Rights Issue by an Indian Subsidiary to Its Foreign Parent in 2026

Written by Nihal Srivastava, Krystal7 Consultants. Last updated 1 October 2026.

A rights issue lets an Indian subsidiary raise new equity from its existing shareholders, usually the foreign parent. Section 62(1)(a) of the Companies Act, 2013 requires the offer to follow their existing holdings. The offer stays open for 7 to 30 days, or less in a private company when 90 percent of members consent. The parent pays through banking channels at no less than the price offered to residents. The company allots within 60 days of receiving the money and files PAS-3 and FC-GPR within 30 days of allotment.

This page covers the company law steps, FEMA pricing and payment, filings and penalties, and tax under the Income Tax Act, 2025. It ends with a worked example for a UK parent and an Indian nominee, a checklist and 16 FAQs.

What is a rights issue?

A rights issue is an offer of new shares to a company's existing equity shareholders in proportion to the paid up capital they hold. Section 62(1)(a) of the Companies Act, 2013 makes this offer the default route whenever a company increases its subscribed capital. Each shareholder can accept, decline or renounce its entitlement.

For a foreign owned subsidiary, the rights issue is the usual way the parent adds capital after incorporation. The parent holds almost every share. An Indian director often holds a few shares as nominee, because a private company needs two members under section 3(1)(b).

Four terms recur on this page:

• Rights entitlement: the number of new shares a shareholder may take, for example 5 for every 1 held.

• Letter of offer: the section 62(1)(a)(i) notice stating the shares offered, the price, the time limit and the right to renounce.

• FC-GPR: the form an Indian company files on RBI's FIRMS portal to report shares issued to a person resident outside India.

• PAS-3: the return of allotment the company files with the Registrar of Companies on the MCA portal.

A parent can also lend instead of subscribing. Our note on ECB loans from a foreign parent covers that route. Equity suits money that funds losses or long term assets, because the subsidiary never repays it.

How does a private company run a rights issue under section 62(1)(a)?

The board approves the issue at a meeting and sends a letter of offer to every equity shareholder. The letter states the shares offered, the price, the time limit and the right to renounce. After the offer closes, the board allots at a second meeting and the company files PAS-3 within 30 days.

Section 179(3)(c) lets the board issue securities only by a resolution at a board meeting. A circular resolution does not work for the approval or the allotment. A meeting by video conference is fine.

Step	What the company does	Legal basis
1	Checks the articles for any bar on renunciation and checks the headroom in authorised capital	Section 62(1)(a)(ii); section 61(1)(a)
2	Raises authorised capital by resolution of members if needed, and files SH-7 within 30 days	Sections 61 and 64
3	Holds a board meeting to approve the issue size, ratio, price, offer dates and letter of offer	Section 179(3)(c)
4	Sends the letter of offer by registered post, speed post, courier, electronic mode or another mode with proof of delivery, at least 3 days before the issue opens	Section 62(2)
5	Keeps the offer open for 7 to 30 days, or for a shorter period with the consent of 90% of members in a private company	Section 62(1)(a)(i); rule 12A; G.S.R. 464(E)
6	Receives acceptances, renunciations and money	Section 62(1)(a)(ii)
7	Disposes of any unsubscribed shares in a way that does not disadvantage the shareholders or the company	Section 62(1)(a)(iii)
8	Allots at a board meeting and updates the register of members	Sections 179(3)(c) and 88
9	Files PAS-3 within 30 days and delivers the shares within 2 months	Section 39(4) and rule 12; section 56(4)(b)

The offer goes to those who hold equity shares on the date of the offer, so fix that date in the board resolution. The price can be face value or a premium, never a discount (section 53). Members vote only if authorised capital must rise or the articles must change.

A private company files no MGT-14 for these board resolutions. G.S.R. 464(E) of 5 Jun 2015 says section 117(3)(g) "Shall not apply" to private companies. A special resolution, such as a change to the articles, still needs MGT-14. Our paid up capital increase service runs these steps end to end.

Can a private company shorten the offer period?

Yes. The Ministry of Corporate Affairs exemption notification for private companies, G.S.R. 464(E) of 5 Jun 2015, lets a private company use shorter periods than section 62(1)(a)(i) and section 62(2) set. It needs the consent of 90 percent of its members in writing or by electronic mode. Without that consent, the offer must stay open for at least 7 days.

The minimum period has moved since 2014. The Act as first enacted set 15 days. The Companies (Amendment) Act, 2020 let the Government prescribe a shorter period. Rule 12A of the Companies (Share Capital and Debentures) Rules, 2014 now sets it at 7 days from the date of the offer.

G.S.R. 464(E) inserts a proviso into section 62(1)(a)(i). If 90 percent of the members of a private company consent in writing or electronically, shorter periods apply. The proviso reaches both the offer period in section 62(1)(a)(i) and the 3 day dispatch rule in section 62(2).

