Start with the transaction route
A secondary transfer of equity instruments in an Indian company can bring together the Foreign Exchange Management Act, 1999 (FEMA), the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (NDI Rules), the RBI’s payment and reporting regulations, and separate company, stamp and tax rules. This guide focuses on ordinary secondary transfers, principally of unlisted shares. Determine FEMA residence, instrument type and repatriation basis, investor eligibility, the investee’s actual activities, applicable sectoral caps and entry route, and any direct or indirect beneficial ownership restrictions. Work through pricing, payment, any prior approval and reporting separately. Where a government approval is required, filing Form FC-TRS does not replace it.
Apply the correct pricing direction
| Transfer | Ordinary Rule 21 analysis where applicable | What to document |
|---|---|---|
| Resident to non-resident | Consideration generally must be at least the applicable price. | Document the floor, agreed consideration and any applicable exception. |
| Non-resident to resident | Consideration generally must not exceed the applicable price. | Document the ceiling and actual consideration, including deferred amounts. |
| Two non-residents | The ordinary resident-to-non-resident floor and converse ceiling are not a blanket rule for this route. | Check both holding bases, reporting triggers, eligibility, change of beneficial ownership, sector conditions and tax. |
For an unlisted company subject to the pricing rules, use an internationally accepted pricing methodology on an arm’s-length basis, certified by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant. DCF can be appropriate; the rule does not mandate DCF in every transaction. A bare book value does not by itself demonstrate a compliant valuation. For a listed company, check the applicable SEBI pricing framework. RBI Master Direction paragraph 8.11 generally requires the valuation certificate to be no more than 90 days old on the investment date, with an exception for prices determined under SEBI guidelines. Check whether the pricing rules apply to the particular route, including an applicable non-repatriation exception, and keep FEMA valuation separate from any prescribed tax fair market value.
Identify the filer, trigger and supporting records
Form FC-TRS means Foreign Currency–Transfer of Shares and is available through the Single Master Form on the RBI’s Foreign Investment Reporting and Management System (FIRMS). Regulation 4(3) covers specified transfers between a resident and a non-resident holding on a repatriation basis, and between non-residents holding on different repatriation bases. The onus in these categories is on the resident transferor or transferee, or the non-resident holding on a non-repatriation basis, as applicable. A sale between a non-resident holding on a non-repatriation basis and a resident is expressly excluded from this FC-TRS requirement. Exchange and tranche transactions have specific reporting provisions. For a reportable ordinary transfer, calendar 60 days from transfer or receipt or remittance of funds, whichever is earlier.
For a gift from a resident to a non-resident, check the prior RBI approval requirement and all route conditions before proceeding. The applicable conditions include donee eligibility, the sectoral cap, the prescribed relationship and cumulative value limits. For the ordinary gift route in RBI paragraph 7.8, check the 5% cumulative donor-to-donee limit for the relevant instrument and the rupee equivalent of US$50,000 across the donor’s relevant gifts in the financial year. Meeting either limit does not dispense with the required prior approval. Check the resulting reporting requirement and instructions with the AD bank for that route.
Use the current FIRMS instructions and the designated authorised dealer (AD) bank’s applicable checklist. Depending on the transaction, assemble the signed agreement and consent or declarations, transfer and shareholding evidence, valuation, ownership and approvals, inward or outward bank evidence and the tax record. Distinguish physical transfer documentation, including Form SH-4 where applicable, from depository instructions for dematerialised securities. Use the applicable stamp duty and collection route; Indian Stamp Act Schedule I lists 0.015% for a delivery-based transfer of a security other than a debenture, where that entry applies. That is 1.5 paise per ₹100 of the applicable base. Check sections 9A–9B for the collection mechanism. Do not use a fixed upload format, acknowledgement length or bank turnaround time unless the live instructions require it.
Delayed reporting can attract a late submission fee (LSF) under RBI rules. This is distinct from approval, pricing and other substantive FEMA compliance; paying a reporting fee does not cure a separate contravention. Track the status with the AD bank and follow the fee advice and applicable regularisation process.
Seven worked illustrations
The parties, dates where assumed, prices and transaction outcomes below are hypothetical. Check each live transaction on its facts.
