What changed
Earlier, payments for equity shares issued under the Government route for pre-operative/pre-incorporation expenses had to be made directly by the foreign investor to the company. Third-party payments were not allowed. Now, the condition has been revised to allow payments directly or through a bank account opened by the foreign investor as per FEMA regulations.
What it means for you
This change gives foreign investors more flexibility in funding Indian companies at the pre-incorporation stage. Banks can now process such FDI inflows even if the payment comes from the investor's Indian bank account, reducing operational hurdles. It signals RBI's intent to ease capital flows for early-stage ventures while maintaining compliance.
What you must do
- Update internal FDI processing guidelines to accept payments from foreign investors' Indian bank accounts for pre-operative expenses.
- Train staff on the revised condition to avoid rejecting valid applications.
- Advise customers (especially startups) about this relaxed payment route for FDI under Government approval.
- Ensure all other conditions from earlier circulars (No. 74/2011 and No. 55/2011) remain unchanged and are complied with.
Who it affects
Category-I Authorised Dealer Banks, Foreign investors seeking to invest in Indian companies at pre-incorporation stage, Indian startups and companies raising FDI under Government route for pre-operative expenses
Can a foreign investor now pay for equity shares through a third party?
No. The revised condition still requires payment to be made by the foreign investor directly or through their own bank account opened under FEMA regulations. Third-party payments remain ineligible.
Does this circular change any other conditions for FDI under Government route?
No. Only condition (c) in Para 3(II) has been amended. All other conditions from the earlier circulars (No. 74/2011 and No. 55/2011) remain unchanged.
Which FEMA notification was amended to effect this change?
The amendment was made to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 via Notification No. FEMA.229/2012-RB dated April 23, 2012.