Company and consent	Letter sent before the issue opens	Minimum offer period	Maximum offer period	Source
Any company, Act as first enacted	3 days	15 days	30 days	Section 62(1)(a)(i) and 62(2)
Any company, current law	3 days	7 days	30 days	Section 62(1)(a)(i) as amended in 2020; rule 12A
Private company with consent of 90% of members	Less than 3 days	Less than 7 days	30 days	G.S.R. 464(E), 5 Jun 2015

Three practical points decide whether the shortcut holds up:

1. Count heads, not shares. On our reading, the proviso looks to 90 percent of the members, not 90 percent of the share capital. In a two member company, that means both must consent.
2. Collect the consents, by email if needed, before the letter of offer goes out.
3. Keep annual filings current. G.S.R. 583(E) of 13 Jun 2017 amended the exemption notification, so read G.S.R. 464(E) as amended for any condition on filing defaults. We use the shortcut only when AOC-4 and MGT-7 are on file.

What price must a foreign parent pay for rights shares under FEMA?

For an unlisted company, the parent's own rights entitlement must be priced at no less than the price offered to resident shareholders. Rule 7 of the NDI Rules sets this, and paragraph 6.12.1 of the RBI Master Direction on Foreign Investment in India restates it. Shares the parent takes beyond its own entitlement must meet the fair value floor instead.

The NDI Rules are the Foreign Exchange Management (Non Debt Instruments) Rules, 2019. Paragraph 6.12.1 of the Master Direction, updated up to 15 Jun 2026, adds conditions. The offer must comply with the Companies Act and stay within the sectoral cap. The new shares carry the same conditions, including repatriability, as the original holding.

The price rule changes with what the parent acquires. Rule 7 of the NDI Rules covers the parent's own entitlement. Rule 7A covers rights that a resident renounces to it.

What the parent acquires	Minimum price	Source
Its own rights entitlement, unlisted company	Not less than the price offered to residents	Rule 7, NDI Rules; Master Direction para 6.12.1
Its own rights entitlement, listed company	The price the company determines	Rule 7; Master Direction para 6.12.1
Rights renounced to it by a resident shareholder	Fair value under the pricing guidelines	Rule 7A; Master Direction para 6.12.4
Unsubscribed shares the board allots under section 62(1)(a)(iii)	Fair value under the pricing guidelines	Master Direction para 6.12.3
Additional shares applied for beyond its entitlement	Fair value (our reading, because they come from the unsubscribed pool)	Master Direction paras 6.12.3 and 6.12.4
Partly paid shares	Same floor; 25% of the total consideration upfront and the balance within 12 months	Master Direction para 4.3
Share warrants	Not available through a rights issue	Master Direction para 6.12.1
Any share, any company	Never below face value	Section 53, Companies Act, 2013

Paragraph 8.1.1 sets the fair value floor for an unlisted company. The valuation follows "any internationally accepted pricing methodology for valuation on an arm's length basis". A Chartered Accountant, a SEBI registered merchant banker or a practising cost accountant certifies it.

A young subsidiary with losses often has a fair value below face value, so a face value issue clears every test. A profitable one may not. Face value then works for the parent's own entitlement but fails for renounced or unsubscribed shares. We get a valuation certificate before the board meeting either way, because the AD bank usually asks for one with the FC-GPR.

What happens when the nominee renounces or declines?

Section 62(1)(a)(ii) lets each shareholder renounce its entitlement in favour of any other person, unless the articles say otherwise. When a resident nominee renounces to the foreign parent, the parent acquires renounced rights. Paragraph 6.12.4 of the Master Direction then applies the fair value floor to those shares, whatever the issue price.

Nominee's choice	Company law step	FEMA effect for the parent	Our view
Subscribes to its own entitlement	Nominee pays and receives the shares	None	Works only with the nominee's own money, which changes who owns those shares
Renounces to the parent	Nominee signs a renunciation; parent applies for the renounced shares	Fair value floor on the renounced shares	Our usual route when the issue price is at or above fair value
Declines	Board allots the unsubscribed shares under section 62(1)(a)(iii)	Fair value floor on those shares	Same pricing outcome as renunciation, with one more board step

The nominee keeps its existing shares either way, so the company still has two members. If the parent funds a nominee's subscription, the investment is in substance the parent's, routed through a resident. We avoid that and use renunciation. If a nominee subscribes as nominee, section 89 needs fresh forms. The nominee files MGT-4, the parent files MGT-5 and the company files MGT-6.

When does a rights issue need government approval?

A rights issue needs prior government approval in three cases. The first is a government route sector. The second is an issue that takes foreign holding past the sectoral cap. The third is a parent, or a beneficial owner, from a country that shares a land border with India. The NDI (Amendment) Rules, 2026 reworked that third test in May 2026.

With a cap below 100 percent or a government route, check the cap and any approval conditions before the board meeting. An earlier approval may name a fixed amount.

Under paragraph 3.2 of the Master Direction, an entity or citizen of a land border country invests only under the government route. So does an investor whose beneficial owner is a citizen or entity of such a country. The Cabinet approved a new beneficial owner test on 10 Mar 2026. The NDI (Amendment) Rules, 2026, S.O. 2174(E) of 1 May 2026, put it into the NDI Rules.

"Beneficial owner" now takes its meaning from section 2(1)(fa) of the Prevention of Money Laundering Act, 2002. The test is rule 9(3) of the PML (Maintenance of Records) Rules, 2005. For a company, that test looks for more than 10 percent of the shares, capital or profits, or control by other means. RBI's KYC Master Direction states the same test. The Cabinet release of 10 Mar 2026 keeps non controlling land border beneficial ownership of up to 10 percent on the automatic route.

