Share Transfer between a Resident and a Non Resident in 2026

Written by Nihal Srivastava, Krystal7 Consultants. Last updated 27 September 2026.

To move shares of an Indian Private Limited company from a resident to a non resident, price them at or above fair value. Rule 21 of the NDI Rules, 2019 sets that floor. The buyer pays through banking channels into India. The shares move by demat instruction, or by Form SH-4 if still physical, with stamp duty of 0.015 percent. The resident party files Form FC-TRS on RBI's FIRMS portal within 60 days of the transfer or the receipt of funds, whichever is earlier.

This page covers the FEMA and company law steps in both directions, deferred payment, and the seller's tax with TDS and treaty relief. It ends with two worked examples, a checklist and 18 FAQs.

How do you transfer shares from a resident to a non resident?

Check that the buyer can hold the shares under the entry route and sectoral cap. Get a fair value certificate and agree a price at or above it. Receive the money from abroad through an Indian bank. Move the shares by demat or SH-4, pay stamp duty, update the register of members and file FC-TRS within 60 days.

Rule 9(3) of the Foreign Exchange Management (Non Debt Instruments) Rules, 2019 (the NDI Rules) gives the permission. A resident may sell equity instruments of an Indian company to a person resident outside India. The sale must follow the entry routes, sectoral caps, pricing guidelines and other attendant conditions. Rule 2(k) defines equity instruments as equity shares, convertible debentures, preference shares and share warrants.

Step	Action	Who acts	Law
1	Confirm the entry route, sectoral cap and any land border link in the buyer's ownership	Seller and company	Rules 6(a) and 9(3), NDI Rules
2	Read the articles for a right of first refusal or board consent	Company secretary	Articles; section 2(68), Companies Act, 2013
3	Obtain a fair value certificate, not older than 90 days at the investment date	Seller	Rule 21; Master Direction paras 8.2 and 8.11
4	Sign the agreement at or above fair value; keep any deferred part within 25% and 18 months	Both parties	Rules 9(6) and 21(2)(b)
5	Open an Indian demat account and obtain a PAN for the buyer	Buyer	Rule 9B, PAS Rules
6	Remit the price from abroad to the seller's Indian account; collect the inward remittance certificate and KYC report	Buyer and bank	Master Direction para 7.13
7	Transfer off market in demat, or execute and stamp SH-4 for physical shares	Seller	Section 56(1); rule 11, Share Capital Rules
8	Note the transfer at a board meeting and update the register of members	Company	Sections 56 and 88
9	File FC-TRS on FIRMS within 60 days	Resident seller	Regulation 4(3), FEMA 395/2019-RB
10	Pay capital gains tax through advance tax	Seller	Sections 197 and 408, Income Tax Act, 2025

Our share transfer service runs these steps as one file for both parties.

When does a transfer to a non resident need government approval?

Most transfers in automatic route sectors need no approval. Prior government approval is needed in a government route sector. It is also needed when the buyer or its beneficial owner comes from a country that shares a land border with India. A gift to a non resident needs RBI approval.

The land border test sits in the provisos to rule 6(a) of the NDI Rules. One proviso covers transfers. If a transfer of existing foreign investment makes beneficial ownership fall within the restriction, that change "shall also require prior Government approval". The NDI (Amendment) Rules, 2026, S.O. 2174(E) of 1 May 2026, tie beneficial ownership to rule 9(3) of the PML (Maintenance of Records) Rules, 2005. The Cabinet release of 10 Mar 2026 keeps non controlling beneficial ownership of up to 10 percent on the automatic route.

Situation	What you need before the transfer	Source
Automatic route sector, within the cap	No approval; report in FC-TRS	Rule 9(3)
Government route sector	Government approval	Rule 9(3), entry route
Foreign holding would exceed the sectoral cap	Resize the deal	Rule 9(3), sectoral cap
Buyer, or its beneficial owner, from a land border country	Government approval	Rule 6(a), provisos
Transfer moves beneficial ownership into that group	Prior government approval	Rule 6(a), proviso on transfers
Financial sector company	Sector regulator's conditions, such as fit and proper tests	Master Direction para 7.12
Gift by a resident	Prior RBI approval; relatives only; up to 5% of paid up capital; the donor's gifts capped at USD 50,000 a financial year	Rule 9(4)

Check the sector against our note on FDI automatic route sectors before the term sheet.

What price rules apply under FEMA?

For an unlisted company, a resident selling to a non resident must receive at least fair value. A non resident selling to a resident may receive at most fair value. Fair value comes from any internationally accepted pricing method on an arm's length basis. A Chartered Accountant, a SEBI registered merchant banker or a practising cost accountant certifies it.

Rule 21(2)(b) of the NDI Rules sets the floor. Rule 21(2)(c) sets the ceiling. Paragraphs 8.2 and 8.3 of the RBI Master Direction on Foreign Investment in India, updated as on 15 Jun 2026, restate both. Rule 21(2)(c) adds a guiding principle. The non resident "is not guaranteed any assured exit price" and exits "at the price prevailing at the time of exit".

