# Cross Border Merger in India Under Rule 25A and FEMA (2026)

> Source: https://krystal7.com/insights/inbound-cross-border-merger-india-rule-25a
> Publisher: Krystal7 Consultants (Krystal7 Innovations Private Limited), Gurugram, India
> Author: CA Nandini
> Published: 26 Feb 2026; updated 24 Oct 2026
> Summary: A foreign company merges into an Indian company under section 234 and rule 25A, with deemed RBI approval and a two year window for overseas assets.

*Written by CA Nandini Hasija, Krystal7 Consultants. Last updated 23 October 2026.*

## AI Overview Summary

- A foreign company can merge into an Indian company under section 234 of the Companies Act, 2013 and rule 25A, through the NCLT under sections 230 to 232.
- Since 17 Sep 2024, rule 25A(5) lets a foreign holding company merge into its Indian wholly owned subsidiary by the section 233 fast track, approved by the Central Government.
- Regulation 9 of the FEMA Cross Border Merger Regulations, 2018 deems RBI approval for a compliant merger, if the managing director or whole time director and the company secretary certify compliance.
- The Indian company must sell overseas assets it cannot hold, and bring foreign borrowings within ECB rules, within two years of the sanction.
- Section 70(1)(e) and (f) of the Income Tax Act, 2025 keep the merger outside capital gains, if the amalgamated company is Indian and the definition of amalgamation in section 2(6) is met.

**A foreign company can merge into an Indian company under section 234 of the Companies Act, 2013 and rule 25A of the CAA Rules, 2016. The scheme normally goes to the NCLT under sections 230 to 232. Since 17 Sep 2024, a foreign holding company can merge into its wholly owned Indian subsidiary through the section 233 fast track. RBI approval is deemed if the merger follows the FEMA Cross Border Merger Regulations, 2018.**

This page covers the company law routes, the FEMA conditions and the two year windows after sanction. It also covers pricing and reporting, tax neutrality, stamp duty and a worked reverse flip.

## What is an inbound cross border merger into an Indian company?

An inbound cross border merger is a merger in which a company incorporated outside India merges into an Indian company, and the Indian company survives. The Indian company takes over the foreign company's assets and liabilities. It issues its own shares, or pays the consideration the scheme allows, to the foreign company's shareholders.

The FEMA regulations call the surviving Indian company the "resultant company". Regulation 2 of the [Foreign Exchange Management (Cross Border Merger) Regulations, 2018](https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11235&Mode=0) defines an inbound merger. It is one "where the resultant company is an Indian company". An outbound merger is the reverse.

The common inbound case today is a reverse flip. A startup moved its holding company to the US or Singapore years ago. It now wants the Indian operating company at the top. Merging the foreign parent into its Indian subsidiary is one of the ways to do that. We compare the other ways in [reverse flip to India](/insights/reverse-flip-moving-holding-company-to-india).

The other common case is a group simplification. A foreign group folds a dormant foreign holding company into the Indian business, so that the foreign investors hold the Indian company directly.

## What do section 234 and rule 25A require?

Section 234(2) of the Companies Act, 2013 lets a foreign company, with prior RBI approval, merge into a company registered under the Act. Rule 25A(1) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 adds that the merger must comply with sections 230 to 232. The scheme can pay shareholders in shares, cash, depository receipts or a mix.

Section 234(1) applies Chapter XV of the Act, which holds sections 230 to 240, to mergers with foreign companies. The Explanation to section 234(2) defines a foreign company as any company or body corporate incorporated outside India. It need not have a place of business in India.

MCA inserted rule 25A by G.S.R. 368(E) of 13 Apr 2017. Rule 25A(1) covers inbound mergers. Rule 25A(2) covers outbound mergers into the jurisdictions in Annexure B to the rules. On our reading, Annexure B limits only outbound mergers. A foreign company from any country can merge in, subject to FEMA and its own law.

Rule 25A(3) requires the Indian company to apply to the NCLT after getting the approvals in rule 25A. Rule 25A(4) came in through the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2022. It needs a declaration in Form CAA.16 where the other party is incorporated in a country that shares a land border with India. The declaration states whether the scheme needs prior Government approval under the NDI Rules and, if it does, encloses that approval.

The foreign company's own law must also allow it to merge into a foreign company. Many jurisdictions do not have an outbound merger route. We check this first, because it decides whether the merger is possible at all.

## When can a foreign holding company use the fast track route?

Since 17 Sep 2024, rule 25A(5) lets a foreign holding company merge into its wholly owned Indian subsidiary under section 233, the fast track route. G.S.R. 555(E) of 9 Sep 2024 inserted it. Both companies obtain prior RBI approval, and the Indian company applies to the Central Government instead of the NCLT. A [PIB release of 11 Sep 2025](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2165660) on G.S.R. 603(E) of 4 Sep 2025, which widened the fast track for more classes of Indian companies, recalls this September 2024 change.