Paragraph 3.2.1 adds RBI reporting for investments with direct or indirect land border ownership that need no approval.

Before every issue, we ask for the parent's ownership chart up to the ultimate owners. A fund that invested at parent level since the last issue can change the answer.

How must the foreign parent send the money?

The parent pays by inward remittance through banking channels, or from a repatriable foreign currency or rupee account under the FEMA deposit regulations. Regulation 3 of FEMA 395/2019-RB then gives the company 60 days from receipt to issue the shares. Money it cannot allot must go back within the next 15 days.

FEMA 395/2019-RB is the Foreign Exchange Management (Mode of Payment and Reporting of Non Debt Instruments) Regulations, 2019. RBI updated its wording on repatriable accounts on 15 Jan 2025 (FEMA 395(3)/2025-RB). Refunds go by outward remittance or credit to a repatriable account.

The AD bank, an authorised dealer Category I bank, receives the money. It issues a Foreign Inward Remittance Certificate (FIRC) and a KYC report on the remitter, and both go into the FC-GPR.

Four habits keep the money trail clean:

1. Remit from the parent's own account. In our experience the AD bank queries money from a group treasury company or a founder.
2. Fix the rupee amount and make the sender bear bank charges. A shortfall blocks the full allotment, and an excess needs a refund.
3. Remit only after the parent has accepted the letter of offer.
4. Chase the FIRC and KYC report the day the money lands.

The third habit has a company law reason. Rule 2(1)(c)(vii) of the Companies (Acceptance of Deposits) Rules, 2014 excludes share application money from "deposit" on one condition. The company must hold it "pursuant to an offer made in accordance with the provisions of the Act". Its Explanation adds a time test. Money not allotted within 60 days, and not refunded within the next 15, becomes a deposit. Our note on DPT-3 for foreign owned companies covers what follows.

Must the new shares be issued in demat form?

Yes, for almost every foreign owned subsidiary. Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014 covers every private company that is not a small company. Such a company may issue securities only in demat form. A subsidiary cannot be a small company under section 2(85), so rule 9B reaches every subsidiary once its deadline passes.

MCA inserted rule 9B on 27 Oct 2023. The test date is the last day of a financial year ending on or after 31 Mar 2023. A company that was not small on that date had 18 months to comply. A 12 Feb 2025 amendment set 30 Jun 2025 for companies that were not small on 31 Mar 2023. That date does not cover producer companies. On our reading, a subsidiary incorporated in Jul 2025 has its first year end on 31 Mar 2026 and must comply by 30 Sep 2027.

Rule 9B bites on a rights issue twice. Before a rights offer, the holdings of promoters, directors and key managerial personnel must all be in demat form. A holder must also hold all its securities in demat form before it subscribes. The parent therefore needs an Indian demat account before the offer opens. In our experience the depository participant asks for the parent's PAN, a board resolution and KYC documents.

The company needs an ISIN from NSDL or CDSL and a registrar and share transfer agent. Allotment then runs as a corporate action that credits the parent's demat account.

Stamp duty on an issue of shares is 0.005 percent of the value. The rate sits in Schedule I of the Indian Stamp Act, 1899, as amended by the Finance Act, 2019 from 1 Jul 2020. The depository collects it on a demat issue under section 9A. A company issuing physical shares pays the duty itself under section 9B, on the consideration amount. It pays under the stamp rules of the State concerned.

What filings follow the allotment?

The company files PAS-3 within 30 days of allotment under rule 12. It files FC-GPR on FIRMS within 30 days of the date of issue under regulation 4(1) of FEMA 395/2019-RB. It files SH-7 if authorised capital went up, delivers the shares within two months and pays stamp duty. A private company files no MGT-14 for the board resolution.

Filing or action	Law	Due	Where	Needed when
SH-7, notice of increase in authorised capital	Section 64(1)	30 days from the members' resolution	MCA V3 portal	Authorised capital raised
MGT-14	Section 117(3)	30 days from the resolution	MCA V3 portal	Only for a special resolution, such as a change to the articles
PAS-3, return of allotment	Section 39(4); rule 12, PAS Rules	30 days from allotment	MCA V3 portal	Every allotment
FC-GPR	Regulation 4(1), FEMA 395/2019-RB	30 days from the date of issue	FIRMS, through the AD bank	Every issue to a person resident outside India
Stamp duty at 0.005%	Indian Stamp Act, 1899, Schedule I	At issue	Depository, for demat shares	Every issue
Demat credit or share certificates	Section 56(4)(b)	2 months from allotment	Depository or physical certificate	Every allotment
FLA return	RBI annual return on foreign liabilities and assets	15 July each year	RBI portal	Every year the company has foreign investment

PAS-3 carries a list of allottees with names, addresses, occupations and shares allotted, under rule 12. Our note on PAS-3 for foreign investors walks through the form.

The Indian company files FC-GPR, not the parent, as a business user on FIRMS. The AD bank then reviews it. We upload these documents with each FC-GPR:

1. FIRC and KYC report from the AD bank.
2. Valuation certificate from a Chartered Accountant, SEBI registered merchant banker or practising cost accountant.
3. Certificate from a company secretary on compliance with the Companies Act and the NDI Rules.
4. Board resolution for the allotment and the letter of offer.
5. Renunciation letter, where the parent took renounced shares.

