FEMA Compliance Requirements for Indian Companies Checklist

 

Meeting FEMA (Foreign Exchange Management Act) compliance is critical for Indian companies engaged in any form of foreign exchange transactions. Non-compliance can result in penalties up to three times the transaction amount, making this checklist essential for maintaining legal standing with the RBI.

Who Must Comply with FEMA?

Companies Requiring FEMA Compliance:

• Indian companies that have received Foreign Direct Investment (FDI)
• Companies making Overseas Direct Investment (ODI)
• Businesses engaged in External Commercial Borrowings (ECB)
• Companies involved in import/export activities
• Startups receiving foreign funding through equity, SAFE, or convertible notes
• Foreign subsidiaries operating in India

Core FEMA Compliance Checklist

1. Foreign Direct Investment (FDI) Compliance

Immediate Requirements (Within 30 Days):

✅ File Form FC-GPR after allotting shares to foreign investors

• Submit within 30 days from date of share allotment
• Include valuation certificate, board resolution, and shareholding pattern
• Route through Authorized Dealer (AD) Category-I bank

✅ Register on Entity Master Form (EMF)

• One-time registration on RBI's FIRMS portal
• Update entity data regularly

✅ Verify FDI eligibility and sectoral caps

• Confirm automatic route vs approval route
• Ensure compliance with sectoral investment limits

Ongoing Requirements:

✅ Follow pricing guidelines

• Maintain fair value transactions
• Document all valuation methodologies

✅ Complete KYC and AML checks

• Verify foreign investor credentials
• Maintain proper due diligence records

✅ File Form FC-TRS for share transfers

• Submit within 60 days of share transfer between resident and non-resident
• Include transfer agreement and consent letters

2. Annual Reporting Requirements

Foreign Liabilities and Assets (FLA) Return:

✅ Submit by July 31, 2025 (extended from July 15)

• Who: All companies with outstanding FDI or ODI
• Coverage: Foreign assets and liabilities as on March 31
• Penalty: ₹7,500 late submission fee + additional charges

Annual Performance Report (APR):

✅ Submit by December 31 for ODI entities

• Required for Indian entities with overseas investments
• File through AD Category-I bank
• Include financial and operational performance data

3. External Commercial Borrowings (ECB) Compliance

Pre-Borrowing:

✅ Verify eligible borrower status
✅ Check lender recognition and AIC ceiling compliance
✅ Obtain Loan Registration Number (LRN)

Monthly Reporting:

✅ Submit ECB-2 Return within 7 working days of month-end

• Detail loan utilization and repayment
• Route through AD Category-I bank

Ongoing Compliance:

✅ Adhere to end-use restrictions

• Prohibited: Real estate, capital markets, working capital (in some cases)
  ✅ Maintain minimum average maturity of 3 years
  ✅ Submit annual performance reports

4. Overseas Direct Investment (ODI) Compliance

Investment Phase:

✅ Submit Form FC before making investment
✅ Verify 400% net worth limit for automatic route
✅ Ensure compliance with sectoral restrictions

Post-Investment:

✅ Submit share certificates within 6 months
✅ Report disinvestment within 30 days
✅ File Form OPI for portfolio investments

Critical Deadline: August 25, 2025

⚠️ RBI has set a strict deadline for companies with unresolved ODI violations

• Companies must rectify past lapses by August 25, 2025
• Failure means compounding or adjudication before new investments
• Late submission fee available until August 21, 2025

5. Import-Export Compliance

Export Requirements:

✅ Realize export proceeds within prescribed timeline (typically 9 months)
✅ File SOFTEX forms for software exports
✅ Submit GR forms for goods exports
✅ Use only authorized dealer banks

Import Requirements:

✅ Complete A2 form for import payments
✅ Maintain proper invoicing and contracts
✅ Follow prescribed payment timelines

6. Inward Remittance Compliance

✅ Obtain FIRC (Foreign Inward Remittance Certificate)
✅ Verify source of funds
✅ Complete KYC compliance
✅ Report receipt to RBI through AD bank within 30 days using ARF

Compliance Timeline Calendar

Form/Return	Frequency	Deadline	Penalty for Delay
FC-GPR	One-time per allotment	30 days from allotment	LSF + penalties
FC-TRS	Per share transfer	60 days from transfer	LSF + penalties
FLA Return	Annual	July 31, 2025	₹7,500 + additional
APR (ODI)	Annual	December 31	LSF + penalties
ECB-2 Return	Monthly	7 working days	Monthly penalties
ARF (Inward remittance)	Per receipt	30 days from receipt	LSF + penalties

Recent Regulatory Changes (2025)

1. Enhanced ODI Scrutiny

• New deadline: August 25, 2025 for past violation rectification
• No new ODI allowed until old lapses are resolved
• Stricter compounding and adjudication processes

2. FLA Return Extension

• Deadline extended to July 31, 2025 (from July 15)
• Enhanced digital filing through FLAIR portal

3. Penalty Structure Updates

• Certain minor violations capped at ₹2 lakh penalty
• Major contraventions still attract 3x transaction amount

Best Practices for FEMA Compliance

1. Appoint Dedicated FEMA Compliance Officer

• Assign responsibility for monitoring deadlines
• Ensure regular training on regulatory updates
• Maintain compliance calendar

2. Implement Digital Tracking Systems

• Use FIRMS portal efficiently
• Set up automated reminders for filing deadlines
• Maintain digital document repository

3. Regular Compliance Audits

• Quarterly FEMA compliance reviews
• Annual external compliance audits
• Proactive identification of potential violations

4. Professional Support

• Engage qualified FEMA consultants
• Maintain relationships with AD banks
• Stay updated on regulatory changes

Red Flags and Common Violations

High-Risk Areas:

• Delayed reporting beyond prescribed timelines
• Fund misutilization for prohibited end-uses
• Incorrect valuation in FDI transactions
• Missing KYC documentation
• Unauthorized share transfers

Warning Signs:

• Frequent RBI notices or queries
• Banking relationship issues
• Compliance system gaps
• Inadequate documentation

Emergency Response Protocol

If You Miss a Deadline:

1. Immediate assessment of violation severity
2. File late submission with applicable fees
3. Consider compounding application if eligible
4. Engage professional help for complex cases
5. Implement preventive measures for future compliance

Documentation Requirements:

• Maintain all supporting documents for 7 years
• Ensure proper authorization for all transactions
• Keep updated KYC records for foreign parties
• Document all board resolutions and approvals

Conclusion

FEMA compliance is not optional for Indian companies dealing with foreign exchange. With penalties reaching up to three times the transaction amount and personal liability for directors, maintaining robust compliance systems is essential. The August 25, 2025 deadline for ODI violations and ongoing regulatory changes make immediate action critical.

Key Action Items:

1. Conduct immediate FEMA compliance audit
2. Implement monthly monitoring systems
3. Engage professional FEMA advisors
4. Establish comprehensive documentation procedures
5. Create automated alert systems for critical deadlines

Proactive compliance management not only avoids penalties but also ensures smooth international business operations and maintains credibility with foreign stakeholders.