Is RBI's approval required for transfer of shares from NRI to a non-resident other than an NRI?

Is RBI's approval required for transfer of shares from NRI to a non-resident other than an NRI?. In India, transfer of shares is a regulated process governed by multiple laws depending on the residency status of the transferor and transferee. While the transfer of shares between two resident Indians is relatively straightforward and involves payment of consideration with a share transfer deed in SH-4, the transfer of shares from a Non-Resident Indian (NRI) to a Resident Indian entity, such as a private limited company, requires to comply the Foreign Exchange Management Act (FEMA) by filing of FCTRS reporting, Companies Act, 2013, and the Income Tax Act, 1961 for calculating any tax liability on consideration value and you must be knowing that each law introduces its own set of compliance requirements, procedural formalities, and documentation. You should know what is the checklist or documents required for the FDI reporting with RBI ?
Form FC-TRS is used to report the transfer of capital instruments (equity shares, compulsorily convertible preference shares, debentures) between a resident and a non-resident, to be submitted through the FIRMS portal of the Reserve Bank of India (RBI) by the concerned party to comply with FEMA 20(R) regulations.Form FC-TRS must be filed online through the FIRMS Portal (Foreign Investment Reporting and Management System) on the RBI’s website, under the Single Master Form (SMF) and the responsibility of filing of FDI FCTRS form lies with:

The resident transferor or transferee, or

A non-resident holding shares on a non-repatriable basis, as the case may be.

FEMA FDI reporting in form FCTRS in case of Transfer of Shares
FCTRS Form Filing is required when:

Shares are transferred from resident to non-resident (including NRIs/OCIs on repatriable basis).

Shares are transferred from non-resident to resident.

Shares are gifted from a resident to a non-resident.

Shares are transferred between two non-residents, if one holds them on a non-repatriable basis.

The transfer of shares with the help of company law advisory service, between an NRI and a resident Indian company is regulated by the Reserve Bank of India under the FEMA (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017, were issued under Notification No. FEMA 20(R)/2017-RB and outline the conditions under which foreign investment into India and subsequent exit is permitted.
In such a transaction, the share transfer deed SH-4 must be duly stamped, and stamp duty is payable at the rate of 0.25% of the total consideration which is normally a transfer ticket to be affixed and consideration value includes the premium amount for the calculation. When shares are transferred between a resident and a non-resident, it attracts specific rules around remittance, share pricing, and reporting to the RBI for FDI approval in case of share transfer through Form FC-TRS filing. Foreign investment in India can be routed under the automatic route or the government route, and all such transactions must comply with sectoral caps, pricing guidelines, and other restrictions under the FDI policy.
General permission is available for the transfer of shares from an NRI to an Indian resident under private arrangement or agreement, provided the investee company operates under the automatic route, and sectoral limits are not breached and sale consideration should be compliant with the pricing guidelines and must not violate the SEBI Takeover Code. In any case where these requirements are not fulfilled, the prior approval of the RBI is necessary before such a transfer can proceed.
Procedure under FEMA Rule and Companies Act 2013
When an NRI wishes to transfer shares to a resident Indian buyer, the consideration for the transfer must be in line with the fair market value of the shares. In the case of a listed company, the pricing must not be below the minimum price as prescribed under SEBI guidelines for preferential allotments. For unlisted companies, the valuation should not be less than the fair market value determined using internationally accepted methods and certified by a Chartered Accountant or SEBI-registered Merchant Banker.
The sale consideration should be remitted to India through an Authorized Dealer (AD) bank. Upon receipt of funds, the transfer must be reported to the RBI using Form FC-TRS within 60 days. The responsibility of filing this form lies with either the transferor or transferee, whichever party is the resident in India.
Along with Form FC-TRS, a series of documents must be submitted to the AD bank. These include consent letters from both parties detailing the number of shares and the transaction price, power of attorney if the transaction is carried out by an agent, the shareholding pattern of the company before and after the transfer, and copies of RBI approvals in case the transferor holds shares on repatriation or non-repatriation basis. A valuation certificate by a Chartered Accountant and an undertaking from the transferee stating compliance with pricing guidelines must also be provided. In addition, a tax clearance certificate or a no objection certificate from the Income Tax Department is often required to ensure there are no pending tax liabilities.
FC-TRS is not required if:

A non-resident holding shares on a non-repatriable basis transfers shares to a resident.