Our FC-GPR timeline guide covers the portal steps. Our note on allotting shares to a foreign shareholder covers the checks before allotment.

Once paid up capital reaches INR 10,00,00,000, a practising company secretary must certify the annual return in MGT-8. Rule 11(2) of the Companies (Management and Administration) Rules, 2014 sets that test. The next FLA return shows the higher foreign liability. Our FLA due date note has the current deadline.

What does a late or missed filing cost?

A late PAS-3 draws a penalty of INR 1,000 a day under section 39(5). The cap is INR 1,00,000 for the company and for each officer in default. A late FC-GPR costs a late submission fee of INR 7,500 plus 0.025 percent of the amount for each year of delay. After three years, only compounding remains.

Default	Consequence	Source
PAS-3 filed after 30 days	Penalty of INR 1,000 per day, up to INR 1,00,000, on the company and each officer in default, plus additional MCA fees	Section 39(5); Companies (Registration Offices and Fees) Rules, 2014
FC-GPR filed late but within 3 years of the due date	Late submission fee of INR 7,500 + (0.025% × A × n), capped at 100% of A, rounded up to the next INR 100	A.P. (DIR Series) Circular No. 16, 30 Sep 2022
FC-GPR not filed within 3 years	Late submission fee no longer available; the contravention goes to compounding	Same circular; section 15, FEMA
Shares not issued within 60 days and money not refunded within the next 15 days	FEMA contravention; the money is also treated as a deposit	Regulation 3, FEMA 395/2019-RB; rule 2(1)(c)(vii), Deposit Rules
Shares not delivered within 2 months	Penalty on the company and each officer in default; check the amount in section 56(6) as in force on the date of default	Section 56(6)
SH-7 filed late	Penalty on the company and each officer in default; check the amount in section 64(2) as in force on the date of default	Section 64(2)
Issue without a required government approval	Contravention of the NDI Rules	Master Direction para 3.2

In the late submission fee formula, "A" is the amount involved. "n" is the number of years of delay, rounded up to the nearest month and expressed to two decimal places. RBI's advice to pay the fee lapses if the company does not pay within 30 days.

Our guide to the FEMA compounding application explains the route after three years.

Should you use a rights issue or a preferential allotment?

Use a rights issue when existing shareholders fund in proportion, which is the normal case for a subsidiary with one parent. Use a preferential allotment under section 62(1)(c) when a new investor comes in or holdings must change. It needs a special resolution, a registered valuer's report, a PAS-4 offer letter, a separate bank account and PAS-3 within 15 days.

Point	Rights issue	Preferential allotment
Section	62(1)(a)	62(1)(c) read with section 42
Who may subscribe	Existing equity shareholders and their renouncees	Identified persons, up to 200 in a financial year
Approval	Board resolution at a meeting	Special resolution of members, then MGT-14 within 30 days
Valuation under the Companies Act	Not required	Registered valuer's report under rule 13, Share Capital Rules
FEMA floor for the parent	Resident price for its own entitlement	Fair value under the pricing guidelines
Offer document	Letter of offer	PAS-4 private placement offer and application letter
Bank account	No statutory separate account	Separate account in a scheduled bank, section 42(6)
Allotment deadline	60 days from receipt of money, under FEMA and the Deposit Rules	60 days from receipt; refund within 15 days; 12% interest after that, section 42(6)
Window after approval	None set by the Act	Allotment within 12 months of the special resolution, rule 13
Return of allotment	PAS-3 within 30 days, rule 12	PAS-3 within 15 days, section 42(8)
Penalty for a late return	Up to INR 1,00,000, section 39(5)	INR 1,000 per day up to INR 25,00,000, section 42(9)

A preferential allotment fits when a second investor wants shares directly in the Indian company. It also fits an issue to a group company that is not yet a member, or a deliberate change in proportions. For a parent topping up its own subsidiary, it adds a general meeting and a valuer's report without adding protection.

Does a rights issue create income tax exposure?

Usually not for the subsidiary. The angel tax in section 56(2)(viib) of the Income Tax Act, 1961 stopped applying from assessment year 2025-26. Section 92 of the Income Tax Act, 2025 has no successor clause. The parent needs a check under section 92(2)(m) when it takes shares below fair market value beyond its own entitlement.

The Income Tax Act, 2025 applies from 1 Apr 2026. Its section 92 covers income from other sources. None of its clauses, as the Income Tax Department publishes them, taxes a company on share premium above fair market value.

Section 92(2)(m) replaces section 56(2)(x) of the 1961 Act. It taxes a person who receives property, including shares, for less than fair market value where the gap exceeds INR 50,000. A pro rata issue moves value within the parent's own holding. An allotment beyond pro rata can shift value from the nominee to the parent. Fair market value here follows rule 57 of the Income Tax Rules, 2026, not the FEMA certificate.

On 28 Jan 2015 the Cabinet accepted the Bombay High Court order in Vodafone India Services Private Limited. The court found that a share issue to a non resident parent produced no income, so arm's length pricing did not apply. We still disclose the subscription in the transfer pricing report, now Form 48 under section 172 of the 2025 Act.