The four conditions in rule 25A(5) are:

1. The transferor is a foreign company incorporated outside India and is the holding company.
2. The transferee is an Indian company and is its wholly owned subsidiary.
3. Both companies obtain the prior approval of RBI.
4. The transferee Indian company complies with section 233, applies to the Central Government under section 233(2), and rule 25 applies to the application.

The declaration under rule 25A(4) is made when the section 233 application is filed. Section 233 itself needs a notice inviting objections from the Registrar and the Official Liquidator within 30 days. It also needs a declaration of solvency and approval by members holding at least 90 percent of the total number of shares. Creditors holding nine tenths in value must approve too.

For a foreign parent that owns the whole Indian company, the member and creditor tests are usually easy. The parent holds the shares, and intra group creditors sign consents. The fast track avoids NCLT hearing dates, which drive most of the delay on the tribunal route.

Rule 25 sets the Central Government's time limits. [G.S.R. 367(E) of 15 May 2023](https://egazette.gov.in/WriteReadData/2023/245885.pdf) substituted rule 25(5) and (6) from 15 Jun 2023. The limits are:

1. The Registrar and the Official Liquidator have 30 days to object. With no objection, the Central Government may confirm the scheme in Form CAA.12 within the next 15 days.
2. Where objections arrive but are not sustainable, it may confirm the scheme within 30 days after the objection window.
3. If it finds the scheme against the public or creditors' interest, it may apply to the NCLT in Form CAA.13. It must do so within 60 days of receiving the scheme.
4. If it does none of these within 60 days of receipt, it is deemed to have no objection, and a confirmation order follows.

## How does the NCLT route compare with the fast track route?

The NCLT route under sections 230 to 232 is open to any inbound merger. The fast track under section 233 is open only where rule 25A(5) applies, to a foreign holding company and its wholly owned Indian subsidiary. The fast track replaces tribunal hearings with a Central Government confirmation, but needs higher member and creditor approvals.

| Point | NCLT route (sections 230 to 232) | Fast track (section 233 with rule 25A(5)) |
|---|---|---|
| Who can use it | Any foreign company merging into an Indian company | Foreign holding company merging into its wholly owned Indian subsidiary |
| Approving authority | NCLT | Central Government, through the Regional Director |
| Member approval | Majority in number holding three fourths in value of those voting (section 230(6)) | Members holding at least 90 percent of the total number of shares |
| Creditor approval | Three fourths in value of creditors voting (section 230(6)) | Nine tenths in value of creditors |
| Notice to regulators | Section 230(5): RBI, income tax, Registrar, Regional Director, Official Liquidator and others, 30 days to respond | Notice to the Registrar and Official Liquidator, 30 days to object |
| Solvency declaration | Not required | Required |
| RBI | Prior approval, deemed under FEMA regulation 9 | Prior approval, deemed under FEMA regulation 9 |
| Typical use | Indian company not wholly owned by the merging foreign company | Group reorganisation and reverse flips of a wholly owned subsidiary |

## What does FEMA require for an inbound merger?

The Foreign Exchange Management (Cross Border Merger) Regulations, 2018 (FEMA 389/2018-RB of 20 Mar 2018) govern the foreign exchange side. Regulation 9 deems RBI's prior approval for any transaction done under them. The managing director or whole time director, and the company secretary, certify compliance in the application to the Competent Authority.

Regulation 4 sets the inbound rules. The share issue to non residents follows the FDI pricing, entry route and sectoral cap rules, and is reported as an FDI issue. The foreign company's offices outside India become branch offices of the Indian company. Its foreign borrowings and guarantees must meet the ECB or trade credit rules within two years.

Regulation 6 requires valuation of the companies in line with rule 25A. Regulation 7 lets the scheme pay compensation to security holders. It also requires the companies to complete any regulatory action for past non compliance before the merger. Regulation 8 lets RBI prescribe reports from the resultant company.

Regulation 4(1) still refers to the 2017 issue and transfer regulations and the 2004 overseas investment regulations. Those have been replaced. We apply the [Foreign Exchange Management (Non Debt Instruments) Rules, 2019](https://rbi.org.in/scripts/bs_viewcontent.aspx?Id=5083) for the share issue and the Overseas Investment Rules, 2022 for the overseas assets.

