Source: Reserve Bank of India · RBI/2006-2007/368 · issued 30 Apr 2007 · ~1 min read
Quick answerRBI now allows AD banks to remit up to 5% of investment brought in or USD 100,000 (whichever is higher) for pre-incorporation expenses, based on statutory auditor certification, removing prior RBI approval.
The rule, in the simplest words
AD Category-I banks can now allow remittances up to the higher of 5% of investment or USD 100,000 for pre-incorporation expenses.
Prior RBI approval is no longer needed for such remittances within the new limits.
How it plays out — a real example
A forex & trade-finance officer in Indore, Mr. Kumar, helps a new company bring in foreign investment. He verifies the statutory auditor certificate and allows the company to remit up to 5% of the investment or USD 100,000 for pre-incorporation expenses, without needing RBI approval. This simplifies the process and reduces compliance burden for the company.
What changed
Earlier, remittances exceeding USD 100,000 for pre-incorporation expenses required RBI prior approval under Schedule III of FEMA rules. Now, AD Category-I banks can permit such remittances up to the higher of 5% of investment brought into India or USD 100,000, based solely on statutory auditor certification.
What it means for you
This liberalisation reduces compliance burden for entities bringing foreign investment into India, as they no longer need RBI approval for pre-incorporation expense remittances within the new limits. Banks must verify the statutory auditor certificate before processing, ensuring due diligence without central bank pre-clearance.
What you must do
Update internal FEMA processing guidelines to reflect the new limit (higher of 5% of investment or USD 100,000).
Train staff to accept statutory auditor certification as sufficient documentation for such remittances.
Inform customers about the liberalised procedure and the required auditor certificate.
Maintain records of remittances under this circular for audit and reporting purposes.
Who it affects
AD Category-I banks, Entities in India bringing foreign investment, Statutory auditors certifying pre-incorporation expenses
❓ Common questions
What is the new limit for pre-incorporation expense remittance?
The limit is the higher of 5% of the investment brought into India or USD 100,000, as per the circular.
Do we still need RBI approval for these remittances?
No, prior RBI approval is no longer required. AD banks can process based on a statutory auditor certificate.
What documentation is needed from the customer?
A certification from the entity's statutory auditors confirming the pre-incorporation expenses incurred in India.
📜 Read the original circular — full text as issued by RBI
RBI/2006-2007/368
A. P. (DIR Series) Circular No. 47
April
30, 2007
To,
All
Category - I Authorised Dealer Banks
Madam
/ Sir,
Foreign
Exchange Management Act (FEMA), 1999 – Current Account Transactions – Reimbursement
of pre-incorporation expenses - Liberalisation
Attention
of Authorised Dealer Category - I (AD Category - I) banks is invited to Foreign
Exchange Management (Current Account Transactions) Rules, 2000 notified vide Notification
No. G.S.R.381(E) dated 4 th May 2000. In terms
of Rule 5 of the Foreign Exchange Management (Current Account Transactions) Rules,
2000 (the Rules), prior approval of the Reserve Bank is required for drawing foreign
exchange for remittance exceeding USD 100,000 by an entity in India by way of
reimbursement of pre-incorporation expenses [item 17 of Schedule III of the Rules].
2.
As announced in the Annual
Policy Statement for the year 2007-08 (para 146 (i) iii)) and with a view
to liberalise the procedure further and providing greater flexibility, it has
been decided to allow remittance of foreign exchange towards reimbursement of
pre-incorporation expenses incurred in India up to 5 per cent of the investment
brought into India or USD 100,000, whichever is higher, on the basis of certification
from statutory auditors. Accordingly, AD Category - I banks may permit drawal
of foreign exchange by an entity in India by way of reimbursement of pre-incorporation
expenses up to the limit mentioned above, on the basis of certification from statutory
auditors.
3.
Necessary amendments to Foreign Exchange Management (Current Account Transactions)
Rules, 2000 are being notified separately.
4.
AD Category - I banks may bring the contents of this circular to the notice of
their constituents and customers concerned.
5.
The directions contained in this circular have been issued under Section 10 (4)
and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without
prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully,
(Salim
Gangadharan)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2006-2007/368 · issued 30 Apr 2007. The plain-English explanation above is BankPulse’s own independent summary.
Maintain records of remittances under this circular for audit and reporting purposes.
📜 Compliance
Update internal FEMA processing guidelines to reflect the new limit (higher of 5% of investment or USD 100,000).
Train staff to accept statutory auditor certification as sufficient documentation for such remittances.
Inform customers about the liberalised procedure and the required auditor certificate.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (AD Category-I banks, Entities in India bringing foreign investment, Statutory auditors certifying pre-incorporation expenses), your first concrete step on “Pre-Incorporation Expense Remittance Liberalised” is: “Update internal FEMA processing guidelines to reflect the new limit (higher of 5% of investment or USD 100,000).” (RBI issued this 30 Apr 2007).
Action required: Update internal FEMA processing guidelines to reflect the new limit (higher of 5% of investment or USD 100,000).
Action required: Train staff to accept statutory auditor certification as sufficient documentation for such remittances.
Action required: Inform customers about the liberalised procedure and the required auditor certificate.
Action required: Maintain records of remittances under this circular for audit and reporting purposes.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=3473&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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