Issue	Income Tax Act, 1961	Income Tax Act, 2025, from 1 Apr 2026	Effect on a rights issue
Share premium above fair value received by a closely held company	Section 56(2)(viib), not applicable from AY 2025-26	No successor clause in section 92	No tax on premium for the subsidiary
Shares received below fair market value	Section 56(2)(x)	Section 92(2)(m)(iii)(B)	Check allotments beyond pro rata where the value gap exceeds INR 50,000
Transfer pricing report	Form 3CEB, section 92E	Form 48, section 172	Disclose the subscription; no arm's length adjustment on the issue
Fair market value rules	Rule 11UA, Income Tax Rules, 1962	Rule 57, Income Tax Rules, 2026	Value the shares when the allotment is not pro rata
Tax deduction on subscription money	None	None	Capital receipt

Our note on what the Income Tax Act, 2025 changed maps the other sections.

What changed in 2026

These 2026 updates touch a rights issue to a foreign parent. None of them changed the section 62 steps or the 30 day FC-GPR deadline.

Area	Before	Now	Date	Instrument
Land border beneficial ownership	Press Note 3 (2020 Series) used "beneficial owner" without a defined test	Beneficial owner follows section 2(1)(fa) of the PMLA and rule 9(3) of the PML Rules; indirect cases outside approval are reported to RBI	1 May 2026	NDI (Amendment) Rules, 2026, S.O. 2174(E), after the Cabinet decision of 10 Mar 2026
Income tax statute	Income Tax Act, 1961	Income Tax Act, 2025; section 56(2)(x) becomes section 92(2)(m); no successor to section 56(2)(viib)	1 Apr 2026	Income Tax Act, 2025
Transfer pricing report	Form 3CEB	Form 48	1 Apr 2026	Income Tax Rules, 2026, G.S.R. 198(E), 20 Mar 2026
FEMA 395 reporting regulations	Last amended 15 Jan 2025	Amended the Schedule III and Schedule XI provisions and related reporting; FC-GPR stays at 30 days	13 Jun 2026	FEMA 395(4)/2026-RB

Two earlier changes still catch companies in 2026. The rule 9B demat deadline of 30 Jun 2025 has passed for subsidiaries that existed on 31 Mar 2023. A physical allotment by them now breaches the rule. The angel tax stopped applying from assessment year 2025-26. Many shareholder agreements still carry valuation clauses written for it.

Worked example

The facts below are illustrative.

• The Indian subsidiary is a private company in an automatic route sector with a 100 percent cap.

• Paid up capital is INR 1,00,00,000, in 10,00,000 equity shares of INR 10.

• The UK parent holds 9,99,000 shares (99.9 percent). An Indian resident director holds 1,000 shares (0.1 percent) as nominee for the parent.

• Authorised capital is INR 1,00,00,000.

• The parent wants to add INR 5,00,00,000. It has no land border beneficial owner.

• The subsidiary is past its rule 9B date, and both holdings sit in demat accounts.

Case A with fair value below face value

The valuation certificate puts fair value at INR 7.80 a share. The board sets a rights issue at face value of INR 10, in the ratio of 5 new shares for every 1 held.

Item	UK parent	Nominee	Total
Shares held before the issue	9,99,000	1,000	10,00,000
Rights entitlement at 5 for 1	49,95,000	5,000	50,00,000
Amount at INR 10 a share (INR)	4,99,50,000	50,000	5,00,00,000
Shares after the nominee renounces to the parent	59,99,000	1,000	60,00,000
Holding after the issue	99.983%	0.017%	100%

The issue price of INR 10 exceeds fair value of INR 7.80. The renounced 5,000 shares therefore clear the fair value floor in paragraph 6.12.4. Authorised capital must rise to at least INR 6,00,00,000 before allotment. Stamp duty at 0.005 percent on INR 5,00,00,000 is INR 2,500.

Both members consent to shorter periods, so the timeline runs like this:

Day	Date	Action	Rule
Before day 1	By 1 Oct 2026	Valuation certificate signed; ownership chart checked for land border links; ISIN and demat accounts confirmed	Master Direction paras 8.1.1 and 3.2; rule 9B
1	Mon 5 Oct 2026	Board meeting approves the issue, the letter of offer and a general meeting at shorter notice	Section 179(3)(c)
1	Mon 5 Oct 2026	General meeting raises authorised capital to INR 6,00,00,000; both members sign consent to shorter periods	Section 61(1)(a); section 101(1) proviso; G.S.R. 464(E)
1	Mon 5 Oct 2026	Letter of offer emailed to both members, with delivery records kept	Section 62(2)
2	Tue 6 Oct 2026	Offer opens; nominee signs a renunciation in favour of the parent	Section 62(1)(a)(ii)
3	Wed 7 Oct 2026	Parent accepts 49,95,000 shares, applies for the 5,000 renounced shares and remits INR 5,00,00,000	Regulation 3, FEMA 395/2019-RB
4	Thu 8 Oct 2026	Money credited; offer closes	Section 62(1)(a)(i)
8	Mon 12 Oct 2026	AD bank issues the FIRC and KYC report	Our practice
10	Wed 14 Oct 2026	Board allots 50,00,000 shares; corporate action credits the parent's demat account; depository collects INR 2,500 stamp duty	Section 179(3)(c); Indian Stamp Act, section 9A
31	Wed 4 Nov 2026	Last day for SH-7	Section 64(1)
40	Fri 13 Nov 2026	Last day for PAS-3 and FC-GPR	Rule 12; regulation 4(1), FEMA 395/2019-RB
64	Mon 7 Dec 2026	Last day to allot under the 60 day rule (met on day 10)	Regulation 3, FEMA 395/2019-RB
71	Mon 14 Dec 2026	Last day for demat credit, 2 months from allotment (met on day 10)	Section 56(4)(b)