FEMA 389(1)/2026-RB, dated 29 May 2026, came into force on its publication in the Gazette on 5 Jun 2026. It replaced "NCLT" with "Competent Authority" in regulations 4, 5, 7 and 9. It also omitted the NCLT definition in regulation 2(vii) and added a new definition in regulation 2(iia). The [amendment notice](https://rbi.org.in/ScriptS/BS_FemaNotifications.aspx?Id=13466) defines the Competent Authority as any authority empowered under the Companies Act, 2013 to sanction a scheme. On our reading, this brings fast track mergers under rule 25A(5) squarely within the deemed approval.

## What happens to the foreign company's overseas assets, offices and borrowings?

The Indian company can keep overseas assets that an Indian company may hold under FEMA. It must sell any asset or security it cannot hold within two years of the sanction and bring the money home. Foreign borrowings and guarantees it takes over must meet the ECB rules within two years, with no repayment from India in that period.

| Item taken over | FEMA treatment | Time limit | Regulation |
|---|---|---|---|
| Office of the foreign company outside India | Becomes a branch or office outside India of the Indian company | None | 4(2) |
| Borrowings and guarantees of the foreign company | Must conform to ECB, trade credit or other borrowing rules; no remittance from India to repay meanwhile; end use rules do not apply | Two years from sanction | 4(3) |
| Overseas assets an Indian company may hold | Kept and may be transferred for permitted transactions | None | 4(4) |
| Overseas assets or securities it cannot hold | Sold, with proceeds repatriated through banking channels immediately | Two years from sanction | 4(5) |
| Overseas liabilities it cannot hold | Extinguished from the sale proceeds of non permitted assets | Two years from sanction | 4(5) |
| Bank account in foreign currency abroad | May be kept for merger related transactions | Two years from sanction | 4(6) |

The overseas subsidiaries of the foreign parent become overseas investments of the Indian company. They must meet the Overseas Investment Rules, 2022. Rule 19(3) of those rules targets round tripping. It bars a structure with more than two layers of subsidiaries where the foreign entity has invested back into India. We map the group chart against this before signing. See our guide to [ODI rules for Indian companies](/insights/odi-rules-overseas-investment-indian-company).

Convertible notes and SAFEs issued by the foreign parent are a frequent problem. They become liabilities of the Indian company. Within two years they must convert, be repaid under the ECB rules, or be restructured. For the ECB side, see [ECB from a foreign parent](/insights/ecb-loan-from-foreign-parent-india).

## How are shares issued to foreign shareholders priced and reported?

The Indian company issues shares to the foreign company's non resident shareholders under the NDI Rules. The issue must meet the sectoral cap, entry route and pricing rules. The company reports it in Form FC-GPR within 30 days of the issue, under regulation 4(1) of FEMA 395/2019-RB.

Rule 21 of the NDI Rules sets the floor for shares issued to non residents at fair value. In a merger, the issue price is the swap ratio applied to the values of the two companies. So the valuation report has to support both the ratio and the FEMA floor. We use an Indian registered valuer for the Indian company and, where the foreign law asks for it, a valuer in the foreign jurisdiction.

An investor from a land border country needs government approval for the new shares, under the proviso to rule 6(a) of the NDI Rules. We cover the scope in [Press Note 3 and land border FDI](/insights/press-note-3-fdi-land-border-countries).

The [FEMA 395 regulations](https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11723&Mode=0) set the FC-GPR clock at 30 days. Our [FC-GPR filing guide](/insights/fc-gpr-filing-timeline-and-process-for-foreign-founders) lists the attachments. For valuation, see [FEMA pricing guidelines for share issue and transfer](/insights/fema-pricing-guidelines-share-valuation).

## Is an inbound merger tax neutral in India?

Yes, if it is an amalgamation as the Income Tax Act, 2025 defines it. Section 70(1)(e) says the transfer of a capital asset by the amalgamating company to an Indian amalgamated company is not a transfer. Section 70(1)(f) does the same for shareholders who receive shares of the Indian amalgamated company. Both conditions need the surviving company to be Indian.

[Section 2(6)](https://www.incometaxindia.gov.in/w/section-2-1) of the Income Tax Act, 2025 defines amalgamation with three conditions:

1. All the property of the amalgamating company passes to the amalgamated company.
2. All the liabilities of the amalgamating company pass to the amalgamated company.
3. Shareholders holding at least three fourths in value of the amalgamating company's shares become shareholders of the amalgamated company. Shares already held by the amalgamated company or its subsidiary do not count in this test.

[Section 70](https://www.incometaxindia.gov.in/w/section-70-127) switches off section 67, the capital gains charge, for these transfers. Clause (f) does not apply where the shareholder is itself the amalgamated company. That exception rarely matters in a reverse flip, because the Indian company holds no shares in its foreign parent. The Indian company's own shares held by the parent are cancelled, and clause (e) covers the parent's transfer of its assets, including those shares.