Transfer	Unlisted company	Listed company	Source
Resident to non resident	Not less than certified fair value	Not less than the SEBI guideline or preferential allotment price	Rule 21(2)(b); para 8.2
Non resident to resident	Not more than certified fair value	Not more than that price	Rule 21(2)(c); para 8.3
Share swap	Valuation by a SEBI registered merchant banker or a regulated investment banker abroad	Same	Rule 21(2)(c)(iv)
Holder on a non repatriation basis	Pricing guidelines do not apply	Do not apply	Para 8.10.1
Exit under an option clause	Price then prevailing, after at least one year of lock in	Same	Rule 9(5)

Paragraph 8.11 says the certificate "must not be more than ninety days old as on the date of the investment". For a transfer, we read the investment date as the earlier of the share movement and the money movement. Our valuation reports service issues certificates for FEMA and income tax.

What if FEMA fair value and income tax fair market value differ?

They can, and the gap can be large. FEMA accepts any internationally accepted method, and many certificates for unlisted companies use discounted cash flow. The Income Tax Act, 2025 values unquoted equity shares by a book value formula in rule 57 of the Income Tax Rules, 2026. A price that passes FEMA can still create income tax for the seller, the buyer or both.

When an unquoted share sells below the prescribed fair market value, section 79 of the 2025 Act deems that value to be the consideration. Section 92(2)(m)(iii)(B) taxes a buyer that pays less than fair market value, where the shortfall exceeds INR 50,000.

Rule 57 values unquoted equity shares as (A + B + C + D − L) × (PV) ÷ (PE). A is the book value of most assets. B, C and D bring in jewellery and art, shares and securities, and immovable property at market or stamp duty value. L is book liabilities, and PV over PE is the paid up value of the shares over total paid up equity. The rule gives no discounted cash flow option for equity shares.

The rule 57 table names sections 26(2)(j), 72 and 92 against unquoted equity shares. It does not name section 79. Section 79 deems its value to be the consideration "for the purposes of section 72". On our reading, rule 57 therefore sets the value for section 79, the job old rule 11UAA did for section 50CA.

We have found no official guidance that reconciles the two values for a transfer. Treat the gap as a practical tax risk, test it before you agree the price, and budget for it where FEMA leaves no room.

Direction	FEMA rule	Seller side	Buyer side	Price that clears both
Resident to non resident	At least FEMA fair value	Section 79 if below the rule value	Section 92(2)(m)(iii)(B) if the shortfall exceeds INR 50,000	At least the higher of the two values
Non resident to resident	At most FEMA fair value	Section 79	Section 92(2)(m)(iii)(B)	Between the rule value and FEMA fair value
Non resident to resident, rule value above FEMA value	At most FEMA fair value	Applies at every FEMA compliant price	Applies at every FEMA compliant price	None; price at FEMA fair value and budget the tax

In our experience the first direction rarely bites, because a DCF value of a growth company tends to exceed its book value. The reverse can bite in asset heavy companies, such as one holding land. Worked example B shows the cost.

What is Form FC-TRS and who files it?

Form FC-TRS (Foreign Currency Transfer of Shares) reports a transfer of equity instruments between a resident and a repatriable non resident. The resident transferor or transferee files it on RBI's FIRMS portal, and the AD bank approves it. The non resident files only for a sale on an Indian stock exchange.

Regulation 4(3) of FEMA 395/2019-RB, the Mode of Payment and Reporting of Non Debt Instruments Regulations, 2019, sets the scope. The onus is on the resident transferor or transferee. Where one side holds on a non repatriable basis, that holder reports.

Transfer	FC-TRS	Who files	Source
Resident sells to a repatriable non resident	Yes	Resident seller	Regulation 4(3)(a)
Repatriable non resident sells to a resident	Yes	Resident buyer	Regulation 4(3)(a)
Repatriable non resident and a non repatriable NRI or OCI	Yes	The non repatriable holder	Regulation 4(3)(a)
Non repatriable holder sells to a resident	No	Not applicable	Note to regulation 4(3)(a)
Two repatriable non residents	No	Not applicable	Not listed in regulation 4(3)
Non resident sells on a recognised stock exchange	Yes	Non resident seller	Regulation 4(3)(b)
Deferred consideration under rule 9(6)	Yes, on every tranche	Resident party	Regulation 4(3)(c)

FIRMS is RBI's Foreign Investment Reporting and Management System, and FC-TRS sits in its Single Master Form. The Indian company must first have its Entity Master on FIRMS. The resident party then registers as a business user and files against that company. Our note on FC-GPR and FC-TRS compares the two forms.

What is the due date for FC-TRS?

File FC-TRS within 60 days of the transfer of the equity instruments or the receipt or remittance of funds, whichever is earlier. A deal paid in tranches under rule 9(6) needs a filing on receipt of every tranche. A late filing is still accepted with a late submission fee.