This general meeting is not the AGM, so clause (ii) of the proviso to section 101(1) sets the shorter notice test. A majority in number of the members entitled to vote must consent. Those members must hold at least 95 percent of the paid up share capital that carries voting rights. An AGM instead needs consent from 95 percent of the members entitled to vote. Here both members sign the consent, so the test is met.

Case B with fair value above face value

Now the certificate puts fair value at INR 12.50 a share. The parent's own entitlement at INR 10 still passes, because residents are offered the same INR 10. The 5,000 renounced shares fail, because the parent would pay INR 2.50 a share less than fair value.

Option	Price a share (INR)	New shares	Share capital added (INR)	Securities premium (INR)	FEMA result
Face value, nominee renounces to the parent	10.00	50,00,000	5,00,00,000	0	Fails on the 5,000 renounced shares
Fair value, nominee renounces to the parent	12.50	40,00,000	4,00,00,000	1,00,00,000	Passes

At INR 12.50 the ratio becomes 4 for 1. The parent takes 39,96,000 shares for INR 4,99,50,000 and the renounced 4,000 shares for INR 50,000. Authorised capital needs to reach only INR 5,00,00,000.

The income tax check gives a different answer from FEMA. In the face value option, the value gap on the renounced shares is 5,000 × INR 2.50, or INR 12,500. That is below the INR 50,000 threshold in section 92(2)(m), if the income tax fair market value matches the FEMA figure. FEMA has no such threshold, so the FEMA breach stands.

Cost of a late FC-GPR in this example

Suppose the company in Case A files FC-GPR on 13 Mar 2027 instead of 13 Nov 2026. The delay is 4 months, so n is 0.33 years. The fee is INR 7,500 + (0.025% × INR 5,00,00,000 × 0.33) = INR 7,500 + INR 4,125 = INR 11,625. Rounded up to the next INR 100, the fee is INR 11,700.

A PAS-3 filed 20 days late would expose the company to INR 20,000 under section 39(5). Each officer in default faces the same amount, and MCA adds fees for the delay.

Common mistakes

1. The parent remits before the letter of offer. The money falls outside the Deposit Rules exclusion and starts the 60 day FEMA clock early. Fix: send the offer, collect the acceptance, then remit.
2. The parent takes renounced shares below fair value. Paragraph 6.12.4 applies the fair value floor to renounced rights. Fix: get the valuation first and price at or above fair value when it exceeds face value.
3. The 90 percent consent is counted by shares. On our reading, the proviso counts members, not shares. Fix: in a two member company, get both signatures before the letter goes out.
4. The allotment exceeds authorised capital. Fix: raise authorised capital first, and file SH-7 within 30 days.
5. PAS-3 runs on the wrong clock. The 15 day limit is for private placements; rule 12 gives a rights issue 30 days. Fix: diary 30 days from allotment and file PAS-3 with the FC-GPR.
6. The FC-GPR clock starts from the FIRC date. Regulation 4(1) counts from the date of issue. Fix: count 30 days from allotment, and never let a slow FIRC push allotment past 60 days.
7. The company issues physical shares after its rule 9B date. Fix: get the ISIN, open the parent's demat account and allot through a corporate action.
8. Nobody checks the parent's owners for land border links. A new fund at parent level can bring the issue under the government route. Fix: trace beneficial owners before every issue.
9. The nominee subscribes with the parent's money. Fix: use renunciation, or update the section 89 declarations if the nominee subscribes as nominee.
10. The issue pushes paid up capital past INR 10,00,00,000 without a plan. MGT-8 certification then applies. A whole time company secretary may also become necessary. Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 sets that test by paid up capital. Fix: check both rules and size the issue with these costs in view.

Rights issue checklist

1. Confirm the entry route and sectoral cap, and trace the parent's owners for any land border link.
2. Check the articles for any bar on renunciation, and check the headroom in authorised capital.
3. Confirm the ISIN, the registrar and the demat accounts of both holders under rule 9B.
4. Obtain a valuation certificate from a Chartered Accountant, a SEBI registered merchant banker or a practising cost accountant.
5. Hold a board meeting to approve the issue size, ratio, price, offer dates and letter of offer.
6. Pass the members' resolution to raise authorised capital, if needed, and file SH-7 within 30 days.
7. Collect written or email consent from at least 90 percent of members if you will shorten the periods.
8. Send the letter of offer, with the statement of the right to renounce, by a mode with proof of delivery.
9. Collect the parent's acceptance and application, and the nominee's renunciation.
10. Receive the money by inward remittance, and collect the FIRC and KYC report from the AD bank.
11. Allot the shares at a board meeting within 60 days of receiving the money.
12. Credit the shares to demat accounts, and let the depository collect stamp duty at 0.005 percent.
13. File PAS-3 within 30 days of allotment.
14. File FC-GPR on FIRMS within 30 days of the date of issue.
15. Update the register of members, and diary the FLA return for 15 July.
16. Disclose the subscription in the annual return and in the next Form 48.

