Overseas Direct Investment (ODI) in India

Overseas Direct Investment (ODI) in India. As Indian businesses grow and explore international opportunities, many are choosing to invest in companies outside India. This is known as Overseas Direct Investment (ODI). It means an Indian company or person can start a new business in another country or buy a part of a foreign company. This helps them reach more customers, use better technology, and grow faster. Such investments can be made by forming a partnership (Joint Venture) or owning the entire business (Wholly Owned Subsidiary). The rules for making ODI are made by the Reserve Bank of India (RBI) under the FEMA Act, 1999. In 2022, the rules were made simpler to help more businesses invest abroad. This article explains how ODI works, who can invest, and what steps to follow.
Learn more about Overseas Company Registration.
What is Overseas Direct Investment (ODI)?
Overseas Direct Investment (ODI) refers to the investment made by an Indian resident such as a company, partnership firm, Limited Liability Partnership (LLP), or even an individual into a business located outside India. This investment is made with the intention to own, control, or manage the foreign business.
In simple terms, ODI means expanding your business internationally by setting up a Joint Venture (JV) or a Wholly Owned Subsidiary (WOS) in another country.
ODI can be made in the form of:

Buying shares or equity in a foreign company

Giving loans to that foreign entity

Providing guarantees on its behalf

ODI allows Indian businesses to grow globally, enter new markets, access foreign technologies, and diversify their operations. It is regulated by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), 1999.
Legal and Regulatory Framework Governing ODI
The Overseas Direct Investment (ODI) by Indian residents is governed by a well-defined legal and regulatory structure to ensure transparency, accountability, and compliance with India’s foreign exchange laws. The key laws and authorities involved are:
Foreign Exchange Management Act (FEMA), 1999
The Foreign Exchange Management Act (FEMA) is the primary law that governs all cross-border transactions in India, including ODI. It ensures that investments made by Indian residents outside India are legal, traceable, and within the country's financial policy framework. FEMA empowers the Reserve Bank of India (RBI) to frame rules, regulations, and guidelines for overseas investments.
RBI’s Regulatory Authority
The Reserve Bank of India (RBI) is the main regulatory body for ODI. It issues directions, monitors investments, grants approvals under specific cases, and ensures that all transactions are routed through Authorised Dealer (AD) Banks typically scheduled commercial banks that are allowed to deal in foreign exchange.
FEMA (Overseas Investment) Rules, 2022
These rules were notified by the Ministry of Finance (Central Government) and came into effect from August 22, 2022, replacing the earlier ODI regulations. The new rules aim to simplify the process of overseas investment by:

Categorizing investment into Overseas Direct Investment (ODI) and Overseas Portfolio Investment (OPI)

Defining key terms like control, financial commitment, and foreign entity

Laying down conditions for resident individuals, companies, LLPs, and trusts to invest abroad

FEMA (Overseas Investment) Regulations, 2022
Issued by the Reserve Bank of India, these regulations complement the above rules. They outline:

The operational procedures for making investments

Manner of financial commitment (equity, loans, guarantees)

Permitted and prohibited sectors

Valuation norms for acquiring or selling foreign assets

Conditions for reporting and compliance

Master Direction on Overseas Investment
RBI has also issued a consolidated Master Direction on Overseas Investment, which includes FAQs, clarifications, and practical guidelines for businesses and individuals. It brings all notifications and instructions into a single reference document.
Authorised Dealer (AD) Banks’ Role
All ODI transactions must be routed through Authorised Dealer Category-I Banks. These banks verify the documents, perform KYC checks, ensure regulatory compliance, and file necessary forms (like Form FC, Form OPI, and APR) on behalf of the investor with RBI.
Objectives of Overseas Direct Investment (ODI)
Overseas Direct Investment (ODI) plays an important role in helping Indian businesses grow beyond national borders. It is not just a financial transaction it’s a strategic decision that supports long-term growth, diversification, and competitiveness. The key objectives of ODI are:
Global Business Expansion
One of the primary objectives of ODI is to help Indian companies expand their business footprint in international markets. By setting up Joint Ventures (JVs) or Wholly Owned Subsidiaries (WOS) abroad, companies can reach new customers, increase their market share, and strengthen their global brand presence.
Access to New Markets and Customers
ODI allows businesses to enter new regions that may have high demand for their products or services. For example, an Indian pharmaceutical company may invest in Africa or Latin America to tap into growing healthcare needs, while a technology company may expand to the US or Europe for better commercial opportunities.
Acquisition of Technology and Know-How
Through ODI, Indian companies can acquire advanced technology, intellectual property rights, and industry know-how by investing in or collaborating with foreign entities. This helps improve the quality of products, efficiency in production, and innovation in business processes back in India.
Diversification of Business Risks
ODI helps businesses diversify their operational and financial risks. By operating in multiple countries, companies reduce their dependence on the domestic economy. If one market underperforms, the business can still rely on revenue from other geographies, which improves overall stability.
Better Access to Resources
Some Indian companies invest abroad to gain access to natural resources, skilled labor, or cost-effective manufacturing facilities. For example, a steel company may invest in an iron ore mine overseas to ensure consistent raw material supply.
Strengthening Global Supply Chains
By setting up operations in foreign locations, companies can optimize their supply chains, reduce logistics costs, and manage time zones more effectively. This is especially important for manufacturing and IT companies that rely on international clients or suppliers.
Improved Competitiveness and Reputation
Having an international presence enhances the credibility, reputation, and competitiveness of an Indian business. It opens up opportunities to work with global clients, partners, and governments, and may also help in winning international contracts and tenders.
Tax Planning and Profit Optimization
ODI can also be used as a legitimate tool for tax efficiency and profit repatriation, especially when investments are made in countries with favorable tax treaties or low tax regimes. However, this must be done in full compliance with Indian and foreign laws.
Eligibility: Who Can Make Overseas Direct Investment (ODI) from India?
The Indian government, through the Foreign Exchange Management Act (FEMA), 1999, and RBI regulations, allows certain residents of India to make Overseas Direct Investment (ODI). The eligibility to make ODI depends on the nature of the investor whether it's a company, LLP, partnership firm, trust, or individual. Let's explore each category in detail:
Indian Companies
Any company incorporated in India under the Companies Act, 2013 is eligible to make ODI. This includes:

Private Limited Companies

Public Limited Companies

Section 8 Companies (with RBI approval)

These companies can invest abroad by setting up Joint Ventures (JV) or Wholly Owned Subsidiaries (WOS) in bonafide business activities, except in prohibited sectors like real estate or gambling.
Note: The investment must be within the overall financial commitment limit (currently 400% of the company’s net worth).
Limited Liability Partnerships (LLPs)
Limited Liability Partnerships (LLPs) registered under the LLP Act, 2008, can make Overseas Direct Investment (ODI) under the automatic route if they operate a legitimate business in India, invest in a bonafide foreign entity, and avoid prohibited sectors like banking, real estate, or gambling, subject to RBI compliance and documentation.
Partnership Firms
Registered partnership firms can make ODI if the foreign entity operates in a sector allowing 100% FDI under the automatic route and the Indian firm engages in a similar business. Investments must comply with the Partnership Act and FEMA rules and be routed through an Authorised Dealer (AD) Bank.
Resident Individuals
Resident individuals in India can make Overseas Direct Investment (ODI) under the Liberalised Remittance Scheme (LRS) up to USD 250,000 per financial year. They can invest in foreign equities, startups, or property, excluding prohibited sectors like real estate, banking, or margin trading, and cannot engage in round-tripping back to India.
Trusts and Societies
Registered trusts and societies can make Overseas Direct Investment (ODI) only with prior RBI approval and under specific conditions. Generally, this applies to educational or charitable trusts investing in similar activities abroad, or societies registered under the Societies Registration Act, 1860. These investments are not allowed under the automatic route.
Important Points to Remember

The investor (company/LLP/individual) must not be on RBI’s caution or defaulter list.

The entity should have no pending investigations or non-compliance with FEMA, Income Tax, SEBI, or any regulatory body.

All ODI must be made for genuine business purposes and through authorised channels.

Investment in a foreign entity must not violate host country laws or Indian foreign policy.

