The Reserve Bank of India (RBI) has introduced amendments to the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019. These updates, notified through FEMA 395(3)/2025-RB, came into effect on January 14, 2025. The revisions aim to simplify payment procedures and reporting requirements for investments made by individuals residing outside India. Notable changes include updates to the regulations under various schedules to enhance compliance and streamline processes.
Revised Schedules
The amendments replace existing provisions in six schedules to update payment and remittance rules for various investment types:
Schedule I: Equity Investments by Non-Residents
-Payment Methods: Funds to be transferred via banking channels as inward remittances or sourced from repatriable foreign currency or Rupee accounts.
-Issuance Timeline: Equity instruments must be issued within 60 days of receiving payment. Failure to issue within this period mandates refunds within 15 days.
-Additional Provision: Indian companies issuing equity can open foreign currency accounts with authorized dealers.
Schedule II: Foreign Portfolio Investors (FPIs)
-Payments can be made using foreign currency accounts or Special Non-Resident Rupee (SNRR) accounts.
-Sale proceeds of investments, including equity, REITs, and mutual funds, can be remitted abroad or credited to specified accounts.
Schedule VI: Investments in LLPs
-Payments for capital contributions must be made via inward remittances or repatriable accounts.
-Disinvestment proceeds are allowed to be remitted abroad or credited to repatriable accounts.
Schedule VII: Foreign Venture Capital Investors (FVCIs)
-Payments are restricted to foreign currency or SNRR accounts.
-Sale or maturity proceeds can be sent outside India or credited to designated accounts.
Schedule VIII: Investments in Investment Vehicles
-Consideration can be paid through inward remittances, share swaps, or repatriable accounts.
-Proceeds from sales or maturity, net of taxes, can be sent abroad or credited to the investor’s account.
Schedule X: Indian Depository Receipts (IDRs)
-NRIs and OCIs can invest in IDRs using funds from NRE or FCNR(B) accounts.
-Redemption or conversion of IDRs must comply with the Overseas Investment Rules, 2022.
Convertible Notes by Startups
Indian startups issuing convertible notes to non-residents must use inward remittances or repatriable accounts for payment. Proceeds from repayment or sale can be remitted abroad or credited to repatriable accounts.
Definition of Banking Channels
The term "banking channels" now explicitly includes rupee vostro accounts, including Special Rupee Vostro Accounts, as permitted by the Foreign Exchange Management (Deposit) Regulations, 2016.
Conclusion
These amendments aim to simplify the regulatory framework, enhance investment ease, and align with global standards. They also emphasize timely compliance, ensuring transparency and efficiency in foreign investment transactions.
Frequently Asked Questions (FAQs)
1. What is the title and effective date of the amended regulations?
Ans. The amendments are titled Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Third Amendment) Regulations, 2025, and came into effect on January 14, 2025, as per Notification FEMA 395(3)/2025-RB.
2. What are the new payment methods for equity investments by non-residents under Schedule I?
Ans. Non-residents can transfer funds via inward remittances through banking channels or use repatriable foreign currency or rupee accounts. Equity instruments must be issued within 60 days of payment receipt, with refunds required within 15 days if issuance does not occur.
3. How are payments for investments in LLPs regulated under Schedule VI?
Ans. Payments for capital contributions must be made through inward remittances or repatriable accounts. Disinvestment proceeds can be remitted abroad or credited to repatriable accounts.
4. What changes have been introduced for investments by Foreign Venture Capital Investors (FVCIs) under Schedule VII?
Ans. FVCIs must make payments through foreign currency accounts or SNRR accounts. Sale or maturity proceeds can be remitted outside India or credited to designated accounts.
5. What does the amendment specify about convertible notes issued by startups?
Ans. Indian startups must use inward remittances or repatriable accounts for payments related to convertible notes issued to non-residents. Proceeds from repayment or sale can be remitted abroad or credited to repatriable accounts.
6. What is included in the updated definition of 'banking channels'?
Ans. The term "banking channels" now explicitly includes rupee vostro accounts, including Special Rupee Vostro Accounts, permitted under the Foreign Exchange Management (Deposit) Regulations, 2016.