Transactions involve gift transfers where exemptions apply under FEMA guidelines.

Capital instruments are transferred by way of pledge invocation under Regulation 10(12).

Compliance under the Companies Act, 2013
In India, Foreign Direct Investment (FDI) can enter through two primary routes—either by incorporating a wholly owned subsidiary (WOS) or subsidiary company with the Ministry of Corporate Affairs (MCA), along with other applicable registrations, or through private equity investments where foreign individuals or body corporates invest in an existing Indian company. Additionally, FDI may also be received when shares of an Indian private limited company are acquired by way of transfer. In such cases, the transfer of shares is executed using Form SH-4 (Securities Transfer Form), which must be duly signed by both the transferor and the transferee and submitted to the company within 60 days of execution. The applicable stamp duty must be paid in Indian Rupees based on the value of consideration involved in the transfer.
After the submission of the transfer form, the Board of Directors must convene a board meeting to approve and record the share transfer. The transfer is then endorsed on the share certificate. In cases involving foreign investors, the transferee is also required to submit a certificate issued by the AD bank confirming the remittance of funds and completion of the FC-TRS process.
Once these steps are complete and documents verified, the company updates its register of members to reflect the new shareholding structure. It is essential for companies to ensure that all regulatory filings, including Form FC-TRS and ROC filings, are made within the stipulated timelines to avoid penalties or legal complications.
Income Tax Implications on Transfer of Shares
From a taxation perspective, Section 9(1)(i)(d) of the Income Tax Act deems capital gains arising from the transfer of shares of an Indian company to be taxable in India, even if the transferor is an NRI. The NRI must be  liable to pay tax on the capital gains arising from the sale in case of share transfer subject to valuation of price per shares as per Income tax and FEMA  law, and this tax liability must be discharged through appropriate withholding tax mechanisms.
The buyer (resident Indian company) may be required to deduct tax at source (TDS) under Section 195 before making payment to the NRI. In some cases, NRIs may need to obtain a certificate from the Assessing Officer to determine the correct amount of tax to be deducted.
NRIs do not receive the benefit of indexation or deductions available to resident taxpayers. However, they can claim relief under the applicable Double Taxation Avoidance Agreement (DTAA), and also provide relief either through exemption or tax credit methods including under the exemption method, the income is taxed in only one country and under the tax credit method, if tax is paid in both countries, credit is allowed in the country of residence.
It is also worth noting that NRIs who earn only investment income and long-term capital gains in India may not be required to file a return of income, provided the necessary tax has already been deducted at source.
How easy is it to do FCTRS filing ?
Some steps involved in FC-TRS filing?

Enter investment details, nature and type of transfer, transferor/transferee info.

Fill in capital instrument details including fair value.

Provide remittance details (for sale transfers).

Verify auto-generated shareholding pattern.

Upload necessary supporting documents.

Submit the form online.

The transfer of equity shares from an NRI to an Indian private company involves multiple steps and compliance checkpoints across FEMA, the Companies Act 2013 read with Rules, and the Income Tax Act 1961, includes valuation of shares, remittance through AD banks, documentation, board approvals, and submission of Form FC-TRS. Failure to comply with any of the conditions can attract scrutiny from regulatory authorities and financial penalties.
Given the wide scope and technical nature of these transactions, it is advisable for both parties to engage qualified professionals including Chartered Accountants, Company Secretaries, and RBI-licensed Authorized Dealer banks including Proper legal documentation and timely filings allows smooth execution of the transfer and help avoid regulatory bottlenecks like Hefty penalty in LSF by RBI for delay in report FCTRS with RBI/AD Banks.  
If you are planning a share transfer involving an NRI, make sure you consult with experts who understand the intricacies of FEMA, taxation, and corporate compliance to complete the process efficiently and lawfully.
Share Valuation report is required to check that the transfer complies with pricing guidelines. A valuation report must be obtained from any one subject to requirement wise:-

Chartered Accountant (CA)