Permitted Forms of Investment under Overseas Direct Investment (ODI)
Under the Overseas Direct Investment (ODI) framework, Indian entities and resident individuals are allowed to invest in foreign entities through various permissible methods, provided the investments are made in accordance with the Foreign Exchange Management Act (FEMA), 1999 and the Overseas Investment Rules and Regulations, 2022.
Below are the permitted forms of investment under ODI:
Equity Capital Contribution
Indian entities and resident individuals can invest in the equity capital of a foreign company by subscribing to new shares or acquiring existing shares. This results in ownership and often control of the foreign entity. Equity investments form the core of Overseas Direct Investment and must follow RBI's compliance and reporting rules.
Loan to Foreign Entity
Indian investors are allowed to extend loans to their foreign Joint Venture (JV) or Wholly Owned Subsidiary (WOS). These loans help fund overseas operations or expansion. Such loans are treated as part of the total financial commitment under ODI and must be properly documented and reported via the RBI’s FIRMS portal.
Issuance of Guarantees
Indian entities can issue corporate, performance, or bank guarantees in favor of their foreign JV or WOS. These guarantees act as support for overseas obligations. RBI considers 100% of corporate and performance guarantees and 50% of bank guarantees as part of the total financial commitment under the ODI limits.
Pledge or Charge on Assets
An Indian entity can create a pledge or charge on its own assets, shares, or those of the foreign entity to secure funding. This includes pledging Indian or foreign shares or mortgaging assets. Such actions must be reported to RBI and are allowed only when aligned with ODI conditions and limits.
Swap of Shares
Share swaps involve exchanging shares of an Indian entity with shares of a foreign entity, thereby enabling ODI without direct cash outflow. This form of investment is permitted subject to fair valuation and may require RBI approval, especially when there is a change in control or cross-border ownership structure.
Investment in Rights or Bonus Shares
Indian investors holding equity in a foreign entity can participate in rights issues or accept bonus shares. This is considered a follow-up investment and is allowed without additional approval, provided the original ODI was in compliance. Such investments still need to be reported to RBI and fall within commitment limits.
Routes for Overseas Investment
Overseas investments by Indian residents are allowed through two main routes Automatic Route and Approval Route, both of which are explained below.
Automatic Route
Under the Automatic Route, no prior approval from the Reserve Bank of India (RBI) is required, provided the investment complies with prescribed limits, sectoral conditions, and the investor is not under investigation or listed as a defaulter.
Approval Route
The Approval Route is applicable when the proposed investment falls outside the scope of the automatic route, such as investments in strategic sectors, financial services not regulated in the host country, or by entities like trusts or societies. RBI evaluates such proposals on a case-by-case basis.
Financial Commitment Limits
The Reserve Bank of India (RBI) has prescribed financial commitment limits to ensure controlled overseas investment by Indian entities. As per the current regulations, an Indian company or LLP can invest up to 400% of its net worth in a foreign entity, based on its last audited balance sheet. This financial commitment includes equity contributions, loans, and guarantees extended to or on behalf of the foreign entity. For guarantees, 100% of corporate or performance guarantees and 50% of bank guarantees are considered. Any commitment beyond the prescribed limit requires prior approval from the RBI. These limits help monitor outward investments while allowing Indian businesses to explore global opportunities within a regulated framework.
Prohibited Sectors for ODI
Overseas Direct Investment (ODI) by Indian residents is subject to sectoral restrictions to ensure responsible and legal deployment of funds abroad. As per RBI regulations, ODI is not allowed in certain prohibited sectors, including real estate business, gambling or betting activities, and Nidhi companies. Additionally, investments in foreign financial service providers are not permitted unless the Indian investor is also a regulated entity in the same field. ODI is also barred in businesses dealing with financial products linked to the Indian Rupee, such as rupee derivatives. These restrictions are in place to prevent misuse of funds and ensure regulatory compliance.
Process of Making Overseas Direct Investment (ODI)
Making an Overseas Direct Investment (ODI) involves a structured process governed by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), 1999. The process is largely routed through an Authorised Dealer (AD) Category-I Bank, ensuring regulatory compliance and proper reporting. Here’s a step-by-step explanation:
Board Approval
The first step for making an ODI is to obtain a resolution from the Board of Directors of the Indian entity. This confirms internal approval for the investment and provides legal backing for proceeding with documentation and remittance through the authorised bank.
Due Diligence and KYC
The Authorised Dealer (AD) Bank performs a Know Your Customer (KYC) check on both the Indian and foreign entities. This helps verify legitimacy, ensures compliance with anti-money laundering laws, and establishes the credibility of the proposed overseas business activity.
Filing of Form FC (Financial Commitment)
Form FC must be submitted online through the RBI’s FIRMS portal before remitting funds. It captures investment details such as amount, type (equity, loan, guarantee), and information about the foreign entity, along with required supporting documents and declarations.
Remittance of Funds
Once Form FC is approved or acknowledged, the Indian entity can remit the investment amount abroad through the same Authorised Dealer (AD) Bank. The funds must be transferred via normal banking channels in freely convertible foreign currency.
Filing of Other Applicable Forms
Additional forms like Form OPI (for portfolio investments), Form DI (for disinvestment), or changes to earlier filings must be submitted if applicable. These filings keep the RBI updated on the nature and status of overseas investments made.
Post-Investment Compliance
Post-investment, the Indian entity must file the Annual Performance Report (APR) for each foreign JV or WOS by December 31 every year. It must also report any changes in financial commitment and ensure ongoing compliance with RBI and FEMA guidelines.
 Learn more about APR Filing in case of ODI under FEMA.
Compliance Requirements After Overseas Direct Investment (ODI)
Once an Indian entity or individual makes an Overseas Direct Investment (ODI), the responsibility doesn’t end with fund remittance. The investor must follow a set of post-investment compliance requirements prescribed by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), 1999. These requirements help the RBI monitor foreign investments, ensure lawful usage of funds, and maintain transparency in cross-border transactions.
Below are the key compliance obligations that must be fulfilled after making ODI:
Annual Performance Report (APR) Filing
After making an ODI, the investor must file an Annual Performance Report (APR) for each foreign JV or WOS. This report, submitted via the AD Bank by December 31 each year, includes financials and operational performance of the foreign entity.
Reporting Disinvestment or Sale of Foreign Stake
If the Indian investor exits the foreign entity fully or partially through sale, liquidation, or transfer, the transaction must be reported using Form DI within 30 days. Supporting documents like valuation reports and sale agreements must also be submitted to the AD Bank.
Updating Financial Commitment Details
Any changes in investment amount such as additional equity, loans, or guarantees must be updated in Form FC. This helps the RBI track the total financial exposure of the Indian investor in the foreign entity and ensures proper regulatory monitoring.
Submission of Share Certificates
The investor must collect share certificates or proof of ownership from the foreign entity within six months of fund remittance. These documents confirm the investment and must be submitted to the AD Bank as part of the post-ODI compliance process.
Valuation Reports for Share Transfers
If shares of the foreign entity are transferred or sold, a valuation report must be obtained from a certified valuer. This ensures fair pricing and must be submitted along with Form DI to meet FEMA and RBI norms on pricing guidelines.
Repatriation of Dividends and Profits
Profits, dividends, or capital gains earned from the foreign entity should be brought back to India within a reasonable time. This must comply with RBI’s foreign exchange rules and ensure tax compliance in both India and the host country.
Filing of Form OPI (If Applicable)
In cases where the investment qualifies as Overseas Portfolio Investment (OPI), the investor must file Form OPI. While less rigorous than ODI, it is still necessary to report such investments for regulatory transparency and record maintenance with the RBI.
Compliance with Host Country Regulations
The foreign entity must operate within the legal framework of its host country. Any non-compliance, penalties, or dissolution abroad must be reported to the AD Bank and RBI, ensuring that Indian ODI remains transparent and law-abiding internationally.
ODI by Individuals under LRS
Resident individuals in India can make Overseas Direct Investment (ODI) under the Liberalised Remittance Scheme (LRS), which permits remittance of up to USD 250,000 per financial year. This allows individuals to invest in foreign companies, set up overseas startups, or purchase assets abroad, excluding prohibited sectors such as real estate business, banking, and gambling. The investment must be made through an Authorised Dealer (AD) Bank, ensuring compliance with RBI and FEMA guidelines. Additionally, individuals are not allowed to create structures for round-tripping, where funds are routed back to India. All investments must be genuine and supported by proper documentation and declarations.
Closing Remarks
Overseas Direct Investment (ODI) is a great way for Indian businesses and individuals to grow internationally and explore new markets. With the updated rules introduced in 2022, the process has become simpler and easier to follow. Still, it’s important to follow all the guidelines set by the Reserve Bank of India (RBI) and ensure proper reporting and documentation. Whether investing through equity, loans, or guarantees, every step must be done through an Authorised Dealer (AD) Bank. ODI gives Indian investors the chance to build global connections, access new opportunities, and strengthen their business. With careful planning and the right support, ODI can help Indian entities succeed in the international business world.
Frequently Asked Questions (FAQs)
Q1. What is Overseas Direct Investment (ODI)?
Ans. ODI refers to the investment made by Indian residents (companies, LLPs, partnership firms, or individuals) in foreign entities by acquiring equity shares, giving loans, or providing guarantees, usually to set up or acquire a Joint Venture (JV) or Wholly Owned Subsidiary (WOS) abroad.
Q2. Who can make ODI from India?
Ans. Indian companies, LLPs, registered partnership firms, resident individuals (under LRS), and, in specific cases, registered trusts and societies (with RBI approval) are eligible to make ODI, subject to FEMA regulations and sectoral restrictions.
Q3. What is the maximum limit for making ODI?
Ans. Indian entities can make financial commitments up to 400% of their net worth, as per the last audited balance sheet. For resident individuals, the limit is USD 250,000 per financial year under the Liberalised Remittance Scheme (LRS).
Q4. What are the permitted forms of investment under ODI?
Ans. ODI can be made through:

