-GPR, declare the excess and mention It is due to currency fluctuation.