Three points need care:

1. **Cash consideration.** Section 234(2) allows cash or depository receipts. On our reading, a shareholder paid in cash is outside section 70(1)(f). Cash for more than a quarter in value can also break the three fourths test.
2. **Indirect transfer.** Foreign investors' shares in a foreign parent often derive their value from India. Without section 70(1)(f), the exchange could be taxable in India under the indirect transfer rule in section 9(10)(a). The exemption protects them only if the amalgamation conditions hold.
3. **Cost and holding period.** The shareholder's cost and holding period for the old shares carry over to the new Indian shares. The 1961 Act did this in sections 49(2) and 2(42A). The Income Tax Act, 2025 does it in [section 73(1)](https://www.incometaxindia.gov.in/w/section-73-122), Table serial 2, for cost and in section 2(101) for the holding period.

The foreign company's home country may tax the merger as an exit or a deemed sale. Indian tax neutrality does not cover that. We ask for home country advice before the board approves the scheme.

For the wider changes in the new Act, see [Income Tax Act, 2025 changes for foreign owned companies](/insights/income-tax-act-2025-changes-for-foreign-owned-companies).

| Tax point | Rule | Provision |
|---|---|---|
| Transfer of assets by the foreign company to the Indian company | Not a transfer, if the amalgamated company is Indian | Section 70(1)(e), Income Tax Act, 2025 |
| Exchange of shares by the foreign company's shareholders | Not a transfer, if they receive shares of the Indian company | Section 70(1)(f) |
| Definition of amalgamation | All property, all liabilities, three fourths in value of shareholders | Section 2(6) |
| Cost and holding period of the new shares | Carried over from the old shares | Section 73(1), Table serial 2; section 2(101) |
| Shareholder paid in cash | Outside the exemption, on our reading | Section 70(1)(f) |
| Capital gains charge switched off | Section 67 does not apply to the listed transfers | Section 70(1) opening words |
| Home country tax | Not covered by Indian law | Foreign law |

## What stamp duty applies to an inbound merger?

Two duties apply. The order sanctioning the scheme attracts stamp duty under the law of the state of the Indian company's registered office. That state sets the rate. The fresh shares attract duty of 0.005 percent of the consideration under the Indian Stamp Act, 1899, as amended from 1 Jul 2020.

The Supreme Court decided Hindustan Lever v State of Maharashtra, reported at (2004) 9 SCC 438. It held that an order sanctioning an amalgamation is an instrument that transfers property. A state can therefore levy stamp duty on it. The NCLAT quoted this holding in [Pipeline Infrastructure Private Limited (5 Oct 2018)](https://nclat.gov.in/sites/default/files/migration/upload/6577668065bbc9fc8457ff.pdf). Check the stamp schedule of the state where the Indian company's registered office sits for the article on these orders, its rate, its base and any cap. We price the duty for that state before the board fixes the swap ratio.

The 0.005 percent duty on the share issue follows the uniform rates the Government explained in a [PIB release of 30 Jun 2020](https://pib.gov.in/PressReleasePage.aspx?PRID=1635399). The depository collects it on a demat issue.

## What do resident shareholders of the foreign company need to do?

Indian resident founders who hold shares in the foreign parent hold an overseas investment. On the merger, they give up the foreign shares and receive shares of the Indian company. Their overseas investment ends. They report the exit through their designated AD bank under regulation 10 of the [Overseas Investment Regulations, 2022](https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12380&Mode=0). Regulation 10(2) gives 30 days from receipt of disinvestment proceeds. A merger pays them in Indian shares, not cash, and regulation 10 does not mention mergers. So ask the AD bank before the sanction which form it wants and which date starts the clock.

Their new Indian shares are domestic holdings, so no FEMA filing applies to them. Section 70(1)(f) covers their income tax position on the exchange, if the amalgamation conditions hold.

Resident shareholders who acquired the foreign shares in breach of the overseas investment rules face a problem. Regulation 7(2) of the Cross Border Merger Regulations requires regulatory action on past non compliance to be complete before the merger. We clear these cases with the AD bank and RBI first.