SEBI Registered Merchant Banker

Practicing Cost Accountant

Registered Valuer

depending on the type of company and instrument involved.
FAQs
Q1. What if the FC-TRS form is not submitted within the time limit?
Ans. Late Submission Fee (LSF) is applicable. As per A.P. (DIR Series) Circular No. 16, the LSF is: LSF = Rs.7500 + (0.025% x A x n)
Where:

A = amount involved in transaction

n = number of years (rounded to nearest month)

The LSF must be paid via demand draft to RBI after approval.
Q2. What is investment on repatriation vs. non-repatriation basis?
Ans. Repatriation basis means the sale/maturity proceeds (after tax) can be sent abroad.

Non-repatriation basis means the sale proceeds cannot be remitted and must stay in India.

Q3. What are the key sections of the FC-TRS form?
Ans. Common Investment Details

Transfer Details (gift or sale)

Buyer and Seller Information

Instrument Particulars (type, number, face value, fair value)

Remittance Information

Shareholding Pattern (auto-filled)

Supporting Documents Upload

Q4. Can FC-TRS be filed for multiple tranches?
Ans. Yes. If the transfer happens in multiple tranches, each tranche must be reported separately within 60 days of receipt of payment. Each filing should clearly mention whether it is the last tranche.
Q5. What happens if FC-TRS is wrongly filed or rejected?
Ans. The applicant can resubmit the form after addressing the RBI’s rejection remarks. It is important to file within the original or extended timeframe to avoid LSF and regulatory issues.
Q6. Is Board Approval required for share transfer?
Ans. Yes. The Board of Directors of the investee company must approve the share transfer and record it in the company’s books. A company board resolution must be attached with the FC-TRS form along with Valuation report from merchant bankers or RV if any.
Q7. Can professionals file the FC-TRS on behalf of the applicant?
Ans. Yes. A Power of Attorney (PoA) can be executed allowing an agent, consultant, or professional to submit the FC-TRS on behalf of the transferor or transferee.
Q8. How can I track the status of my FC-TRS submission?
Ans. Status updates are sent via email to the registered user from autoreply-firms@rbi.org.in. Make sure to monitor this inbox after submission for approval or rejection notices.
Q9. How does Compliance Calendar LLP help ? 
Ans. If you need assistance with FC-TRS filing, valuation reports, or FDI compliance, feel free to reach out to our expert company secretaries at Compliance Calendar LLP who assist clients across India in ensuring full regulatory compliance for inbound and outbound investments with RBI.

In India, transfer of shares is a regulated process governed by multiple laws depending on the residency status of the transferor and transferee. While the transfer of shares between two resident Indians is relatively straightforward and involves payment of consideration with a share transfer deed in SH-4, the transfer of shares from a Non-Resident Indian (NRI) to a Resident Indian entity, such as a private limited company, requires to comply the Foreign Exchange Management Act (FEMA) by filing of FCTRS reporting, Companies Act, 2013, and the Income Tax Act, 1961 for calculating any tax liability on consideration value and you must be knowing that each law introduces its own set of compliance requirements, procedural formalities, and documentation. You should know what is the checklist or documents required for the FDI reporting with RBI ?

Form FC-TRS is used to report the transfer of capital instruments (equity shares, compulsorily convertible preference shares, debentures) between a resident and a non-resident, to be submitted through the FIRMS portal of the Reserve Bank of India (RBI) by the concerned party to comply with FEMA 20(R) regulations.Form FC-TRS must be filed online through the FIRMS Portal (Foreign Investment Reporting and Management System) on the RBI’s website, under the Single Master Form (SMF) and the responsibility of filing of FDI FCTRS form lies with:

The resident transferor or transferee, or
A non-resident holding shares on a non-repatriable basis, as the case may be.

FEMA FDI reporting in form FCTRS in case of Transfer of Shares

FCTRS Form Filing is required when:

Shares are transferred from resident to non-resident (including NRIs/OCIs on repatriable basis).
Shares are transferred from non-resident to resident.
Shares are gifted from a resident to a non-resident.
Shares are transferred between two non-residents, if one holds them on a non-repatriable basis.