Equity capital contribution

Loans to the foreign entity

Corporate or performance guarantees

Pledge or charge on assets or shares

Share swaps or acquisition of rights/bonus shares

Q5. What are the prohibited sectors for ODI?
Ans. ODI is not permitted in foreign entities engaged in:

Real estate business

Gambling or betting

Nidhi companies

Financial product trading linked to the Indian Rupee (e.g., derivatives)

Q6. Is prior RBI approval required for making ODI?
Ans. ODI is allowed under the automatic route if it meets all prescribed conditions. However, prior RBI approval is required in cases like investment in unregulated financial sectors, beyond financial commitment limits, or by trusts and societies.
Q7. How is ODI reported to the RBI?
Ans. Investors must file Form FC (Financial Commitment) before remitting funds. Post-investment, they must file Annual Performance Reports (APR) and other forms like Form DI (for disinvestment) or Form OPI (for portfolio investments) through the FIRMS portal.
Q8. Can individuals invest in foreign real estate or banking under ODI?
Ans. No, resident individuals are not allowed to invest in foreign real estate businesses, banking, or financial services. Such sectors are restricted for all categories of Indian residents under ODI rules.
Q9. What is the Annual Performance Report (APR)?
Ans. The APR is a yearly report that must be submitted for every foreign JV or WOS. It includes the foreign entity’s financials, operations, and investment status. It must be filed through the AD Bank by December 31 of the following financial year.
Q10. What happens if ODI compliance is not followed?
Ans. Non-compliance with ODI regulations may lead to penalties under FEMA, including restrictions on future investments, fines, and even prosecution in serious cases. Timely filing and correct documentation are essential to avoid regulatory action by the RBI.