1. Resident founder’s sale to a US fund: independently calculate the floor
A founder sells 2 lakh unlisted shares with ₹10 face value for US$1.5 million. At an assumed ₹83 per US dollar, consideration is ₹12.45 crore, or US$7.50 and ₹622.50 per share. An illustrative equity cash flow valuation assumes annual cash flows of ₹3.20, ₹5.80, ₹9.40, ₹14.50 and ₹21.00 crore, a 7.1% risk-free rate, beta of 1.25, 6.5% equity risk premium and 5% perpetual growth. The inputs are assumptions, not market observations.
Cost of equity is 7.1% + 1.25 × 6.5% = 15.225%. Year-five terminal value is ₹21.00 crore × 1.05 ÷ (15.225% − 5%) = ₹215.65 crore. Discounting the explicit flows to today gives ₹31.86 crore, and discounting terminal value gives ₹106.17 crore. Equity value is approximately ₹138.03 crore. On 25 lakh fully diluted shares of equivalent economic rights, that implies about ₹552.11 per share. The proposed ₹622.50 is ₹70.39, or 12.75%, above the illustrative floor. Use the accepted certified value and verify the actual sector, ownership and approval position; this arithmetic does not establish compliance by itself.
If funds arrive on the earliest trigger date and the resident seller files 28 days later, the filing falls inside the ordinary 60-day period. The resident seller accounts for its own capital gains; section 195 under the 1961 Act is not withholding on a payment to that resident seller. No gain can be calculated here without the seller’s tax cost and other relevant facts.
2. German shareholder’s exit: keep the price within the ceiling
The shareholder holds 4 lakh of 10 lakh shares, or 40%. At ₹90 per euro, an asking price of €4 million equals ₹36 crore, or ₹900 per share. If the applicable certified equity value is ₹72 crore across 10 lakh shares, the ceiling is ₹720 per share and the maximum under that pricing test is ₹28.80 crore, equivalent to €3.20 million at the assumed rate. The ₹7.20 crore gap cannot be disguised as a technology or support fee. Renegotiate the actual share price or establish a lawful route before paying. Any separate genuine services must stand on their own commercial facts and be checked independently for pricing, tax and remittance requirements.
3. Escrow and deferred consideration: check amount, timing and each receipt
A Singapore fund buys a 51% stake for ₹60 crore, with ₹50 crore upfront and ₹10 crore held back in escrow. The 25% amount limit under Rule 9(6) is ₹15 crore; ₹10 crore is 16.67%. An escrow lasting 18 months measured from the transfer agreement meets that time limb on the assumed dates. Confirm the written escrow terms, the actual payment dates and final consideration under the pricing rules. Distinguish buyer deferral or escrow, timed from the agreement, from seller indemnity after full payment, which has a separate 18-month starting point.
Regulation 4(3)(c) requires Form FC-TRS reporting on receipt of each tranche under Rule 9(6), with the resident party responsible. If the first payment arrives on signing and is also the first ordinary trigger, a first report on day 25 is within 60 days. Record the later receipt or release under the actual escrow structure and report that tranche using the applicable trigger and AD instructions. Do not assume that a later release resets the clock for the first tranche.
4. Late submission fee: use the RBI formula for the reporting delay
An Indian resident buys 50,000 shares for ₹1.50 crore, or ₹300 each. Assume transfer and payment both occurred on 15 January 2024, the ordinary 60-day date was 15 March, and the filing was made on 15 October. The delay after the due date is 214 calendar days, or seven calendar months on these dates. Under the RBI matrix for transactional filings including FC-TRS, the example uses ₹7,500 + (0.025% × amount involved × years of delay), with the time rounded up to the next month if needed and expressed to two decimals. Seven months gives 0.58 years for the working. ₹7,500 + (0.00025 × ₹1,50,00,000 × 0.58) = ₹9,675, rounded up to ₹9,700. The amount cap does not bind. Check the actual advice and reference date, including any fresh request, and the circular’s three-year availability limit. The fee is for the reporting delay, not a substitute for any approval or remedy required on the transfer itself.
5. Land-border screening on a secondary transfer
A Hong Kong-based syndicate proposes to buy a 15% interest in an Indian mobility company for US$2.5 million. Trace the investing entity and upstream ownership and control before choosing a route. Assume the applicable beneficial owner is a Chinese citizen who controls the investing entity and no applicable exception applies. On those assumed facts, the land-border restriction requires prior government approval even though the transfer is a secondary purchase. Apply the amended NDI Rules and current DPIIT process. The target stake of 15% does not, by itself, determine the beneficial owner of the foreign investor. Do not infer a particular approving ministry, clearance period or enforcement result from these facts.