In such a transaction, the share transfer deed SH-4 must be duly stamped, and stamp duty is payable at the rate of 0.25% of the total consideration which is normally a transfer ticket to be affixed and consideration value includes the premium amount for the calculation. When shares are transferred between a resident and a non-resident, it attracts specific rules around remittance, share pricing, and reporting to the RBI for FDI approval in case of share transfer through Form FC-TRS filing. Foreign investment in India can be routed under the automatic route or the government route, and all such transactions must comply with sectoral caps, pricing guidelines, and other restrictions under the FDI policy.

General permission is available for the transfer of shares from an NRI to an Indian resident under private arrangement or agreement, provided the investee company operates under the automatic route, and sectoral limits are not breached and sale consideration should be compliant with the pricing guidelines and must not violate the SEBI Takeover Code. In any case where these requirements are not fulfilled, the prior approval of the RBI is necessary before such a transfer can proceed.

Procedure under FEMA Rule and Companies Act 2013

When an NRI wishes to transfer shares to a resident Indian buyer, the consideration for the transfer must be in line with the fair market value of the shares. In the case of a listed company, the pricing must not be below the minimum price as prescribed under SEBI guidelines for preferential allotments. For unlisted companies, the valuation should not be less than the fair market value determined using internationally accepted methods and certified by a Chartered Accountant or SEBI-registered Merchant Banker.

The sale consideration should be remitted to India through an Authorized Dealer (AD) bank. Upon receipt of funds, the transfer must be reported to the RBI using Form FC-TRS within 60 days. The responsibility of filing this form lies with either the transferor or transferee, whichever party is the resident in India.

Along with Form FC-TRS, a series of documents must be submitted to the AD bank. These include consent letters from both parties detailing the number of shares and the transaction price, power of attorney if the transaction is carried out by an agent, the shareholding pattern of the company before and after the transfer, and copies of RBI approvals in case the transferor holds shares on repatriation or non-repatriation basis. A valuation certificate by a Chartered Accountant and an undertaking from the transferee stating compliance with pricing guidelines must also be provided. In addition, a tax clearance certificate or a no objection certificate from the Income Tax Department is often required to ensure there are no pending tax liabilities.

FC-TRS is not required if:

A non-resident holding shares on a non-repatriable basis transfers shares to a resident.

Transactions involve gift transfers where exemptions apply under FEMA guidelines.

Capital instruments are transferred by way of pledge invocation under Regulation 10(12).

Compliance under the Companies Act, 2013

In India, Foreign Direct Investment (FDI) can enter through two primary routes—either by incorporating a wholly owned subsidiary (WOS) or subsidiary company with the Ministry of Corporate Affairs (MCA), along with other applicable registrations, or through private equity investments where foreign individuals or body corporates invest in an existing Indian company. Additionally, FDI may also be received when shares of an Indian private limited company are acquired by way of transfer. In such cases, the transfer of shares is executed using Form SH-4 (Securities Transfer Form), which must be duly signed by both the transferor and the transferee and submitted to the company within 60 days of execution. The applicable stamp duty must be paid in Indian Rupees based on the value of consideration involved in the transfer.

After the submission of the transfer form, the Board of Directors must convene a board meeting to approve and record the share transfer. The transfer is then endorsed on the share certificate. In cases involving foreign investors, the transferee is also required to submit a certificate issued by the AD bank confirming the remittance of funds and completion of the FC-TRS process.

Once these steps are complete and documents verified, the company updates its register of members to reflect the new shareholding structure. It is essential for companies to ensure that all regulatory filings, including Form FC-TRS and ROC filings, are made within the stipulated timelines to avoid penalties or legal complications.

Income Tax Implications on Transfer of Shares

From a taxation perspective, Section 9(1)(i)(d) of the Income Tax Act deems capital gains arising from the transfer of shares of an Indian company to be taxable in India, even if the transferor is an NRI. The NRI must be liable to pay tax on the capital gains arising from the sale in case of share transfer subject to valuation of price per shares as per Income tax and FEMA law, and this tax liability must be discharged through appropriate withholding tax mechanisms.

The buyer (resident Indian company) may be required to deduct tax at source (TDS) under Section 195 before making payment to the NRI. In some cases, NRIs may need to obtain a certificate from the Assessing Officer to determine the correct amount of tax to be deducted.