As Indian businesses grow and explore international opportunities, many are choosing to invest in companies outside India. This is known as Overseas Direct Investment (ODI). It means an Indian company or person can start a new business in another country or buy a part of a foreign company. This helps them reach more customers, use better technology, and grow faster. Such investments can be made by forming a partnership (Joint Venture) or owning the entire business (Wholly Owned Subsidiary). The rules for making ODI are made by the Reserve Bank of India (RBI) under the FEMA Act, 1999. In 2022, the rules were made simpler to help more businesses invest abroad. This article explains how ODI works, who can invest, and what steps to follow.

Learn more about Overseas Company Registration.

What is Overseas Direct Investment (ODI)?

Overseas Direct Investment (ODI) refers to the investment made by an Indian resident such as a company, partnership firm, Limited Liability Partnership (LLP), or even an individual into a business located outside India. This investment is made with the intention to own, control, or manage the foreign business.

In simple terms, ODI means expanding your business internationally by setting up a Joint Venture (JV) or a Wholly Owned Subsidiary (WOS) in another country.

ODI can be made in the form of:

Buying shares or equity in a foreign company
Giving loans to that foreign entity
Providing guarantees on its behalf

Legal and Regulatory Framework Governing ODI

The Overseas Direct Investment (ODI) by Indian residents is governed by a well-defined legal and regulatory structure to ensure transparency, accountability, and compliance with India’s foreign exchange laws. The key laws and authorities involved are:

Foreign Exchange Management Act (FEMA), 1999

The Foreign Exchange Management Act (FEMA) is the primary law that governs all cross-border transactions in India, including ODI. It ensures that investments made by Indian residents outside India are legal, traceable, and within the country's financial policy framework. FEMA empowers the Reserve Bank of India (RBI) to frame rules, regulations, and guidelines for overseas investments.

RBI’s Regulatory Authority

The Reserve Bank of India (RBI) is the main regulatory body for ODI. It issues directions, monitors investments, grants approvals under specific cases, and ensures that all transactions are routed through Authorised Dealer (AD) Banks typically scheduled commercial banks that are allowed to deal in foreign exchange.

FEMA (Overseas Investment) Rules, 2022

These rules were notified by the Ministry of Finance (Central Government) and came into effect from August 22, 2022, replacing the earlier ODI regulations. The new rules aim to simplify the process of overseas investment by:

Categorizing investment into Overseas Direct Investment (ODI) and Overseas Portfolio Investment (OPI)
Defining key terms like control, financial commitment, and foreign entity
Laying down conditions for resident individuals, companies, LLPs, and trusts to invest abroad

FEMA (Overseas Investment) Regulations, 2022

Issued by the Reserve Bank of India, these regulations complement the above rules. They outline:

The operational procedures for making investments
Manner of financial commitment (equity, loans, guarantees)
Permitted and prohibited sectors
Valuation norms for acquiring or selling foreign assets
Conditions for reporting and compliance

Master Direction on Overseas Investment

RBI has also issued a consolidated Master Direction on Overseas Investment, which includes FAQs, clarifications, and practical guidelines for businesses and individuals. It brings all notifications and instructions into a single reference document.

Authorised Dealer (AD) Banks’ Role

All ODI transactions must be routed through Authorised Dealer Category-I Banks. These banks verify the documents, perform KYC checks, ensure regulatory compliance, and file necessary forms (like Form FC, Form OPI, and APR) on behalf of the investor with RBI.

Objectives of Overseas Direct Investment (ODI)

Overseas Direct Investment (ODI) plays an important role in helping Indian businesses grow beyond national borders. It is not just a financial transaction it’s a strategic decision that supports long-term growth, diversification, and competitiveness. The key objectives of ODI are:

Global Business Expansion

One of the primary objectives of ODI is to help Indian companies expand their business footprint in international markets. By setting up Joint Ventures (JVs) or Wholly Owned Subsidiaries (WOS) abroad, companies can reach new customers, increase their market share, and strengthen their global brand presence.

Access to New Markets and Customers

ODI allows businesses to enter new regions that may have high demand for their products or services. For example, an Indian pharmaceutical company may invest in Africa or Latin America to tap into growing healthcare needs, while a technology company may expand to the US or Europe for better commercial opportunities.

Acquisition of Technology and Know-How

Through ODI, Indian companies can acquire advanced technology, intellectual property rights, and industry know-how by investing in or collaborating with foreign entities. This helps improve the quality of products, efficiency in production, and innovation in business processes back in India.

Diversification of Business Risks

ODI helps businesses diversify their operational and financial risks. By operating in multiple countries, companies reduce their dependence on the domestic economy. If one market underperforms, the business can still rely on revenue from other geographies, which improves overall stability.

Better Access to Resources

Some Indian companies invest abroad to gain access to natural resources, skilled labor, or cost-effective manufacturing facilities. For example, a steel company may invest in an iron ore mine overseas to ensure consistent raw material supply.

