FEMA Advisory for Businesses That Move Money Across Borders

FEMA is the Foreign Exchange Management Act 1999, the law governing all foreign exchange transactions in India. Any time money moves across the Indian border, whether inbound (like a US parent remitting capital to their Indian subsidiary) or outbound (like an Indian company investing abroad), FEMA applies. The RBI administers it through the FIRMS and FLAIR portals. Non-compliance triggers compounding proceedings with meaningful penalties, and in extreme cases, investigation and prosecution.

Yes. FEMA compliance is triggered by the existence of cross-border transactions, not by the size of the entity. A 2-person company with a US parent company needs FC-GPR when capital comes in, FLA every July, and FC-TRS on any share transfer. Size offers no exemption. In fact, smaller companies are often worse off because they skip filings thinking they're too small, then face compounding penalties that are disproportionate to their scale.

Missing the 30-day FC-GPR deadline means you must file a compounding application with the RBI. The RBI reviews the facts, quantum of delay, and nature of contravention, then assesses a penalty. Penalties typically range from INR 1 lakh to several lakhs depending on the amount of the remittance and the length of delay. The compounding process takes 3-6 months. During this period, the RBI may restrict further FC-GPR or FLA filings until compounding is complete.

Yes. FC-GPR is a transaction-specific filing done once per share allotment. FLA is an annual return filed every July summarizing your year-end position across all foreign investments. Both are required. Missing FLA is very common because companies assume their FC-GPR covers everything. It doesn't. FLA captures the outstanding balances, not just new transactions.

Most sectors in India allow FDI up to 100% under the Automatic Route, meaning no prior RBI or government approval is needed. You just file FC-GPR after the investment. Some sectors require Government Approval under the Approval Route (defense, certain media, retail trading in some cases, etc.) where prior permission is needed before investment. Getting this classification wrong means filing the wrong paperwork and potentially delaying your business by 3-9 months. During our discovery call, we verify your sector's classification before any filing.

Yes, in two ways. First, the ESOP grants themselves are reportable if they involve foreign employees. Second, every ESOP exercise creates a share transfer that often triggers FC-TRS within 60 days. Many companies miss this because ESOP administration sits with HR, disconnected from finance and FEMA tracking. We integrate ESOP events into our FEMA calendar so nothing falls through the cracks.

Tightly. When you have a foreign parent company, every intra-group transaction (like your Indian subsidiary invoicing the US parent for services) must satisfy both FEMA (arm's length pricing under automatic route) and transfer pricing rules (documented benchmarking, Form 3CEB). The two regimes have overlapping requirements but different enforcement bodies (RBI vs Income Tax Department). We coordinate both under one engagement so there are no contradictions between your FEMA declarations and your transfer pricing study.

This is a significant part of our FEMA practice. We run a compliance audit to quantify the scope (which filings were missed, for how long), evaluate RBI's likely stance, prepare the compounding application, and represent you at RBI hearings. The earlier we engage the better, because voluntary compounding typically results in lower penalties than reactive compounding after RBI investigation. Don't wait for an RBI notice.

NRIs can buy residential and commercial property in India under the Automatic Route, but agricultural land, plantations, and farmhouses are restricted. Payments must be through banking channels from NRE/NRO accounts. When selling, repatriation of sale proceeds is limited to purchase consideration plus capital gains subject to TDS under Section 195. We handle the full FEMA compliance for NRI property transactions including declarations, banking channels, and repatriation planning.

LRS (Liberalised Remittance Scheme) allows resident individuals to remit up to USD 250,000 per financial year abroad for permitted purposes like education, medical treatment, gifts, investments. TCS (Tax Collected at Source) applies above certain thresholds. LRS planning matters for resident individuals who invest in foreign stocks, buy foreign property, send tuition to overseas universities, or gift money abroad. We advise on structuring, TCS optimization, and declaration requirements.