The Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Third Amendment) Regulations, 2025, introduces updates to the principal regulations, particularly in relation to investment mechanisms for persons resident outside India. These changes aim to streamline the processes related to mode of payment, investment structures, and the remittance of sale or maturity proceeds, ensuring greater clarity and compliances.
Schedule I – Investment by a Person Resident Outside India in Equity Instruments
The amendment emphasizes the acceptable modes of payment for foreign investments in equity instruments. Foreign investors are required to channel their payments through inward remittances via banking channels or use a repatriable foreign currency or Rupee account governed by FEMA (Deposit) Regulations, 2016. Notably, consideration may also involve the issuance of equity shares in lieu of funds payable by the Indian company or through the swap of equity instruments.
For remittance of sale proceeds, the regulation allows net proceeds (after taxes) to be sent abroad or credited to the investor’s repatriable foreign currency or Rupee account, ensuring easy repatriation.
Schedule II – Investment by Foreign Portfolio Investors (FPIs)
FPIs can make investments using inward remittances, foreign currency accounts, or Special Non-Resident Rupee (SNRR) accounts under FEMA guidelines. This provision is particularly significant for simplifying portfolio investments. The remittance of sale proceeds, after deducting applicable taxes, can be credited to either foreign currency or SNRR accounts, facilitating global financial flows for portfolio investors.
Schedule VI – Investment in a Limited Liability Partnership (LLP)
Foreign investors participating in LLPs must contribute capital via inward remittance or from repatriable foreign currency or Rupee accounts. Proceeds from disinvestment are allowed to be remitted abroad or credited to repatriable accounts. These provisions ensure the smooth entry and exit of foreign investments in LLP structures, which are increasingly popular due to their operational flexibility.
Schedule VII – Investment by a Foreign Venture Capital Investor (FVCI)
The regulations provide specific modes of payment for FVCIs, including inward remittance, foreign currency accounts, or SNRR accounts. However, the foreign currency account is restricted to transactions under this schedule. Provisions for remitting sale or maturity proceeds abroad or to SNRR accounts allow FVCIs to recover their investments with ease while maintaining compliance with tax regulations.
Schedule VIII – Investment by a Person Resident Outside India in an Investment Vehicle
Investment vehicles such as Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are covered under this schedule. Foreign investors can invest via inward remittance, share swaps with SPVs, or repatriable accounts. The remittance of proceeds, net of taxes, is permitted abroad or to repatriable accounts, reflecting the government’s focus on attracting institutional investment in these vehicles.
Schedule X – Investment in Indian Depository Receipts (IDRs)
The regulations cater to specific categories of investors, such as Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and FPIs, outlining distinct payment methods. NRIs/OCIs can use their NRE/FCNR(B) accounts, while FPIs can utilize foreign currency or SNRR accounts. Additionally, the redemption or conversion of IDRs must align with FEMA (Overseas Investment) Rules, 2022, ensuring adherence to broader compliance frameworks.
Conclusion
The Third Amendment to the Foreign Exchange Management Regulations, 2025, brings greater clarity and standardization to foreign investments in non-debt instruments. By explicitly defining modes of payment and remittance mechanisms, the regulations foster a transparent and efficient investment environment. These changes are poised to enhance India’s appeal as a destination for foreign investment, supporting economic growth and integration with global markets.
