- Introduction
The Foreign Liabilities and Assets (FLA) Return is an annual disclosure mandated by the Reserve Bank of India (RBI) in accordance with the Foreign Exchange Management Act (FEMA), 1999. It is applicable to Indian entities that have either received foreign direct investment (FDI) or made overseas direct investment (ODI). Although no fee is charged for filing, this return holds significant regulatory weight due to its critical role in shaping India’s Balance of Payments and guiding investment policy. This article breaks down the FLA reporting process, explaining the legal framework, required disclosures, practical compliance issues, and potential consequences of non-compliance.
- Legal Framework and Applicability
The obligation to submit the FLA Return stems from FEMA, 1999, specifically read with the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017.
The following types of entities are required to file the return if they held any foreign assets or liabilities during the previous or current financial year due to FDI and/or ODI:
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- Indian companies that are residents under FEMA
- Limited Liability Partnerships (LLPs)
- Entities like SEBI-registered Alternative Investment Funds (AIFs), Public-Private Partnerships (PPPs), registered partnership firms, and start-ups
- Purpose and Significance
The primary purpose of the FLA Return is to provide the RBI with detailed data for compiling the country’s International Investment Position (IIP) and Balance of Payments (BoP). It includes:
- Equity investments made by foreign investors
- Reinvested earnings
- Outstanding external borrowings and trade credits
- Overseas investments by Indian entities (e.g., JVs, subsidiaries)
This data supports policymaking, credit rating assessments, and strategic economic planning.
- Filing Process and Technical Requirements
Reporting Timeline:
- Information must reflect the entity’s position as of March 31 each year.
- Submission deadline is July 15 annually.
Submission Types:
- If audited financials are unavailable by the due date, entities may submit the return using provisional/unaudited data.
- Once audit results are available, the entity must seek RBI approval to revise the return using final audited figures.
Filing Method
- Since June 29, 2019, submissions must be made exclusively through the FLAIR portal (Foreign Liabilities and Assets Information Reporting).
- Registration on the FLAIR portal is mandatory. On approval, users receive RBI-issued credentials to log in.
- Accessing the portal requires OTP-based authentication every time.
- Information Required in the FLA Return
Foreign Investments in India (Liabilities):
- Total foreign equity (including preference shares) held by non-residents
- Number of foreign investors as of March 31
- Date and year of first FDI received
- Details of foreign investor (name, country)
- Percentage of ownership
Overseas Investments by Indian Entities (Assets):
- Investments made abroad
- Number of Direct Investment Enterprises (DIEs) abroad
- Date and year of first ODI made
- Number of countries where the Indian entity holds less than 10% equity
Operational Data:
- Sales (domestic and export) and purchases (domestic and import)
- Number of employees on the payroll
- Special Considerations for Specific Entities
- Inactive Entities: Even if there are no current operations, entities with foreign assets or liabilities must comply.
- Start-ups: New businesses that have received FDI or made ODI must report even without revenue or profits.
- LLPs and Partnerships: These must file the return if foreign investment exists, despite not being governed by the Companies Act, 2013.
- Penalties for Non-Compliance
Failing to file the FLA Return amounts to a breach of FEMA. As per Section 13 of the Act, the following penalties may be imposed:
- A fine up to three times the amount involved (if quantifiable) or up to ₹2,00,000 otherwise
- An additional penalty of ₹5,000 per day for ongoing contraventions
- Non-compliance may also restrict the entity’s ability to receive further foreign investment or remit funds abroad
- Common Challenges in Filing
- Misclassification: Errors in identifying the nature of equity or debt instruments can lead to compliance issues.
- Currency Conversion: All values must be in INR using the **RBI reference rate** as of March 31. Incorrect conversion practices can cause discrepancies.
- Audit Coordination: Filing with provisional data requires close collaboration with auditors to ensure timely revision.
- Group Filings: Every eligible entity within a business group must file individually, regardless of whether consolidated statements exist.
- No Fees, High Impact
Though there is no charge for filing, the importance of the FLA Return lies in its role in national economic analysis. The RBI uses this data for forming policies, and inconsistencies may trigger additional scrutiny or inspections.
- Conclusion
The FLA Return is not just a statutory formality—it reflects India’s cross-border financial footprint. Given its technical nature and strategic importance, entities must adopt a proactive compliance strategy. Engaging experienced professionals and establishing strong internal review systems will go a long way in ensuring timely and accurate submissions, helping entities stay aligned with regulatory expectations.
Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement.