"Whichever is earlier" decides most AD bank disputes. In a sale to a non resident, the buyer usually pays first, so payment starts the clock. In a sale by a non resident, the shares often move first.

Deal pattern	Clock starts	FC-TRS due
Money in on 5 Oct 2026; shares move on 12 Oct 2026	5 Oct 2026	4 Dec 2026
Shares move on 1 Nov 2026; money out on 20 Nov 2026	1 Nov 2026	31 Dec 2026
80% paid on 5 Oct 2026; escrow of 20% released on 1 Oct 2027	Each tranche on receipt	4 Dec 2026 and 30 Nov 2027
SH-4 executed on 10 Oct 2026; money in on 15 Oct 2026	10 Oct 2026, on our reading	9 Dec 2026

For physical shares, the law does not say whether "transfer" means execution of SH-4 or registration. We count from execution, the earlier date.

Which documents go with FC-TRS?

FIRMS takes the deal data in the form and the evidence as uploads. The list below is what we upload as practice. AD banks sometimes ask for more.

RBI's user manual for the Single Master Form (1 Sep 2018) lists the uploads for FC-TRS. The list covers a valuation certificate, transfer agreement extracts with consent letters, and a declaration. For money received, it adds the inward remittance certificate and a KYC report. RBI replaced the Reporting Master Direction on 23 Sep 2026, so check its current FC-TRS list and your AD bank's checklist before you file.

Document	Provided by	Purpose
Declaration, with consent letters of transferor and transferee	Both parties	Eligibility, cap and pricing compliance
Fair value certificate, within 90 days	Valuer	Floor or ceiling under rule 21
Inward remittance certificate and KYC report, or proof of outward remittance	Bank	Payment through banking channels
Share purchase agreement, or gift deed with RBI approval	Both parties	Price, date and any deferred part
Depository statement, or stamped SH-4	Participant or company	Transfer date and stamp duty
Shareholding before and after	Company	Foreign holding against the cap
Government approval and escrow agreement, where relevant	Buyer	Entry route and rule 9(6) limits

Most queries we see concern a certificate dated after the transfer, or money sent from an account in another name.

How do SH-4 and stamp duty work?

Section 56(1) of the Companies Act, 2013 needs a stamped, dated instrument of transfer executed by both parties and delivered within 60 days. Rule 11 prescribes Form SH-4 for physical shares. A transfer between two demat accounts needs no SH-4. Stamp duty on a transfer is 0.015 percent of the consideration.

Section 56(1) exempts transfers between beneficial owners in a depository's records. Rule 11(1) of the Companies (Share Capital and Debentures) Rules, 2014 prescribes "Form No. SH.4" for physical securities. The company delivers the new certificate within one month of receiving the instrument, under section 56(4). A default costs the company and each officer in default INR 50,000 under section 56(6).

Most foreign owned companies no longer have the physical route. Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014 came in through G.S.R. 802(E) of 27 Oct 2023. It covers every private company that is not a small company.

Under rule 9B(4)(a), a holder who transfers after the company's compliance date must dematerialise the securities first. For a company that was not a small company on 31 Mar 2023, that date has passed. A subsidiary is never a small company under section 2(85), so rule 9B reaches every foreign owned subsidiary.

Stamp duty follows the Indian Stamp Act, 1899 as amended by the Finance Act, 2019, in force from 1 Jul 2020. Question 33 of the Government FAQs on those amendments gives 0.015 percent for a transfer on delivery basis. On an off market transfer, section 9A(1)(b) has the depository collect it from the transferor on the consideration. The depository pays it to the State where the buyer resides (FAQ question 8).

Transfer mode	Rate	Charged on	Who pays	Source
Demat, off market	0.015%	Consideration	Transferor; depository collects	Section 9A(1)(b); FAQs Q7 and Q33
Physical, with SH-4	0.015%	Consideration in the instrument	Seller or transferor	Section 9B; FAQ Q30
Price fixed in foreign currency	0.015%	Rupee value at RBI's reference rate for the previous working day	As above	FAQ Q29
Issue of new shares, for contrast	0.005%	Shares issued	Issuer company	Schedule I; FAQ Q33

On INR 4,00,00,000 the duty is INR 6,000. The agreement can shift the cost by contract. Some older guides still quote the rate that applied to share transfer deeds before 1 Jul 2020. It no longer applies.

What tax applies to the seller and who withholds it?

The seller pays capital gains tax in India. Unlisted shares held more than 24 months give long term gains taxed at 12.5 percent under section 197 of the Income Tax Act, 2025. Shorter holdings give short term gains at normal rates. When the seller is a non resident, the buyer withholds under section 393(2), serial 17.

Section 2(101) treats an unlisted share held for not more than 24 months as a short term capital asset. Section 2(67) makes every other capital asset long term. Section 197(4) covers a non resident individual or a foreign company. It computes the long term gain on unlisted securities "without giving effect to the provisions under section 72(6)". Section 72(6) is the foreign currency method for non residents.