6. Singapore seller: compute historical withholding on supported facts
Assume a Singapore-resident foreign company sells 1 lakh unlisted shares in February 2026 for ₹8 crore, or ₹800 per share, after acquiring them in February 2023 for ₹3 crore. Assume the supported FEMA ceiling permits the price, no tax valuation substitution or other cost adjustment applies, and ₹5 crore is both the long-term gain and the supported chargeable portion for withholding. Article 13(4B) permits India to tax gains on the assumed post-1 April 2017 acquisition; earlier acquisitions or the transition period require a separate treaty analysis.
Under the 1961 Act and Finance Act rates for FY 2025–26, use 12.5% for this qualifying gain. Assuming the surcharge conditions for a foreign company at 2% are met and no marginal relief or lower determination applies, base tax is ₹62.50 lakh, surcharge ₹1.25 lakh and 4% cess on both ₹2.55 lakh. The total is ₹66.30 lakh, or 13.26% of the gain; net remittance is ₹7.337 crore. Confirm the withholding base, rates in force and any treaty documentation; if the chargeable portion is uncertain, consider the applicable determination procedure, including section 195(2) under the old law. Under the old Rule 37BB example, a chargeable remittance above ₹5 lakh without the relevant AO order or certificate ordinarily uses Part C of Form 15CA after obtaining Form 15CB. Other cases have different requirements. Use the governing Act and remittance-date rules for a payment after the transition to the 2025 Act.
7. Partly paid shares: separate the call from the sale price
A resident holds 50,000 shares of ₹10 face value with ₹4 per share already paid, or 40% of face value. A valid final call of ₹6 each requires ₹3 lakh to make them fully paid before the proposed UK fund transfer. The call is paid to the company; the transfer price is separate. If a non-resident instead acquires partly paid shares, examine the applicable Schedule I and RBI Master Direction paragraphs 4.3.1–4.3.6, including the upfront 25% condition measured on total consideration including any premium, the ordinary 12-month period and the monitoring-agency exceptions. The 40% of face value on its own does not establish compliance with those tests.
Frequently asked questions
Who files on an ordinary repatriable sale?
The resident transferor or transferee, depending on the direction. Work through the designated AD bank and retain evidence of submission and resolution of queries.
Is every non-resident to non-resident sale exempt?
No blanket exemption applies. Regulation 4(3) includes transfers between repatriation and non-repatriation holdings. Check any stock exchange rule, the investment route and approvals, and evaluate FLA reporting as a separate obligation where it applies.
Does a low price automatically create tax at a specified rate?
No. First check whether the FEMA pricing floor applies. Separately check tax valuation, section 50CA or section 56(2)(x) under the old law where relevant, and the governing tax year, taxpayer and facts. FEMA and tax fair market values can differ.
How is stamp duty collected?
Check the instrument, whether the transfer is through an exchange or depository or outside them, and the applicable base. Use the correct statutory route and supporting evidence rather than assuming all transfers use physical stamps.
What if an employee sells shares acquired under an ESOP?
Separate the exercise and allotment from the later transfer. Check the actual buyer, seller, route, pricing and any FC-TRS obligation. A resident seller does not trigger old-law section 195 merely because the buyer is overseas.
What should a compliance file track?
Keep the signed terms, regulatory and tax valuations, beneficial ownership and approvals, payment and transfer dates, filing status, stamp evidence and unresolved items together. An internal tracker helps reconcile them; the applicable authorities and AD process determine regulatory treatment.
Sources
- Foreign Exchange Management Act, 1999, including sections 13 and 15
- RBI Master Direction: Foreign Investment in India, including paragraphs 4, 7 and 8
- RBI Mode of Payment and Reporting Regulations, regulations 4 and 5
- RBI FIRMS: Single Master Form manuals and AD bank filing guidance
- RBI A.P. (DIR Series) Circular 16 of 30 September 2022: late submission fee
- Gazette: S.O. 2174(E), 2026 amendment to the NDI Rules, including land-border rules
- Gazette: June 2026 third amendment to the NDI Rules
- DPIIT Press Note 2 (2026 Series)
- DPIIT: foreign investment approvals and supporting documents
- Companies Act, 2013, section 56
- Indian Stamp Act, 1899, sections 9A–9B and Schedule I
- Income-tax Act, 1961, sections 48, 50CA, 56, 112 and 195
- Finance Act, 2025 and First Schedule
- CBDT Notification 93/2015 substituting Rule 37BB
- Income Tax Department: India–Singapore agreement and protocols
- Income Tax Department: transition and remittance forms