New Legal Framework for Overseas investment


New Overseas Investment Rules/Regulations/Directions

Overseas Investments Rules/ Regulations/ Directions (the framework) have been simplified for promotion of ease of doing businesses, liberalization of process and promotion of self-regulation. The Foreign Exchange Management (Overseas Investment) Rules 2022, Foreign Exchange Management (Overseas Investment) Regulations 2022 and Foreign Exchange Management (Overseas Investment) Directions, 2022 is issued as part of the new framework.

The new Foreign Exchange Management (Overseas Investment) framework will subsume/ supersede the extant regulations applicable for Indian residents, like Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 and Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015.


The new framework governs overseas direct investment and overseas portfolio investment.

Overseas Direct Investment is now redefined as follows:

  • Investment by way of acquisition of: Unlisted equity capital of a foreign entity; or Subscription as a part of the memorandum of association of a foreign entity; or
  • In case of a listed foreign entity: Investment in ten per cent, or more of the paid-up equity capital of the listed foreign entity; or Investment with control where investment is less than ten per cent of the paid-up equity capital of the listed foreign entity.

Overseas Portfolio Investment (‘OPI’) is now defined as:

  • ‘Investment, other than ODI, in foreign securities, but not in any unlisted debt instruments or any security issued by a person resident in India who is not in an IFSC’.

The new Liberalized Remittance Scheme is issued parallelly for use of individuals to remit money to foreign jurisdictions.

Subsidiaries of foreign entities

The framework has redefined ‘Control’ to mean the right to appoint majority of the directors or control management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders’ agreements or voting agreements that entitle them to ten per cent or more of voting rights or in any other manner in the entity.

Subsidiary or step-down subsidiary (‘SDS’) of a foreign entity now means an entity in which the foreign entity has ‘control’.

Further, Person resident in India has now been permitted to invest in a foreign entity that has invested or invests into India, directly or indirectly, up to 2 layers of subsidiaries, without RBI approval.

Limitation of liability

A foreign entity receiving investment of resident Indian should have ‘limited liability’ (viz, limited liability company, limited liability partnership, etc.) where the liability of the person resident in India is clear and limited.

This restriction would not be applicable on entities with core activity in any strategic sector:

  1. Oil
  2. Gas
  3. Coal,
  4. Mineral ores
  5. Submarine cable system
  6. Start-ups
  7. Any other sector or sub-sector as deemed necessary by the Central Government.

Acquisition by way of gift

A resident individual has been permitted to gift foreign securities to his relative resident in India without RBI approval. A resident individual is permitted to receive foreign securities by way of gift from a person resident outside India, subject to compliance with the provisions of Foreign Contribution (Regulation) Act, 2010 (‘FCRA’).

Prior to the new framework, any entity was allowed to gifted securities to Indian persons.

Loans to foreign entities

Financial remittances towards loan to the foreign entity and/or in respect of the issuance of bank guarantee to/on behalf of the foreign entity is permitted only after ensuring that the Indian entity has made ODI to, and has control in, the foreign entity.

Rate of interest should be charged at arm’s length basis.

ODI in foreign start-ups

Any ODI in foreign start-ups should be made only from internal accruals of the Indian entity and not from borrowed funds and a resident individual can only use his own funds.

Deferred Payment without approval

Deferred Payment option is now permissible for acquiring and transferring foreign securities without RBI approval.


  • Any person resident in India whose account is classified as non-performing assets, or as a willful defaulter by any bank, or is under investigation by a financial service regulator or investigative agency, will have to obtain a NOC from the lender bank or regulatory body or investigative agency, before making any investment, loan or disinvestment.

By virtue of this, the requirement of seeking RBI approval where the entity is under investigation may no longer be required.

  • Form FC has been replaced Form ODI.
  • Form OPI has been introduced for a person resident in India other than a resident individual, making OPI.
  • Delay in reporting OI related compliances including Annual Performance Report shall now attract Late Submission Fees (‘LSF’).

Retrospective effect

The option of LSF shall also be available for delayed reporting/submissions under the earlier regulations, up to three years from the date of notification of OI Regulations.


Alby Stephan. K, Legal executive at Legality Simplified

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