Strengthening Global Supply Chains

By setting up operations in foreign locations, companies can optimize their supply chains, reduce logistics costs, and manage time zones more effectively. This is especially important for manufacturing and IT companies that rely on international clients or suppliers.

Improved Competitiveness and Reputation

Having an international presence enhances the credibility, reputation, and competitiveness of an Indian business. It opens up opportunities to work with global clients, partners, and governments, and may also help in winning international contracts and tenders.

Tax Planning and Profit Optimization

ODI can also be used as a legitimate tool for tax efficiency and profit repatriation, especially when investments are made in countries with favorable tax treaties or low tax regimes. However, this must be done in full compliance with Indian and foreign laws.

Eligibility: Who Can Make Overseas Direct Investment (ODI) from India?

The Indian government, through the Foreign Exchange Management Act (FEMA), 1999, and RBI regulations, allows certain residents of India to make Overseas Direct Investment (ODI). The eligibility to make ODI depends on the nature of the investor whether it's a company, LLP, partnership firm, trust, or individual. Let's explore each category in detail:

Indian Companies

Any company incorporated in India under the Companies Act, 2013 is eligible to make ODI. This includes:

Private Limited Companies
Public Limited Companies
Section 8 Companies (with RBI approval)

These companies can invest abroad by setting up Joint Ventures (JV) or Wholly Owned Subsidiaries (WOS) in bonafide business activities, except in prohibited sectors like real estate or gambling.

Note: The investment must be within the overall financial commitment limit (currently 400% of the company’s net worth).

Limited Liability Partnerships (LLPs)

Limited Liability Partnerships (LLPs) registered under the LLP Act, 2008, can make Overseas Direct Investment (ODI) under the automatic route if they operate a legitimate business in India, invest in a bonafide foreign entity, and avoid prohibited sectors like banking, real estate, or gambling, subject to RBI compliance and documentation.

Partnership Firms

Registered partnership firms can make ODI if the foreign entity operates in a sector allowing 100% FDI under the automatic route and the Indian firm engages in a similar business. Investments must comply with the Partnership Act and FEMA rules and be routed through an Authorised Dealer (AD) Bank.

Resident Individuals

Resident individuals in India can make Overseas Direct Investment (ODI) under the Liberalised Remittance Scheme (LRS) up to USD 250,000 per financial year. They can invest in foreign equities, startups, or property, excluding prohibited sectors like real estate, banking, or margin trading, and cannot engage in round-tripping back to India.

Trusts and Societies

Registered trusts and societies can make Overseas Direct Investment (ODI) only with prior RBI approval and under specific conditions. Generally, this applies to educational or charitable trusts investing in similar activities abroad, or societies registered under the Societies Registration Act, 1860. These investments are not allowed under the automatic route.

Important Points to Remember

The investor (company/LLP/individual) must not be on RBI’s caution or defaulter list.
The entity should have no pending investigations or non-compliance with FEMA, Income Tax, SEBI, or any regulatory body.
All ODI must be made for genuine business purposes and through authorised channels.
Investment in a foreign entity must not violate host country laws or Indian foreign policy.

Permitted Forms of Investment under Overseas Direct Investment (ODI)

Under the Overseas Direct Investment (ODI) framework, Indian entities and resident individuals are allowed to invest in foreign entities through various permissible methods, provided the investments are made in accordance with the Foreign Exchange Management Act (FEMA), 1999 and the Overseas Investment Rules and Regulations, 2022.

Below are the permitted forms of investment under ODI:

Equity Capital Contribution

Indian entities and resident individuals can invest in the equity capital of a foreign company by subscribing to new shares or acquiring existing shares. This results in ownership and often control of the foreign entity. Equity investments form the core of Overseas Direct Investment and must follow RBI's compliance and reporting rules.

Loan to Foreign Entity

Indian investors are allowed to extend loans to their foreign Joint Venture (JV) or Wholly Owned Subsidiary (WOS). These loans help fund overseas operations or expansion. Such loans are treated as part of the total financial commitment under ODI and must be properly documented and reported via the RBI’s FIRMS portal.

Issuance of Guarantees

Indian entities can issue corporate, performance, or bank guarantees in favor of their foreign JV or WOS. These guarantees act as support for overseas obligations. RBI considers 100% of corporate and performance guarantees and 50% of bank guarantees as part of the total financial commitment under the ODI limits.

Pledge or Charge on Assets

An Indian entity can create a pledge or charge on its own assets, shares, or those of the foreign entity to secure funding. This includes pledging Indian or foreign shares or mortgaging assets. Such actions must be reported to RBI and are allowed only when aligned with ODI conditions and limits.

Swap of Shares

Share swaps involve exchanging shares of an Indian entity with shares of a foreign entity, thereby enabling ODI without direct cash outflow. This form of investment is permitted subject to fair valuation and may require RBI approval, especially when there is a change in control or cross-border ownership structure.