## How long does an inbound merger take?

The company law route sets most of the timeline. A fast track merger under section 233 has a fixed 30 day objection window and shorter Central Government stages. An NCLT scheme depends on hearing dates. The foreign country's own merger process runs in parallel and can take longer than the Indian side.

| Step | What happens | Who acts | Time limit | Law |
|---|---|---|---|---|
| 1 | Check that the foreign law allows an outbound merger and the tax cost there | Both companies | Before board approval | Foreign law |
| 2 | Value both companies and fix the swap ratio | Registered valuer | Before board approval | Rule 25A; FEMA regulation 6 |
| 3 | Board approvals and draft scheme | Both boards | None fixed | Sections 230 to 233 |
| 4 | Certificate of compliance with the FEMA regulations | Managing director or whole time director and company secretary | With the application | FEMA regulation 9(2) |
| 5 | Notice in Form CAA.9 inviting objections (fast track) | Indian company | 30 days for objections | Section 233(1)(a); rule 25 |
| 6 | Declaration of solvency (fast track) | Indian company | Before the meetings | Section 233(1)(c) |
| 7 | Member approval (90 percent of shares) and creditor approval (nine tenths in value) | Members and creditors | After the objection window | Section 233(1)(b) and (d) |
| 8 | File the approved scheme with the Central Government, Registrar and Official Liquidator | Indian company | Rule 25 time limits | Section 233(2); rule 25A(5) |
| 9 | Confirmation order | Central Government (Regional Director) | 15 days after the objection window if unopposed; deemed after 60 days from receipt | Section 233(3) to (7); rule 25(5) and (6) |
| 10 | Register the scheme with the Registrar and allot the new shares | Registrar and Indian company | After the confirmation order | Section 233 |
| 11 | Form FC-GPR for shares issued to non residents | Indian company | 30 days from allotment | FEMA 395 regulation 4(1) |
| 12 | Sell non permitted overseas assets and regularise borrowings | Indian company | Two years from sanction | FEMA regulation 4(3) and 4(5) |

## What changed in 2026

Two changes in 2026 touch inbound mergers. RBI amended the Cross Border Merger Regulations so the deemed approval refers to the Competent Authority. The Income Tax Act, 2025 replaced the 1961 Act from 1 Apr 2026. This page carries a publish date of 26 Feb 2026. Both changes came after that date, and the text states the law as on 23 Oct 2026.

| Old rule | New rule | Date | Instrument |
|---|---|---|---|
| Deemed approval and post merger windows tied to the NCLT | Tied to the Competent Authority, which includes the Central Government on the fast track | 5 Jun 2026 (Gazette; notification dated 29 May 2026) | FEMA 389(1)/2026-RB |
| NCLT defined in regulation 2(vii) | Regulation 2(vii) omitted; regulation 2(iia) defines Competent Authority | 5 Jun 2026 | FEMA 389(1)/2026-RB |
| Tax neutrality in section 47(vi) and (vii), Income Tax Act, 1961 | Section 70(1)(e) and (f), Income Tax Act, 2025 | 1 Apr 2026 | Income Tax Act, 2025 |
| Capital gains charge in section 45 | Section 67 | 1 Apr 2026 | Income Tax Act, 2025 |
| Inbound merger of a foreign parent into its Indian subsidiary only through the NCLT | Fast track under section 233 | 17 Sep 2024 | G.S.R. 555(E), rule 25A(5) |

The fast track in the last row predates this page. We include it because it is the main reason foreign groups now consider inbound mergers. A merger approved before 1 Apr 2026 is tested under section 47 of the 1961 Act. The Corporate Laws (Amendment) Bill, 2026 was introduced in the Lok Sabha on 23 Mar 2026. It is with a Joint Committee and is not law on 23 Oct 2026.

## Worked example

**Reverse flip.** ForCo is a foreign holding company whose law allows it to merge into a foreign company. It owns all 10,00,000 shares of IndCo, an Indian Private Limited company in an automatic route sector. The figures are illustrative, and the exchange rate of INR 88 per USD is assumed.

ForCo has 1,00,000 shares. Indian resident founders hold 60,000, a US fund holds 30,000 and a Japanese fund holds 10,000. ForCo also holds USD 1,000,000 in a foreign bank account and a UK sales subsidiary. It owes USD 500,000 on a convertible note.

| Item | Working | INR |
|---|---|---|
| Fair value of IndCo | Registered valuer, INR 4,400 per share × 10,00,000 | 4,40,00,00,000 |
| ForCo cash | USD 1,000,000 × 88 | 8,80,00,000 |
| UK subsidiary | Valuer | 4,40,00,000 |
| Less convertible note | USD 500,000 × 88 | (4,40,00,000) |
| Value of IndCo after the merger | Sum | 4,48,80,00,000 |
| New IndCo shares at INR 4,400 | 4,48,80,00,000 ÷ 4,400 | 10,20,000 shares |
| Swap ratio | 10,20,000 ÷ 1,00,000 | 10.2 IndCo shares for each ForCo share |
| IndCo shares held by ForCo | Cancelled on the merger | 10,00,000 cancelled |
| Stamp duty on the issue at 0.005 percent | 4,48,80,00,000 × 0.005 percent | 2,24,400 |

| Shareholder | ForCo shares | IndCo shares at 10.2 | FEMA filing |
|---|---|---|---|
| Indian resident founders | 60,000 | 6,12,000 | Overseas disinvestment report; no FC-GPR |
| US fund | 30,000 | 3,06,000 | FC-GPR within 30 days |
| Japanese fund | 10,000 | 1,02,000 | FC-GPR within 30 days |
| Total | 1,00,000 | 10,20,000 | |