Serial 17 of section 393(2) covers "any other sum chargeable" paid to a non resident or foreign company. The payer is "any person", so a foreign buyer paying offshore is covered. The rate is "rates in force", deducted at credit or payment, whichever is earlier.

Seller	Buyer	Long term (over 24 months)	Short term	Who withholds
Resident individual	Non resident	12.5% plus surcharge capped at 15% and 4% cess	Slab rates	Nobody under serial 17; advance tax
Resident company	Non resident	12.5% plus surcharge and cess	Normal company rate	Nobody under serial 17
Non resident individual	Resident	12.5% without section 72(6), plus surcharge and cess	Rates in force	Buyer, serial 17
Foreign company	Resident	12.5% plus 2% or 5% surcharge and 4% cess	35% plus surcharge and cess	Buyer, serial 17
Non resident	Non resident	As above	As above	Buyer, even offshore; no FC-TRS

The Income Tax Department's FAQs for tax year 2026-27 give these rates. Its TDS FAQs list 12.5 percent for long term gains and 35 percent for other income of a foreign company under serial 17. Its FAQs on computation of tax say the enhanced surcharge of 25 or 37 percent does not apply to income under section 197. An individual's surcharge on these gains stops at 15 percent. Foreign company surcharge is 2 percent above INR 1,00,00,000 of income and 5 percent above INR 10,00,00,000.

The buyer's duties under the Income Tax Rules, 2026 run in this order:

1. Obtain a TAN before the payment.
2. Deposit the tax by the 7th of the next month, or 30 April for March (rule 218(2)).
3. File Form 144 for the quarter under rule 219; July to September is due by 31 October.
4. Issue Form 131 within 15 days of the Form 144 due date (rule 215(1)).
5. File Form 145, with the accountant's Form 146 where needed, before remitting.

Serial 17 taxes the "sum chargeable", not the gross price. On our reading, the Supreme Court's 2010 ruling in GE India Technology Centre Private Limited on the same words still applies. A buyer can withhold on the documented gain, backed by a Form 146 computation. A seller wanting certainty applies for a Form 128 certificate under section 395(1). Our note on lower TDS certificates covers that route.

A seller without a PAN faces the higher rate in section 397(2)(b), the old section 206AA. The buyer then deducts at the higher of the normal rate and 20 percent. Rule 217 avoids it for "payments on transfer of any capital asset".

The seller gives its name, email, phone, overseas address, residency certificate and tax identification number. The seller also files an Indian return. On our reading the section 207(8) exemption covers dividends, interest, royalty and technical fees, not capital gains. Our guide to TDS on payments to non residents and our note on Forms 15CA and 15CB, now Forms 145 and 146, cover the mechanics.

How do tax treaties treat the gain for common seller countries?

India taxes the gain under its own law for US and UK sellers. Singapore and Mauritius sellers pay Indian tax on shares acquired on or after 1 Apr 2017. A Netherlands seller pays Indian tax on a stake of at least 10 percent sold to an Indian resident. The other Dutch exception is a holding of 25 percent or more in a company whose value comes principally from Indian immovable property.

Section 159 of the Income Tax Act, 2025 gives effect to treaties. The seller needs a tax residency certificate and Form 41, filed once per tax year under section 159(8) and rule 75.

Country	Article	Can India tax the gain?	Conditions
Singapore	13(4A), (4B), (4C)	Shares acquired before 1 Apr 2017: no. On or after: yes	Transition rate ended 31 Mar 2019; Article 24A denies 13(4A) and 13(4C) benefits to arrangements made mainly for them and to shell or conduit companies; MLI principal purpose test from 1 Apr 2020
Mauritius	13(3A), (3B), (4)	Before 1 Apr 2017: no. On or after: yes	Article 27A (shell or conduit test) applied only to the 2017 to 2019 transition rate; the treaty page lists no notification of the 2024 protocol as at 27 Sep 2026
United States	13	Yes, under domestic law	Relief is claimed in the US
United Kingdom	14	Yes, under domestic law	Relief is claimed in the UK
Netherlands	13(4), 13(5)	Only for a stake of at least 10% sold to an Indian resident, or a holding of 25% or more in an unlisted company whose value comes principally from Indian immovable property	13(5) excludes gains in a corporate reorganisation; 13(4) uses a 365 day look back under MLI Article 9; MLI principal purpose test from 1 Apr 2020

A Dutch holding company selling 15 percent to an Indian buyer pays Indian tax under Article 13(5). Selling the same stake to a Singapore fund, it does not. Article 13(4) cannot reach it, because a 15 percent stake is below the 25 percent substantial interest. The buyer still weighs the principal purpose test before withholding nothing, so we ask for a nil certificate in Form 128.

For Singapore, check the acquisition date of each lot on the register. The Income Tax Department's synthesised text of that treaty shows MLI Article 7(1), the principal purpose test, applying to it. For Indian tax it has effect from 1 Apr 2020. Our note on the India Singapore DTAA for companies goes deeper.