Investment in Rights or Bonus Shares

Indian investors holding equity in a foreign entity can participate in rights issues or accept bonus shares. This is considered a follow-up investment and is allowed without additional approval, provided the original ODI was in compliance. Such investments still need to be reported to RBI and fall within commitment limits.

Routes for Overseas Investment

Overseas investments by Indian residents are allowed through two main routes Automatic Route and Approval Route, both of which are explained below.

Automatic Route

Under the Automatic Route, no prior approval from the Reserve Bank of India (RBI) is required, provided the investment complies with prescribed limits, sectoral conditions, and the investor is not under investigation or listed as a defaulter.

Approval Route

The Approval Route is applicable when the proposed investment falls outside the scope of the automatic route, such as investments in strategic sectors, financial services not regulated in the host country, or by entities like trusts or societies. RBI evaluates such proposals on a case-by-case basis.

Financial Commitment Limits

The Reserve Bank of India (RBI) has prescribed financial commitment limits to ensure controlled overseas investment by Indian entities. As per the current regulations, an Indian company or LLP can invest up to 400% of its net worth in a foreign entity, based on its last audited balance sheet. This financial commitment includes equity contributions, loans, and guarantees extended to or on behalf of the foreign entity. For guarantees, 100% of corporate or performance guarantees and 50% of bank guarantees are considered. Any commitment beyond the prescribed limit requires prior approval from the RBI. These limits help monitor outward investments while allowing Indian businesses to explore global opportunities within a regulated framework.

Prohibited Sectors for ODI

Overseas Direct Investment (ODI) by Indian residents is subject to sectoral restrictions to ensure responsible and legal deployment of funds abroad. As per RBI regulations, ODI is not allowed in certain prohibited sectors, including real estate business, gambling or betting activities, and Nidhi companies. Additionally, investments in foreign financial service providers are not permitted unless the Indian investor is also a regulated entity in the same field. ODI is also barred in businesses dealing with financial products linked to the Indian Rupee, such as rupee derivatives. These restrictions are in place to prevent misuse of funds and ensure regulatory compliance.

Process of Making Overseas Direct Investment (ODI)

Making an Overseas Direct Investment (ODI) involves a structured process governed by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), 1999. The process is largely routed through an Authorised Dealer (AD) Category-I Bank, ensuring regulatory compliance and proper reporting. Here’s a step-by-step explanation:

Board Approval

The first step for making an ODI is to obtain a resolution from the Board of Directors of the Indian entity. This confirms internal approval for the investment and provides legal backing for proceeding with documentation and remittance through the authorised bank.

Due Diligence and KYC

The Authorised Dealer (AD) Bank performs a Know Your Customer (KYC) check on both the Indian and foreign entities. This helps verify legitimacy, ensures compliance with anti-money laundering laws, and establishes the credibility of the proposed overseas business activity.

Filing of Form FC (Financial Commitment)

Form FC must be submitted online through the RBI’s FIRMS portal before remitting funds. It captures investment details such as amount, type (equity, loan, guarantee), and information about the foreign entity, along with required supporting documents and declarations.

Remittance of Funds

Once Form FC is approved or acknowledged, the Indian entity can remit the investment amount abroad through the same Authorised Dealer (AD) Bank. The funds must be transferred via normal banking channels in freely convertible foreign currency.

Filing of Other Applicable Forms

Additional forms like Form OPI (for portfolio investments), Form DI (for disinvestment), or changes to earlier filings must be submitted if applicable. These filings keep the RBI updated on the nature and status of overseas investments made.

Post-Investment Compliance

Post-investment, the Indian entity must file the Annual Performance Report (APR) for each foreign JV or WOS by December 31 every year. It must also report any changes in financial commitment and ensure ongoing compliance with RBI and FEMA guidelines.

Learn more about APR Filing in case of ODI under FEMA.

Compliance Requirements After Overseas Direct Investment (ODI)

Once an Indian entity or individual makes an Overseas Direct Investment (ODI), the responsibility doesn’t end with fund remittance. The investor must follow a set of post-investment compliance requirements prescribed by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), 1999. These requirements help the RBI monitor foreign investments, ensure lawful usage of funds, and maintain transparency in cross-border transactions.

Below are the key compliance obligations that must be fulfilled after making ODI:

Annual Performance Report (APR) Filing

After making an ODI, the investor must file an Annual Performance Report (APR) for each foreign JV or WOS. This report, submitted via the AD Bank by December 31 each year, includes financials and operational performance of the foreign entity.

Reporting Disinvestment or Sale of Foreign Stake

If the Indian investor exits the foreign entity fully or partially through sale, liquidation, or transfer, the transaction must be reported using Form DI within 30 days. Supporting documents like valuation reports and sale agreements must also be submitted to the AD Bank.

Updating Financial Commitment Details

Any changes in investment amount such as additional equity, loans, or guarantees must be updated in Form FC. This helps the RBI track the total financial exposure of the Indian investor in the foreign entity and ensures proper regulatory monitoring.