IndCo is wholly owned by ForCo, so rule 25A(5) allows the fast track. Suppose the Central Government confirms the scheme on 15 Dec 2026. IndCo can keep the foreign bank account until 15 Dec 2028. The convertible note must convert, be repaid under the ECB rules or be restructured by then, with no repayment from India in between. The UK sales subsidiary is a permitted overseas investment, so IndCo keeps it and reports it under the Overseas Investment Rules.

On tax, ForCo's transfer of the IndCo shares, the cash and the UK subsidiary is not a transfer under section 70(1)(e). The funds and founders exchange ForCo shares for IndCo shares, which section 70(1)(f) covers. All property and liabilities pass, and 100 percent of ForCo's shareholders become IndCo shareholders, so the amalgamation definition is met. ForCo's home country tax is a separate question.

## Common mistakes

1. **Assuming the foreign law allows the merger.** Many countries have no outbound merger route. Fix: get a written opinion on the foreign law before you value anything.
2. **Using the fast track when the subsidiary is not wholly owned.** Rule 25A(5) needs a wholly owned Indian subsidiary. Fix: buy out minority holders first, or use the NCLT route.
3. **Skipping the FEMA compliance certificate.** Deemed approval under regulation 9 needs the certificate with the application. Fix: have the managing director and company secretary sign it after a FEMA review.
4. **Missing the two year windows.** Non permitted assets, foreign borrowings and the foreign bank account each have two years from sanction. Fix: diarise the dates from the sanction order.
5. **Paying some shareholders in cash.** Cash falls outside section 70(1)(f) and can break the three fourths test. Fix: pay in shares, or model the tax for cash holders first.
6. **Ignoring land border investors.** Any such investor needs government approval for the new shares. Fix: screen the cap table and beneficial owners before the board meeting.
7. **Leaving past FEMA defaults open.** Regulation 7(2) wants regulatory action on them completed before the merger. Fix: compound or file late reports first.
8. **Forgetting the round tripping limit.** The foreign parent's other subsidiaries become Indian overseas investments. Fix: test rule 19(3) of the Overseas Investment Rules, 2022 against the group chart.

To plan an inbound merger with the cap table and group chart, see our [FEMA compliance service](/services/fema-compliances.html).

## Checklist

1. Confirm that the foreign company's law permits an outbound merger and get home country tax advice.
2. Check whether the Indian company is wholly owned by the foreign company, to choose the fast track or the NCLT route.
3. Screen all shareholders and beneficial owners for land border countries and sector caps.
4. Regularise any past FEMA or overseas investment defaults.
5. Obtain valuation reports for both companies and fix the swap ratio.
6. Draft the scheme with share consideration, so section 70 of the Income Tax Act, 2025 applies.
7. Sign the FEMA compliance certificate under regulation 9(2).
8. Issue the Form CAA.9 notice, file the declaration of solvency and hold the member and creditor approvals.
9. File the scheme with the Central Government or the NCLT and obtain the sanction order.
10. File the order with the Registrar, allot the shares and pay stamp duty.
11. File Form FC-GPR within 30 days for shares issued to non residents.
12. Track the two year windows for overseas assets, borrowings and bank accounts.