Can payment be deferred or held in escrow?

Yes. Rule 9(6) of the NDI Rules lets up to 25 percent of the total consideration be deferred, escrowed or covered by a seller indemnity. Each option runs for up to 18 months. The final price must still meet the pricing guidelines. Each tranche needs its own FC-TRS on receipt.

Deferred payment and escrow count 18 months "from the date of the transfer agreement". An indemnity counts 18 months "from the date of the payment of the full consideration". Paragraph 7.9.2 of the Master Direction adds that the total consideration finally paid "must be compliant with the applicable pricing guidelines".

Option	Limit	18 months run from	Pricing check
Deferred payment	Up to 25%	Transfer agreement	Final total price
Escrow	Up to 25%	Transfer agreement	Final total price
Seller indemnity after full payment	Up to 25%	Payment of full consideration	Price net of refunds
Earn out above 25% or beyond 18 months	Outside rule 9(6)	Not applicable	We treat it as needing RBI approval through the AD bank

Rule 9(7) lets the non resident open an escrow account under the Foreign Exchange Management (Deposit) Regulations, 2016. It may fund it by inward remittance or an AD bank guarantee. The rule still cites the Guarantees Regulations, 2000, which the Guarantees Regulations, 2026 (FEMA 8(R)/2026-RB of 6 Jan 2026) replaced. Ask the bank which framework it applies.

Indemnity refunds cause the most common breach. In a sale to a non resident, each refund lowers the final price toward the floor. We cap refunds at the gap between the agreed price and fair value. The seller's gain arises in the year of transfer on the full price, including the escrow, so plan cash for that tax.

What if the transfer is from a non resident to a resident?

A non resident holding on a repatriable basis may sell to a resident under rule 9(2) of the NDI Rules. The price must not exceed fair value. The resident buyer withholds tax, remits the net price with Forms 145 and 146, and files FC-TRS within 60 days.

A put option at a fixed return breaks the guiding principle in rule 21(2)(c). If the seller is an NRI holding on a non repatriation basis, neither pricing nor FC-TRS applies.

Point	Resident to non resident	Non resident to resident
Permission	Rule 9(3)	Rule 9(2)
Price, unlisted company	At least fair value	At most fair value
Money	Inward remittance to the seller's Indian account	Outward remittance, or a repatriable account
Withholding	None under serial 17	Buyer, section 393(2) serial 17
FC-TRS filer	Resident seller	Resident buyer
Income tax pinch point	Rare	Sections 79 and 92(2)(m) when the rule value exceeds the FEMA ceiling

The buyer carries the risk here. Section 398(1) replaces old section 201. A buyer that fails to deduct or pay is an assessee in default for the tax. Section 398(3) charges interest of 1 percent a month for a missed deduction and 1.5 percent for a late deposit. Section 448 adds a penalty equal to the tax not deducted. Section 476 grades prosecution by amount after the Finance Act, 2026.

What are the penalties for late FC-TRS?

A late FC-TRS draws a late submission fee of INR 7,500 plus 0.025 percent of the amount for each year of delay. The fee is capped at the amount and rounded up to the nearest hundred. It is available for three years from the due date. After that, the route is compounding.

A.P. (DIR Series) Circular No. 16 of 30 Sep 2022 sets the fee for FC-TRS as INR 7,500 + (0.025% × A × n). "A" is the amount involved. "n" is the years of delay, rounded up to the nearest month and expressed to two decimal places. An unpaid advice lapses after 30 days.

Delay after the due date	n	Fee on A = INR 4,00,00,000 (INR)
1 month	0.08	8,300
6 months	0.50	12,500
12 months	1.00	17,500
24 months	2.00	27,500
36 months	3.00	37,500
More than 3 years	Not available	Compounding

Under section 13 of FEMA, as the RBI compounding Master Direction restates, a penalty can reach three times the sum involved. Where the sum is not quantifiable, the cap is INR 2,00,000. A continuing default adds up to INR 5,000 a day. A price below the floor or money outside banking channels goes to compounding whatever the filing date. Our guide to the FEMA compounding application explains the process.

What changed in 2026

The core FEMA steps for a share transfer stayed the same in 2026. The land border test and the reporting regulations were amended around them. The bigger change is in tax. The Income Tax Act, 2025 replaced the Income Tax Act, 1961 from 1 Apr 2026. A transfer up to 31 Mar 2026 stays under the old Act.