To have us run the rights issue and the FC-GPR for your subsidiary, start from our FEMA compliance service.

Frequently Asked Questions

Does a private company need a general meeting for a rights issue?+

No. The board approves a rights issue under section 179(3)(c) of the Companies Act, 2013, at a board meeting rather than by circular resolution. Members meet only if the company must raise authorised capital under section 61 or change its articles. A private company does not file MGT-14 for the board resolution, because G.S.R. 464(E) of 5 Jun 2015 disapplies section 117(3)(g) for private companies.

Is a valuation report mandatory for a rights issue to a foreign parent?+

The Companies Act does not require one for a rights issue under section 62(1)(a). FEMA requires the parent's own entitlement to be priced no lower than the resident price, and renounced or unsubscribed shares to meet fair value under paragraph 8.1.1 of the Master Direction. We obtain a certificate for every issue, because the AD bank usually asks for it with the FC-GPR.

Can rights shares be issued at a premium to the foreign parent?+

Yes. FEMA sets a floor price, not a ceiling, so an Indian subsidiary can issue rights shares to its parent at a premium. The premium goes to the securities premium account under section 52 of the Companies Act, 2013. Section 56(2)(viib) stopped applying from assessment year 2025-26, and section 92 of the Income Tax Act, 2025 has no successor, so the premium creates no income tax for the company.

What is the due date for FC-GPR on rights shares?+

The company files FC-GPR within 30 days from the date of issue of the shares, under regulation 4(1) of FEMA 395/2019-RB. The date of issue is the allotment date, not the date the money arrived. The form goes through the FIRMS portal to the company's AD bank. A rights issue to an existing foreign shareholder needs an FC-GPR in the same way as a first issue.

Is PAS-3 for a rights issue due in 15 days or 30 days?+

PAS-3 for a rights issue is due within 30 days of allotment under rule 12 of the Companies (Prospectus and Allotment of Securities) Rules, 2014. The 15 day limit in section 42(8) applies only to a private placement, which includes a preferential allotment. A late rights issue PAS-3 draws a penalty under section 39(5) of INR 1,000 a day, up to INR 1,00,000.

What happens if the money arrives but the shares are not allotted within 60 days?+

Regulation 3 of FEMA 395/2019-RB requires a refund within the next 15 days, by outward remittance or credit to a repatriable account. If the company neither allots nor refunds, it breaches FEMA and needs compounding. Under rule 2(1)(c)(vii) of the Companies (Acceptance of Deposits) Rules, 2014, the money is also treated as a deposit, with DPT-3 reporting and section 73 consequences.

Can the foreign parent send the money before the letter of offer?+

It should not. The Deposit Rules exclude share application money from "deposit" only when the company holds it pursuant to an offer made under the Companies Act. Money sent before the offer has no such cover, and it starts the 60 day clock in regulation 3 of FEMA 395/2019-RB early. We ask the parent to remit only after it has received and accepted the letter of offer.

Must the foreign parent hold its existing shares in demat before subscribing?+

Yes, where rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014 applies. A holder who subscribes to securities of a covered private company must first hold all its existing securities in demat form. The parent therefore needs an Indian demat account before the offer opens. A foreign owned subsidiary is never a small company, so the rule covers it once its deadline passes.

How much stamp duty applies to rights shares?+

Stamp duty on an issue of shares is 0.005 percent under Schedule I of the Indian Stamp Act, 1899, as amended by the Finance Act, 2019 from 1 Jul 2020. For a demat issue, the depository collects it under section 9A. On an issue of INR 5,00,00,000 the duty is INR 2,500. A company still issuing physical shares pays the duty itself under section 9B, on the consideration amount.

Can a subsidiary issue partly paid rights shares to its parent?+

Yes. Paragraph 4.3 of the RBI Master Direction on Foreign Investment in India allows partly paid shares if the company receives 25 percent of the total consideration upfront. The 25 percent counts any premium. The balance must arrive within 12 months from the date of issue. Share warrants cannot go through a rights issue, because paragraph 6.12.1 covers equity instruments other than share warrants.

Does a rights issue to a parent with Chinese ownership need approval?+

Yes, if the parent is a Chinese entity or its beneficial owner is a Chinese citizen or entity. Paragraph 3.2 of the Master Direction puts such investment under the government route. Under the NDI (Amendment) Rules, 2026 of 1 May 2026, beneficial ownership follows rule 9(3) of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. Indirect links that need no approval still need RBI reporting under paragraph 3.2.1.

Does the share issue trigger a transfer pricing adjustment?+

No adjustment should arise on the issue itself. On 28 Jan 2015 the Cabinet accepted the Bombay High Court order in Vodafone India Services Private Limited. The court held that a share issue to a non resident parent produced no income, so arm's length pricing did not apply. We still disclose the subscription in the transfer pricing report, now Form 48 under section 172 of the Income Tax Act, 2025.