## Key terms

- **Inbound merger**: A cross border merger in which the resultant company, the one that survives, is an Indian company. Regulation 2 of the Foreign Exchange Management (Cross Border Merger) Regulations, 2018 defines it, and section 234 of the Companies Act, 2013 with rule 25A of the CAA Rules provides the company law route. (https://krystal7.com/glossary#inbound-merger)
- **Resultant company**: The Indian or foreign company that takes over the assets and liabilities of the merging companies in a cross border merger. The FEMA Cross Border Merger Regulations, 2018 place the post merger duties, such as selling non permitted overseas assets within two years, on this company. (https://krystal7.com/glossary#resultant-company)
- **Rule 25A (CAA Rules)**: The rule in the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 that allows mergers between Indian and foreign companies. It needs prior RBI approval and compliance with sections 230 to 232, and since 17 Sep 2024 allows a fast track for a foreign parent and its wholly owned Indian subsidiary. (https://krystal7.com/glossary#rule-25a-caa-rules)
- **Fast track merger (section 233)**: A merger approved by the Central Government through the Regional Director instead of the NCLT. Section 233 of the Companies Act, 2013 needs approval by members holding 90 percent of the shares and creditors holding nine tenths in value, plus a declaration of solvency. Rule 25A(5) opens it to a foreign holding company and its wholly owned Indian subsidiary. (https://krystal7.com/glossary#fast-track-merger-section-233)
- **Deemed RBI approval**: The approval that regulation 9 of the Foreign Exchange Management (Cross Border Merger) Regulations, 2018 treats as given for any transaction done under those regulations. The managing director or whole time director, and the company secretary if there is one, certify compliance in the application to the Competent Authority. (https://krystal7.com/glossary#deemed-rbi-approval)
- **Competent Authority (cross border merger)**: Any authority empowered under the Companies Act, 2013 or its rules to approve a scheme of merger, which is the NCLT for a scheme under sections 230 to 232 and the Central Government for a fast track merger. Regulation 2(iia) of the Cross Border Merger Regulations, inserted by FEMA 389(1)/2026-RB, defines it. (https://krystal7.com/glossary#competent-authority-cross-border-merger)
- **Amalgamation (income tax)**: A merger in which all property and all liabilities of the amalgamating company pass to the amalgamated company, and holders of at least three fourths in value of its shares become shareholders of the amalgamated company. Section 2(6) of the Income Tax Act, 2025 defines it, and section 70 gives tax neutrality to an amalgamation into an Indian company. (https://krystal7.com/glossary#amalgamation-income-tax)

## Frequently Asked Questions

### Is a cross border merger allowed in India?

Yes. Section 234 of the Companies Act, 2013 and rule 25A of the CAA Rules, 2016 allow a foreign company to merge into an Indian company. They also allow an Indian company to merge into a company in an Annexure B jurisdiction. Both need prior RBI approval, which regulation 9 of the FEMA Cross Border Merger Regulations, 2018 deems for compliant transactions.

### What is rule 25A of the Companies Rules?

Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 sets the conditions for mergers between Indian and foreign companies. Rule 25A(1) covers inbound mergers and rule 25A(2) outbound mergers. Rule 25A(5), in force from 17 Sep 2024, lets a foreign holding company merge into its wholly owned Indian subsidiary by the section 233 fast track.

### Can a foreign parent merge into its Indian subsidiary by the fast track route?

Yes, since 17 Sep 2024. Rule 25A(5), inserted by G.S.R. 555(E) of 9 Sep 2024, allows a foreign holding company to merge into its wholly owned Indian subsidiary under section 233. Both companies need prior RBI approval, and the Indian company applies to the Central Government, through the Regional Director, instead of the NCLT.

### Does an inbound merger need a separate RBI approval?

No separate application is needed if the merger complies with the FEMA Cross Border Merger Regulations, 2018. Regulation 9(1) deems RBI's prior approval for transactions done under them. The managing director or whole time director and the company secretary must certify compliance with the application to the Competent Authority under regulation 9(2).

### What is the two year rule in an inbound merger?

Regulation 4 of the FEMA Cross Border Merger Regulations, 2018 gives the Indian company two years from sanction for three things. It must sell overseas assets it cannot hold, bring foreign borrowings within ECB rules, and close any foreign bank account kept for the merger. Sale proceeds must be repatriated through banking channels immediately.

### Is an inbound cross border merger taxable in India?

Not if it meets the amalgamation definition in section 2(6) of the Income Tax Act, 2025. Section 70(1)(e) exempts the transfer of assets by the foreign company to the Indian company. Section 70(1)(f) exempts the shareholders' exchange of shares. Both require the amalgamated company to be Indian, and clause (f) also needs the shareholders to receive its shares.

### What happens to the Indian company's shares held by the foreign parent?

They are cancelled on the merger, because a company cannot hold its own shares. The Indian company then issues new shares to the foreign parent's shareholders at the agreed swap ratio. The parent's transfer of its assets, including these shares, falls under section 70(1)(e) of the Income Tax Act, 2025. Section 70(1)(f) covers the parent's shareholders who receive the new shares.

### Can shareholders of the foreign company be paid in cash?

Section 234(2) of the Companies Act, 2013 allows cash, depository receipts or both. A shareholder paid in cash is outside the tax exemption in section 70(1)(f) of the Income Tax Act, 2025, on our reading. Cash for more than a quarter in value can also break the three fourths test in the amalgamation definition.

### Which form reports shares issued to foreign shareholders in a merger?

The Indian company files Form FC-GPR within 30 days of issuing the shares, under regulation 4(1) of FEMA 395/2019-RB. Regulation 4(1) of the Cross Border Merger Regulations requires the issue to follow the FDI rules on pricing, entry route, sectoral caps and reporting. Land border investors need government approval first.