Area	Before	Now	Date	Instrument
Withholding on a non resident seller	Section 195	Section 393(2), serial 17	1 Apr 2026	Income Tax Act, 2025
Deemed price for unquoted shares	Section 50CA	Section 79	1 Apr 2026	Income Tax Act, 2025
Buyer paying below fair market value	Section 56(2)(x)	Section 92(2)(m)(iii)(B)	1 Apr 2026	Income Tax Act, 2025
Long term gains rate; foreign currency method	Sections 112 and 48	Sections 197 and 72(6)	1 Apr 2026	Income Tax Act, 2025
Fair market value rule	Rule 11UA	Rule 57	1 Apr 2026	G.S.R. 198(E), 20 Mar 2026
Forms	15CA, 15CB, 27Q, 16A, 13, 10F	145, 146, 144, 131, 128, 41	1 Apr 2026	Income Tax Rules, 2026
Buy back as an exit	Deemed dividend	Capital gain, extra promoter tax under section 69	1 Apr 2026	Finance Act, 2026
Land border beneficial owner	No defined test	PML rule 9(3) test; up to 10% non controlling stays automatic	1 May 2026	S.O. 2174(E); Cabinet, 10 Mar 2026
Guarantee backing an escrow	Guarantees Regulations, 2000	Guarantees Regulations, 2026	Notified 6 Jan 2026	FEMA 8(R)/2026-RB
FEMA 395 reporting regulations	Amended 15 Jan 2025	Amended again; the 60 day FC-TRS limit stays	13 Jun 2026	RBI amendment to FEMA 395/2019-RB

Four rules did not move. They are the 60 day FC-TRS limit, the 25 percent and 18 month rule, the fee formula and 0.015 percent stamp duty. Our note on what the Income Tax Act, 2025 changed maps the other sections.

Worked example

The figures below are illustrative and follow the law on 27 Sep 2026.

Example A with a founder selling 20 percent to a Singapore fund

• The company is an Indian Private Limited software company, automatic route, 100 percent cap. It is not a small company, so all holdings are in demat.

• It has 10,00,000 equity shares of INR 10. The founder, a resident, subscribed at face value in 2019.

• She sells 2,00,000 shares (20 percent) to a Singapore fund for INR 4,00,00,000. The agreement is signed on 1 Oct 2026.

• A DCF certificate dated 15 Sep 2026 puts fair value at INR 175 a share. The rule 57 value is INR 38.

• 80 percent is paid at closing and 20 percent sits in escrow for 12 months.

Item	Per share (INR)	2,00,000 shares (INR)
Agreed price	200	4,00,00,000
FEMA fair value, the floor	175	3,50,00,000
Headroom above the floor	25	50,00,000
Rule 57 value	38	76,00,000
Escrow used (limit 25%, INR 1,00,00,000)	40	80,00,000

The price clears both values, so sections 79 and 92(2)(m) do not apply. The trap is the headroom. Refunds from escrow above INR 50,00,000 would breach paragraph 7.9.2, so the agreement caps them there.

Date	Action	Rule
1 Oct 2026	Agreement and escrow agreement signed	Rule 9(6)
5 Oct 2026	INR 3,20,00,000 to the founder's Indian account; INR 80,00,000 into escrow	Rules 9(6) and 9(7)
6 Oct 2026	Off market transfer; depository collects INR 6,000 stamp duty	Section 56(1); section 9A
By 4 Dec 2026	FC-TRS for the first tranche	Regulation 4(3)(c)
14 Dec 2026	Valuation certificate would have expired	Para 8.11
1 Oct 2027	Escrow released; latest permitted date 1 Apr 2028	Rule 9(6)
By 30 Nov 2027	FC-TRS for the escrow tranche	Regulation 4(3)(c)

Tax for tax year 2026-27	INR
Full value of consideration	4,00,00,000
Less cost, 2,00,000 × INR 10	20,00,000
Less transfer costs	4,00,000
Long term capital gain	3,76,00,000
Tax at 12.5%	47,00,000
Surcharge at 15%	7,05,000
Cess at 4%	2,16,200
Total tax	56,21,200

The seller is resident, so serial 17 does not apply to the fund. Serial 8(ii) of the section 393(1) table covers purchases of goods above INR 50,00,000 at 0.1 percent. The Income Tax Department's guidance on old section 194Q excused a non resident buyer whose purchase was not effectively connected with an Indian permanent establishment. We ask the fund to confirm its position in writing before closing.

The founder pays advance tax under section 408. She may cut the tax by investing in a residential house under section 86, the successor to old section 54F. When the fund exits, India may tax its gain under Article 13(4B) of the Singapore treaty.

Example B with a US company selling 10 percent to an Indian company

• A Delaware company holds 1,00,000 shares of another Indian Private Limited company on a repatriable basis. It paid INR 50 a share in 2021.

• It sells them to an Indian company for INR 3,00,00,000, INR 300 a share, paid at closing.

• FEMA fair value is INR 320 a share, so the ceiling is met. The rule 57 value is INR 290.

• The US company has a PAN and no other Indian income.

Item	INR
Sale price	3,00,00,000
Less rupee cost, without section 72(6)	50,00,000
Long term capital gain	2,50,00,000
Tax at 12.5%	31,25,000
Surcharge at 2%	62,500
Cess at 4%	1,27,500
Tax withheld under section 393(2), serial 17	33,15,000
Net remittance	2,66,85,000

The effective rate is 13.26 percent of the gain. Article 13 of the US treaty leaves the gain to Indian law. The buyer deposits the tax by the 7th of the next month, files Forms 145 and 146 before remitting, and reports in Form 144. Stamp duty is INR 4,500. The buyer files FC-TRS within 60 days of the earlier of the transfer and the remittance.