Can the board allot unsubscribed rights shares to the foreign parent?+

Yes. Section 62(1)(a)(iii) lets the board dispose of declined shares in a way that does not disadvantage the shareholders or the company. Paragraph 6.12.3 of the Master Direction allows such an issue to a person resident outside India. It applies the entry route, the sectoral cap and the pricing guidelines, so the price must meet fair value under paragraph 8.1.1.

What if the nominee later transfers its existing share to someone else?+

That is a transfer, not an issue, so FC-GPR does not apply. A transfer between a resident and a non resident is reported in FC-TRS within 60 days of the transfer or of the receipt or remittance of funds, whichever is earlier, under regulation 4 of FEMA 395/2019-RB. Our note on FC-GPR and FC-TRS compares the two forms.

Can a rights issue push the company into new compliance thresholds?+

Yes. When paid up capital reaches INR 10,00,00,000, rule 11(2) of the Companies (Management and Administration) Rules, 2014 requires a practising company secretary to certify the annual return in MGT-8. The rules on appointing a whole time company secretary also key off paid up capital. Check both before the board fixes the issue size, and budget for them.

Who files FC-GPR, and can the parent file it?+

The Indian company files FC-GPR, because regulation 4(1) of FEMA 395/2019-RB puts the duty on the company that issues the shares. An authorised person of the company submits it as a business user on FIRMS, and the AD bank reviews it. The parent cannot file it. The parent supplies its KYC, the remittance details and a board resolution authorising the subscription.

Sources

• Ministry of Corporate Affairs, Companies Act, 2013 (sections 3, 39, 42, 52, 53, 56, 61, 62, 64, 88, 89, 117 and 179), Acts library, https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html
• Income Tax Department (Companies Act, 2013 text), Section 101, notice of meeting (proviso on shorter notice), read 1 Oct 2026, https://www.incometaxindia.gov.in/w/section-101-43
• Ministry of Corporate Affairs, Companies (Share Capital and Debentures) Rules, 2014 (rules 12A and 13), Companies (Prospectus and Allotment of Securities) Rules, 2014 (rules 9B, 12 and 14), Companies (Acceptance of Deposits) Rules, 2014 (rule 2(1)(c)(vii)) and Companies (Management and Administration) Rules, 2014 (rule 11), Rules library, https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/rules.html
• Ministry of Corporate Affairs, Exemptions to private companies, G.S.R. 464(E), 5 Jun 2015, https://www.mca.gov.in/Ministry/pdf/Exemptions_to_private_companies_05062015.pdf
• Ministry of Corporate Affairs, Amendment to exemptions to private companies, G.S.R. 583(E), 13 Jun 2017, https://www.mca.gov.in/Ministry/pdf/ExemptionPrivateCompanies.pdf
• Reserve Bank of India, Master Direction on Foreign Investment in India, updated up to 15 Jun 2026 (paras 3.2, 3.2.1, 4.3, 6.12 and 8.1.1), https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11200
• Reserve Bank of India, Foreign Exchange Management (Non Debt Instruments) Rules, 2019, updated up to 12 Jun 2026 (rules 2(k), 6(a), 7 and 7A), https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=5083
• Reserve Bank of India, Master Direction on Know Your Customer (KYC), 2016, updated 14 Aug 2025 (beneficial owner of a company), https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11566
• Reserve Bank of India, Foreign Exchange Management (Mode of Payment and Reporting of Non Debt Instruments) Regulations, 2019, FEMA 395/2019-RB, 17 Oct 2019, as amended to 13 Jun 2026, https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11723&Mode=0
• Reserve Bank of India, Late Submission Fee for reporting delays under FEMA, A.P. (DIR Series) Circular No. 16, 30 Sep 2022, https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12393&Mode=0
• Reserve Bank of India, Master Direction on Reporting under FEMA, updated 23 Sep 2026, https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10202
• Income Tax Department, Section 92 of the Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-92-109
• Income Tax Department, Exemption from angel tax under section 56(2)(viib), https://www.incometaxindia.gov.in/w/exemption-from-angel-tax-section-56-2-viib-
• Income Tax Department, Income Tax Rules, 2026, G.S.R. 198(E), 20 Mar 2026, https://www.incometaxindia.gov.in/documents/d/guest/en-notified-it-rules-2026-20-03-2026-pdf
• Income Tax Department, Rule 57, Determination of fair market value, Income Tax Rules, 2026, https://www.incometaxindia.gov.in/w/rule-57-4
• Income Tax Department, FAQs and guidance notes on forms under the Income Tax Rules, 2026, https://www.incometaxindia.gov.in/faqs-and-guidance-notes-on-forms-as-per-income-tax-rules-2026
• Press Information Bureau, Acceptance of the order of the High Court of Bombay in the case of Vodafone India Services Private Limited, 28 Jan 2015, https://www.pib.gov.in/newsite/PrintRelease.aspx?relid=115027
• Press Information Bureau, Cabinet approves changes in guidelines on investments from countries sharing land border with India, 10 Mar 2026, https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=2237806
• Press Information Bureau, Implementation of amendments in the Indian Stamp Act, 1899 from 1 July 2020, 30 Jun 2020, https://www.pib.gov.in/PressReleasePage.aspx?PRID=1635399
• Government of India FAQs on amendments to the Indian Stamp Act, 1899, hosted by SEBI, https://www.sebi.gov.in/sebi_data/faqfiles/dec-2021/1639980911330.pdf