### What stamp duty applies on a cross border merger?

The order sanctioning the scheme is stamped under the law of the state where the Indian company's registered office sits, and rates differ by state. The new shares issued to the foreign company's shareholders attract 0.005 percent of the consideration under the Indian Stamp Act, 1899. The depository collects the share duty on a demat issue.

### Who signs the FEMA compliance certificate for an inbound merger?

The managing director or whole time director, together with the company secretary where there is one, signs it. Regulation 9(2) of the FEMA Cross Border Merger Regulations, 2018 requires the certificate to be filed with the application to the Competent Authority. Without it, the deemed RBI approval in regulation 9(1) does not apply.

### Can a foreign company from any country merge into an Indian company?

On our reading, yes. Annexure B to the CAA Rules lists permitted jurisdictions only for outbound mergers under rule 25A(2). An inbound merger under rule 25A(1) still needs the foreign country's law to allow it. Any investor from a land border country needs government approval for the new shares.

### What happens to the foreign company's subsidiaries after the merger?

They become overseas investments of the Indian company. Regulation 4(4) of the Cross Border Merger Regulations lets the Indian company keep assets it may hold under FEMA. So the subsidiaries must meet the Overseas Investment Rules, 2022. Anything the Indian company cannot hold must be sold within two years of the sanction.

### Did the 2026 FEMA amendment change cross border mergers?

Yes. FEMA 389(1)/2026-RB is dated 29 May 2026 and came into force on its Gazette publication on 5 Jun 2026. It replaced "NCLT" with "Competent Authority" in regulations 4, 5, 7 and 9. On our reading, this extends the deemed approval and the two year windows to fast track mergers under section 233 and rule 25A(5).

## Sources

- Reserve Bank of India, Foreign Exchange Management (Cross Border Merger) Regulations, 2018, FEMA 389/2018-RB, 20 Mar 2018, amended up to 5 Jun 2026, https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11235&Mode=0
- Reserve Bank of India, Foreign Exchange Management (Cross Border Merger) (Amendment) Regulations, 2026, FEMA 389(1)/2026-RB, 29 May 2026 (Gazette 5 Jun 2026), https://rbi.org.in/ScriptS/BS_FemaNotifications.aspx?Id=13466
- Reserve Bank of India, Foreign Exchange Management (Overseas Investment) Regulations, 2022, FEMA 400/2022-RB, 22 Aug 2022, https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12380&Mode=0
- Reserve Bank of India, Foreign Exchange Management (Non Debt Instruments) Rules, 2019, updated up to 2 Sep 2026, https://rbi.org.in/scripts/bs_viewcontent.aspx?Id=5083
- Reserve Bank of India, Foreign Exchange Management (Mode of Payment and Reporting of Non Debt Instruments) Regulations, 2019, amended up to 13 Jun 2026, https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11723&Mode=0
- Reserve Bank of India, Master Direction on Foreign Investment in India, updated up to 15 Jun 2026, https://www.rbi.org.in/scripts/bs_viewmasdirections.aspx?id=11200
- Ministry of Corporate Affairs, Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, with G.S.R. 368(E) of 13 Apr 2017, the Amendment Rules, 2022 (Form CAA.16), G.S.R. 367(E) of 15 May 2023 and G.S.R. 555(E) of 9 Sep 2024, https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/rules.html
- Gazette of India, G.S.R. 367(E), Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2023, 15 May 2023, https://egazette.gov.in/WriteReadData/2023/245885.pdf
- Press Information Bureau, MCA widens the scope of fast track mergers under the Companies Act, 2013 (G.S.R. 603(E) of 4 Sep 2025), 11 Sep 2025, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2165660
- National Company Law Appellate Tribunal, Pipeline Infrastructure Private Limited, Company Appeal (AT) No. 330 of 2018, 5 Oct 2018 (quoting Hindustan Lever v State of Maharashtra, (2004) 9 SCC 438), https://nclat.gov.in/sites/default/files/migration/upload/6577668065bbc9fc8457ff.pdf
- Income Tax Department, Income Tax Act, 2025, section 70, https://www.incometaxindia.gov.in/w/section-70-127
- Income Tax Department, Income Tax Act, 2025, section 2 (clauses 6 and 101), https://www.incometaxindia.gov.in/w/section-2-1
- Income Tax Department, Income Tax Act, 2025, section 73, https://www.incometaxindia.gov.in/w/section-73-122
- Income Tax Department, Income Tax Act, 2025, section 9 (indirect transfer in section 9(10)), https://www.incometaxindia.gov.in/w/section-9-1
- Press Information Bureau, Stamp duty on securities from 1 July 2020, 30 Jun 2020, https://pib.gov.in/PressReleasePage.aspx?PRID=1635399

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