Now suppose the company owns land and the rule 57 value is INR 340, above the FEMA ceiling of INR 320.

Effect at INR 300 a share	Computation	INR
Seller's deemed price, section 79	1,00,000 × INR 340	3,40,00,000
Extra gain for the seller	3,40,00,000 − 3,00,00,000	40,00,000
Extra tax at 13.26%	40,00,000 × 13.26%	5,30,400
Buyer's income, section 92(2)(m)(iii)(B)	Shortfall	40,00,000

No price clears both regimes, because FEMA caps the price at INR 320. Pricing at INR 320 halves the gap to INR 20,00,000 on each side.

If the buyer files FC-TRS seven months late, n is 0.58. The fee is INR 7,500 + (0.025% × INR 3,00,00,000 × 0.58). That is INR 11,850, rounded up to INR 11,900.

Common mistakes

1. The valuation certificate is older than 90 days at closing. Fix: date it after the term sheet and close within 90 days.
2. The FC-TRS clock runs from the demat transfer when the money came first. Fix: count 60 days from the earlier event.
3. A deferred deal gets one FC-TRS. Fix: file within 60 days of each tranche under regulation 4(3)(c).
4. Indemnity refunds push the final price below fair value. Fix: cap refunds at the gap between price and fair value.
5. The buyer pays the founder's account abroad. Fix: remit through banking channels in India under paragraph 7.13, into the seller's Indian account.
6. The resident buyer skips TDS because a treaty exempts the gain. Fix: withhold, or get a nil certificate in Form 128 first.
7. The buyer withholds on the whole price. Fix: withhold on the documented gain with a Form 146 computation.
8. Physical shares move on SH-4 after the company's rule 9B date. Fix: dematerialise first and transfer off market.
9. Nobody traces the buyer's owners for land border links. Fix: get the ownership chart to the ultimate owners before signing.
10. The parties assume FEMA fair value settles income tax. Fix: run the rule 57 value before pricing a sale to a resident.

Share transfer checklist

1. Confirm the entry route, sectoral cap and any government approval.
2. Trace the buyer's beneficial owners for land border links.
3. Obtain board consent or waivers under the articles.
4. Obtain a FEMA fair value certificate dated within 90 days of closing.
5. Compute the rule 57 value and test sections 79 and 92(2)(m).
6. Agree the price, keeping any deferred part within 25 percent and 18 months.
7. Open demat accounts and obtain a PAN for the non resident.
8. Check the company's Entity Master and business user access on FIRMS.
9. Move the money through banking channels with the right bank documents.
10. Withhold tax under section 393(2), serial 17, when the seller is a non resident.
11. Transfer the shares and pay stamp duty at 0.015 percent.
12. Record the transfer in the register of members.
13. File FC-TRS within 60 days, and again for each later tranche.
14. Deposit the tax, file Form 144 and issue Form 131.

To have us run the pricing, FC-TRS and TDS on a transfer, start from our share transfer service.

Frequently Asked Questions

Is Form SH-4 needed when both parties hold shares in demat?+

No. Section 56(1) of the Companies Act, 2013 exempts a transfer between persons who are both beneficial owners in a depository's records. The seller gives its depository participant an off market delivery instruction. The depository collects stamp duty at 0.015 percent on the consideration. FC-TRS is still due within 60 days, because FEMA reporting does not depend on the transfer mode.

Can a foreign buyer pay the resident seller into a bank account outside India?+

No. Paragraph 7.13 of the RBI Master Direction on Foreign Investment requires the consideration to be received from abroad through banking channels in India, or paid from a repatriable account. We have the buyer remit to the seller's Indian bank account. The bank's inward remittance certificate and KYC report then support the FC-TRS.

Can a resident gift shares to a non resident relative?+

Yes, with prior RBI approval under rule 9(4) of the NDI Rules. The donee must be a relative under section 2(77) of the Companies Act, 2013. The gift cannot exceed 5 percent of paid up capital. The donor's gifts of securities to non residents cannot exceed the rupee equivalent of USD 50,000 in a financial year, and the sectoral cap must hold.

How old can the valuation certificate be?+

Not more than 90 days on the date of the investment, under paragraph 8.11 of the RBI Master Direction on Foreign Investment. We read that date as the earlier of the share transfer and the payment. A Chartered Accountant, a SEBI registered merchant banker or a practising cost accountant may sign it. A share swap needs a SEBI registered merchant banker or a regulated investment banker abroad, under rule 21(2)(c)(iv).

Can the agreement promise the foreign investor a fixed exit price?+

No. Rule 21(2)(c) of the NDI Rules says a non resident is not guaranteed any assured exit price. Rule 9(5) allows an option only after a minimum lock in of one year, at a price that meets the pricing guidelines. A put option at a fixed return breaches the ceiling rule for a sale to a resident.