Submission of Share Certificates

The investor must collect share certificates or proof of ownership from the foreign entity within six months of fund remittance. These documents confirm the investment and must be submitted to the AD Bank as part of the post-ODI compliance process.

Valuation Reports for Share Transfers

If shares of the foreign entity are transferred or sold, a valuation report must be obtained from a certified valuer. This ensures fair pricing and must be submitted along with Form DI to meet FEMA and RBI norms on pricing guidelines.

Repatriation of Dividends and Profits

Profits, dividends, or capital gains earned from the foreign entity should be brought back to India within a reasonable time. This must comply with RBI’s foreign exchange rules and ensure tax compliance in both India and the host country.

Filing of Form OPI (If Applicable)

In cases where the investment qualifies as Overseas Portfolio Investment (OPI), the investor must file Form OPI. While less rigorous than ODI, it is still necessary to report such investments for regulatory transparency and record maintenance with the RBI.

Compliance with Host Country Regulations

The foreign entity must operate within the legal framework of its host country. Any non-compliance, penalties, or dissolution abroad must be reported to the AD Bank and RBI, ensuring that Indian ODI remains transparent and law-abiding internationally.

ODI by Individuals under LRS

Resident individuals in India can make Overseas Direct Investment (ODI) under the Liberalised Remittance Scheme (LRS), which permits remittance of up to USD 250,000 per financial year. This allows individuals to invest in foreign companies, set up overseas startups, or purchase assets abroad, excluding prohibited sectors such as real estate business, banking, and gambling. The investment must be made through an Authorised Dealer (AD) Bank, ensuring compliance with RBI and FEMA guidelines. Additionally, individuals are not allowed to create structures for round-tripping, where funds are routed back to India. All investments must be genuine and supported by proper documentation and declarations.

Closing Remarks

Overseas Direct Investment (ODI) is a great way for Indian businesses and individuals to grow internationally and explore new markets. With the updated rules introduced in 2022, the process has become simpler and easier to follow. Still, it’s important to follow all the guidelines set by the Reserve Bank of India (RBI) and ensure proper reporting and documentation. Whether investing through equity, loans, or guarantees, every step must be done through an Authorised Dealer (AD) Bank. ODI gives Indian investors the chance to build global connections, access new opportunities, and strengthen their business. With careful planning and the right support, ODI can help Indian entities succeed in the international business world.

Frequently Asked Questions (FAQs)

Q1. What is Overseas Direct Investment (ODI)?

Ans. ODI refers to the investment made by Indian residents (companies, LLPs, partnership firms, or individuals) in foreign entities by acquiring equity shares, giving loans, or providing guarantees, usually to set up or acquire a Joint Venture (JV) or Wholly Owned Subsidiary (WOS) abroad.

Q2. Who can make ODI from India?

Ans. Indian companies, LLPs, registered partnership firms, resident individuals (under LRS), and, in specific cases, registered trusts and societies (with RBI approval) are eligible to make ODI, subject to FEMA regulations and sectoral restrictions.

Q3. What is the maximum limit for making ODI?

Ans. Indian entities can make financial commitments up to 400% of their net worth, as per the last audited balance sheet. For resident individuals, the limit is USD 250,000 per financial year under the Liberalised Remittance Scheme (LRS).

Q4. What are the permitted forms of investment under ODI?

Ans. ODI can be made through:

Equity capital contribution
Loans to the foreign entity
Corporate or performance guarantees
Pledge or charge on assets or shares
Share swaps or acquisition of rights/bonus shares

Q5. What are the prohibited sectors for ODI?

Ans. ODI is not permitted in foreign entities engaged in:

Real estate business
Gambling or betting
Nidhi companies
Financial product trading linked to the Indian Rupee (e.g., derivatives)

Q6. Is prior RBI approval required for making ODI?

Ans. ODI is allowed under the automatic route if it meets all prescribed conditions. However, prior RBI approval is required in cases like investment in unregulated financial sectors, beyond financial commitment limits, or by trusts and societies.

Q7. How is ODI reported to the RBI?

Ans. Investors must file Form FC (Financial Commitment) before remitting funds. Post-investment, they must file Annual Performance Reports (APR) and other forms like Form DI (for disinvestment) or Form OPI (for portfolio investments) through the FIRMS portal.

Q8. Can individuals invest in foreign real estate or banking under ODI?

Ans. No, resident individuals are not allowed to invest in foreign real estate businesses, banking, or financial services. Such sectors are restricted for all categories of Indian residents under ODI rules.

Q9. What is the Annual Performance Report (APR)?

Ans. The APR is a yearly report that must be submitted for every foreign JV or WOS. It includes the foreign entity’s financials, operations, and investment status. It must be filed through the AD Bank by December 31 of the following financial year.

Q10. What happens if ODI compliance is not followed?

Ans. Non-compliance with ODI regulations may lead to penalties under FEMA, including restrictions on future investments, fines, and even prosecution in serious cases. Timely filing and correct documentation are essential to avoid regulatory action by the RBI.