NRIs do not receive the benefit of indexation or deductions available to resident taxpayers. However, they can claim relief under the applicable Double Taxation Avoidance Agreement (DTAA), and also provide relief either through exemption or tax credit methods including under the exemption method, the income is taxed in only one country and under the tax credit method, if tax is paid in both countries, credit is allowed in the country of residence.

It is also worth noting that NRIs who earn only investment income and long-term capital gains in India may not be required to file a return of income, provided the necessary tax has already been deducted at source.

How easy is it to do FCTRS filing ?

Some steps involved in FC-TRS filing?

Register as Entity and Business User on the FIRMS portal.
Login and select “FC-TRS” under “Single Master Form”.
Enter investment details, nature and type of transfer, transferor/transferee info.
Fill in capital instrument details including fair value.
Provide remittance details (for sale transfers).
Verify auto-generated shareholding pattern.
Upload necessary supporting documents.
Submit the form online.

Given the wide scope and technical nature of these transactions, it is advisable for both parties to engage qualified professionals including Chartered Accountants, Company Secretaries, and RBI-licensed Authorized Dealer banks including Proper legal documentation and timely filings allows smooth execution of the transfer and help avoid regulatory bottlenecks like Hefty penalty in LSF by RBI for delay in report FCTRS with RBI/AD Banks.

If you are planning a share transfer involving an NRI, make sure you consult with experts who understand the intricacies of FEMA, taxation, and corporate compliance to complete the process efficiently and lawfully.

Share Valuation report is required to check that the transfer complies with pricing guidelines. A valuation report must be obtained from any one subject to requirement wise:-

Chartered Accountant (CA)
SEBI Registered Merchant Banker
Practicing Cost Accountant
Registered Valuer

depending on the type of company and instrument involved.

FAQs

Q1. What if the FC-TRS form is not submitted within the time limit?

Ans. Late Submission Fee (LSF) is applicable. As per A.P. (DIR Series) Circular No. 16, the LSF is: LSF = Rs.7500 + (0.025% x A x n)

Where:

A = amount involved in transaction
n = number of years (rounded to nearest month)

The LSF must be paid via demand draft to RBI after approval.

Q2. What is investment on repatriation vs. non-repatriation basis?

Ans. Repatriation basis means the sale/maturity proceeds (after tax) can be sent abroad.

Non-repatriation basis means the sale proceeds cannot be remitted and must stay in India.

Q3. What are the key sections of the FC-TRS form?

Ans. Common Investment Details

Transfer Details (gift or sale)
Buyer and Seller Information
Instrument Particulars (type, number, face value, fair value)
Remittance Information
Shareholding Pattern (auto-filled)
Supporting Documents Upload

Q4. Can FC-TRS be filed for multiple tranches?

Ans. Yes. If the transfer happens in multiple tranches, each tranche must be reported separately within 60 days of receipt of payment. Each filing should clearly mention whether it is the last tranche.

Q5. What happens if FC-TRS is wrongly filed or rejected?

Ans. The applicant can resubmit the form after addressing the RBI’s rejection remarks. It is important to file within the original or extended timeframe to avoid LSF and regulatory issues.

Q6. Is Board Approval required for share transfer?

Ans. Yes. The Board of Directors of the investee company must approve the share transfer and record it in the company’s books. A company board resolution must be attached with the FC-TRS form along with Valuation report from merchant bankers or RV if any.

Q7. Can professionals file the FC-TRS on behalf of the applicant?

Ans. Yes. A Power of Attorney (PoA) can be executed allowing an agent, consultant, or professional to submit the FC-TRS on behalf of the transferor or transferee.

Q8. How can I track the status of my FC-TRS submission?

Ans. Status updates are sent via email to the registered user from autoreply-firms@rbi.org.in. Make sure to monitor this inbox after submission for approval or rejection notices.

Q9. How does Compliance Calendar LLP help ?

Ans. If you need assistance with FC-TRS filing, valuation reports, or FDI compliance, feel free to reach out to our expert company secretaries at Compliance Calendar LLP who assist clients across India in ensuring full regulatory compliance for inbound and outbound investments with RBI.