What exchange rate converts a foreign currency price for stamp duty?+

RBI's reference rate for the working day before the transfer, under question 29 of the Government FAQs on the Indian Stamp Act amendments. Stamp duty of 0.015 percent then applies to the rupee figure. We fix the rupee price in the agreement, so the stamp duty and the FC-TRS amount match.

Does the buyer need a TAN to pay a non resident seller?+

Yes. A buyer withholding under section 393(2), serial 17 of the Income Tax Act, 2025 needs a TAN to deposit the tax. It then files Form 144 each quarter and issues Form 131 to the seller. We see no exemption for an individual buyer paying a non resident. The TAN application forms under the Income Tax Rules, 2026 are Forms 134 and 135.

Can the buyer withhold tax on the gain instead of the full price?+

Yes, on our reading. Serial 17 of section 393(2) applies to the "sum chargeable", the words the Supreme Court read in GE India Technology Centre Private Limited in 2010. Document the seller's cost and holding period and obtain a Form 146 computation. A seller wanting certainty applies for a Form 128 certificate under section 395(1).

What happens if the non resident seller has no PAN?+

The buyer withholds at the higher of the normal rate and 20 percent under section 397(2) of the Income Tax Act, 2025, unless the seller gives the rule 217 details. Rule 217 covers payments on transfer of any capital asset. The details are name, email, phone, overseas address, residency certificate and tax identification number. The seller still needs a PAN to file its Indian return.

Is a tax residency certificate enough to claim a treaty exemption?+

No. Section 159 of the Income Tax Act, 2025 also needs Form 41, filed once per tax year under rule 75. The seller must pass the treaty's own tests. Singapore's Article 24A can deny grandfathered treatment to shell or conduit companies. The Singapore and Netherlands treaties carry the MLI principal purpose test from 1 Apr 2020. Buyers relying on an exemption usually ask for a Form 128 nil certificate.

How is a non resident's gain on unlisted shares computed?+

In rupees. Section 197(4) of the Income Tax Act, 2025 computes the long term gain of a non resident individual or a foreign company on unlisted securities without the section 72(6) foreign currency method. The gain is taxed at 12.5 percent plus surcharge and cess. The seller deducts its rupee cost and transfer costs from the rupee price, so currency movement does not reduce the Indian gain.

What if the AD bank returns the FC-TRS with queries?+

Answer them and resubmit on FIRMS. The 60 day limit in regulation 4(3) of FEMA 395/2019-RB does not pause while the form sits with the bank. We file early to leave room for one round of questions. If approval lands after the due date, the bank may ask for the late submission fee under A.P. (DIR Series) Circular No. 16 of 2022.

Can the company register the transfer before FC-TRS is approved?+

For demat shares, the depository moves them and the company updates its register from the depository record. Regulation 4(3) of FEMA 395/2019-RB sets a 60 day filing limit, not a registration sequence. Check the Reporting Master Direction, replaced on 23 Sep 2026, and your AD bank's practice. We file FC-TRS before the board meeting that notes the transfer, so the register and RBI's record match.

Are convertible preference shares covered by FC-TRS?+

Yes. Rule 2(k) of the NDI Rules defines equity instruments to include convertible debentures, preference shares and share warrants as well as equity shares. A transfer of any of them between a resident and a repatriable non resident follows the same pricing guidelines. It needs FC-TRS within 60 days under regulation 4(3) of FEMA 395/2019-RB.

Does a small stake sold to a buyer from a land border country need approval?+

It depends on the stake and on control. Rule 6(a) of the NDI Rules puts such buyers on the government route. After the NDI (Amendment) Rules, 2026 of 1 May 2026, beneficial ownership follows rule 9(3) of the PML Rules. The Cabinet release of 10 Mar 2026 keeps non controlling beneficial ownership of up to 10 percent on the automatic route.

What if FC-TRS was never filed and three years have passed?+

The late submission fee under A.P. (DIR Series) Circular No. 16 of 30 Sep 2022 runs only for three years from the due date. After that, the resident party applies to RBI for compounding. Section 13 of FEMA allows a penalty of up to three times the sum involved. Our FDI reporting guide lists the other forms to check.

Does the Indian company pay any tax on a share transfer?+

No. The seller pays capital gains tax, and the buyer may be taxed under section 92(2)(m) of the Income Tax Act, 2025 if it pays below fair market value. The company's work is secretarial. It approves the transfer, updates the register under section 88, and reports the holder in its annual return and FLA return.

Is a buy back a better exit than a share transfer in 2026?+

Sometimes. From 1 Apr 2026 the Finance Act, 2026 taxes a buy back as a capital gain instead of a deemed dividend. Section 69 of the Income Tax Act, 2025 adds extra tax for promoters, which in an unlisted company includes any holder above 10 percent. A buy back also needs cash in the company and Companies Act approvals, so compare net proceeds both ways.

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