FDI: Equity shares for pre-operative expenses via Government route
Current · Source: Reserve Bank of India · RBI/2012-13/502 · issued 17 May 2013 · ~2 min read
Quick answerRBI has relaxed FDI rules: foreign investors can now pay for equity shares issued against pre-operative/pre-incorporation expenses through their own bank account in India, not just directly. This eases compliance for startups and early-stage ventures.
The rule, in the simplest words
Foreign investors can now pay for company shares (ownership pieces) using their own bank account in India, not just by sending money directly from abroad.
This rule is only for shares given to cover costs before the company is officially started (pre-operative/pre-incorporation expenses).
The payment must follow all other rules from earlier RBI circulars (No. 74/2011 and No. 55/2011), which are still in effect.
Banks (Authorised Dealer Category-I) must update their internal rules to accept payments from the investor's Indian bank account for these shares.
How it plays out — a real example
A forex & trade-finance officer in Mumbai receives an application from a foreign investor wanting to buy shares in a new Indian startup. The investor has an Indian bank account opened under FEMA rules. The officer now knows she can accept the payment from that account for the startup's pre-incorporation expenses, making the process smoother for the startup founder.
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
❓ Common questions
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.
📜 Read the original circular — full text as issued by RBI
RBI/2012-13/502
A.P. (DIR Series) Circular No. 104
May 17, 2013
To
All Category-I Authorised Dealer Banks
Madam / Sir,
Foreign Direct Investment (FDI) in India - Issue of equity shares under the FDI scheme allowed under the Government route against pre-operative/pre-incorporation expenses
Attention of Authorised Dealers Category – I banks is invited to Para 3 (II) of A.P. (DIR Series) Circular No. 74 dated June 30, 2011 read with A.P. (DIR Series) Circular No. 55 dated December 9, 2011 , allowing thereby issue of equity shares/ preference shares under the Government route by conversion of import of capital goods, etc., subject to terms and conditions stated therein.
2. On review of the policy, it has now been decided to amend condition at (c) in the aforesaid para. The amended condition is given in the Annex .
3. All the other conditions contained in the A.P. (DIR Series) Circulars No. 74 dated June 20, 2011 and No. 55 dated December 9, 2011, shall remain unchanged.
4. AD Category - I banks may bring the contents of the circular to the notice of their customers/constituents concerned.
5. Necessary amendments to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 ( Notification No. FEMA 20/2000-RB dated May 3, 2000 ) have been notified vide Notification No. FEMA.229/2012-RB dated April 23, 2012 .
6. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully,
(Rudra Narayan Kar)
Chief General Manager-in-Charge
Annex
[A. P. (DIR Series) Circular No. 104
dated May 17 , 2013]
c.f. A.P.(DIR Series) Circular No. 74 dated June 30, 2011
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2012-13/502 · issued 17 May 2013. The plain-English explanation above is BankPulse’s own independent summary.
Train staff on the revised condition to avoid rejecting valid applications.
📜 Compliance
Update internal FDI processing guidelines to accept payments from foreign investors' Indian bank accounts for pre-operative expenses.
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.
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 (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), your first concrete step on “FDI: Equity shares for pre-operative expenses via Government route” is: “Update internal FDI processing guidelines to accept payments from foreign investors' Indian bank accounts for pre-operative expenses.” (RBI issued this 17 May 2013).
Circular: RBI/2012-13/502 -- FDI: Equity shares for pre-operative expenses via Government route
Issued: 17 May 2013
Action required: Update internal FDI processing guidelines to accept payments from foreign investors' Indian bank accounts for pre-operative expenses.
Action required: Train staff on the revised condition to avoid rejecting valid applications.
Action required: Advise customers (especially startups) about this relaxed payment route for FDI under Government approval.
Action required: Ensure all other conditions from earlier circulars (No. 74/2011 and No. 55/2011) remain unchanged and are complied with.
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 03 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=7985&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.
Help us keep this accurate
Found an inaccuracy or have an improvement? Tell us. Every report is reviewed by our team before any change is made — nothing goes live unverified.
Public beta — plain-English informational summaries. Always verify against the official RBI source (circular number cited on every page) before making compliance, credit, treasury, audit, or operational decisions. · Join our WhatsApp channel ↗
BANKPULSE · FREE DAILY BRIEF
Get RBI updates for your role
Every important RBI update, decoded in plain English — for your career, exams & financial awareness.
We collect only your email, name and role, used solely to send your brief — never sold or shared. Withdraw anytime via the unsubscribe link in any email. Independent platform, not affiliated with the RBI. Information, not legal advice.
REPORT AN ERROR · BETA
Spotted an error? Earn 500 BankPulse Credits
Help us stay accurate. If your correction is verified true and approved by our founder, you earn 500 BankPulse Credits — redeemable when the platform monetises.
Reviewed by a human before any credit is awarded. We never change the site from crowd input without verification.
WANT A NEW FEATURE · BETA
What would make BankPulse more useful for you?
Tell us what to build next — a tool, a data view, a role page, anything. We read every suggestion.
Thank you — your ideas directly shape what we build.