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Introduction:
The Reserve Bank of India (“RBI”) has notified Master Direction for Foreign Investment in India Updated up to January 20, 2025), read with Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) and Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (Amended up to April 23, 2024) and other applicable provisions to regulate the Foreign Investments in India.

What is Foreign Investment and its types?

Foreign Investment is any investment made by a person resident outside India (“PROI”) on a repatriable basis in equity instruments of an Indian company or to the capital of an LLP.

Note: If a declaration is made by persons as per the provisions of the Companies Act, 2013 about a beneficial interest being held by a person resident outside India, then even though the investment may be made by a resident Indian citizen, the same shall be counted as foreign investment.

A person resident outside India may hold foreign investment either as Foreign Direct Investment or as Foreign Portfolio Investment in any particular Indian company.

What is the FC-TRS form?

The Foreign Currency Transfer of Shares (“FC-TRS”) form facilitates the reporting of the transfer of equity instrument in accordance with rules made thereunder generally between Indian residents and non-residents. It ensures transparency and adherence to regulations for foreign investment transactions.

When to Report in the FC-TRS form?

The form FC-TRS shall be reported for the transfers of equity instruments – inward (PROI to resident) and outward-(resident to PROI); particularly between:

Also Read: Regulatory Compliance for Wholly Owned Subsidiaries (WOS) of Foreign Companies in India

• Transfer of equity instruments from PROI holding on a repatriable basis to PROI on a non-repatriable basis;
• Transfer of equity instruments from PROI holding on a repatriable basis to a person resident in India;
• Transfer of equity instruments on a recognized stock exchange by a person resident outside India shall be reported by such person in Form FC-TRS;
• Transfer of equity instruments on deferred payments as prescribed in Rule 9(6) of the Rules, shall be reported in Form FC-TRS on receipt of every tranche of payment;
• Transfer of ‘participating interest/ rights’ in oil fields; and
• Where a scheme of compromise or arrangement or merger or amalgamation of two or more Indian companies or a reconstruction by way of demerger or otherwise of an Indian company, or transfer of undertaking of one or more Indian company to another Indian company, or involving division of one or more Indian company, has been approved by the National Company Law Tribunal (NCLT) or other authority competent to do so by law, the transferee company or the new company, as the case may be, may issue equity instruments to the existing shareholders of the transferor company resident outside India, subject to the conditions as provided in rules made thereunder.

Reporting of FC-TRS:

The onus of reporting such transfer of equity instrument in Form FC-TRS is on:

• The Indian resident involved in the transaction (whether transferor or transferee) or
• The PROI holding the shares on a non-repatriable basis as the case may be.

For shares acquired by a non-resident investor on stock exchanges under the FDI Scheme: Reporting is done by the non-resident investor through an AD Category-I bank.

For sectors under the automatic route, no government approval is required for the transfer of shares in an investee company between two non-residents.

Non – Applicability of Reporting in Form FC-TRS:

• Transfer of Shares from a person resident outside India holding the capital instrument in an Indian Company on a repatriable basis to a person resident outside India holding the capital instrument in an Indian company on a repatriable basis.
• Transfer of equity instruments in accordance with the rules by way of sale between a person resident outside India holding equity instruments on a non-repatriable basis and a person resident in India is not required to be reported in Form.

Why Reporting is essential in India?

• Compliance: Filing the FC-TRS form ensures compliance with RBI regulations for transfer of shares between residents and non-residents.
• Transparency: It maintains transparency in share ownership and foreign investment activity.
• Streamlined Process: The online FIRMS portal simplifies the filing process.
• Decision making: Understanding the impact of exchange rates on revenue, costs, and profits enables better strategic planning and decision making for international businesses. 
• Stakeholder transparency: Accurate foreign exchange reporting provides essential information to investors, creditors, and other stakeholders to assess a company’s financial stability and potential risks. 

Reporting under Foreign Exchange Management Act and Rules made thereunder:

The FC-TRS form must be filed to the Authorised Dealer Bank on receipt of every tranche of payment within 60 days of earlier of:

• The date of receipt/remittance of funds
• The date of transfer

Repercussion of Non-filing of FC-TRS Return:

In case any delay is made in filing of FC-TRS return with RBI, the LSF shall be applicable Rs. 7500 + (0.025% × A × n)] rupees of the delayed reporting.

Where “n” is the number of years of delay in submission rounded upwards to the nearest month and expressed up to two decimal points. To provide further clarity, the Circular has mentioned that if LSF has been levied but not paid within 30 days, then such levy will be null and void and any payments made thereafter will not be considered. The applicant can subsequently approach for LSF payment for the same delayed reporting (with an upper limit of up to three years from the due date of reporting/ submission), and in such a case, the date of receipt of such new application will be the reference date for the purpose of calculation of “n”.

“A” is the amount involved in delayed reporting. The Circular also states that the maximum LSF amount that can be levied is capped at 100 per cent of ‘A’ and will be rounded upwards to the nearest hundred.

Process for FC-TRS:

1. Gather Required Documents:
   • Consent letters from buyer and seller to enter into transfer of shares;
   • Share Transfer Form or DIS Slips in case of Demat Transfer of shares;
   • Valuation report for the transferred shares;
   • Shareholder agreement (if applicable);
   • Certified Copy of Board resolution approving the transfer of equity instruments;
   • Foreign Currency Gross Provisional Return (FC-GPR) approvals (for transactions with foreign investment);
   • Form 15CA & 15CB (for specific remittance-related transactions);
   • Foreign Inward Remittance Certificate (FIRC) from the authorized AD Bank;
   • 6 pointer Know Your Customer (KYC) documents for both parties;
   • Declaration form by non-resident transferor/transferee (stating non-residency status and compliance with FEMA Rules);
   • Debit Authorization letter to concerned bank processing FC-TRS Return on behalf of the reporting party;
   • Press note 3 Declaration by Non-resident Buyer/Seller; and
   • Shareholding pattern of the Company;

2. File through FIRMS portal:
   • Login using Entity and Business User ID credentials.
   • Navigate to “File Return” > “Single Master Form” and select “Form FC-TRS” as the return type.
   • Enter details like FDI-Entry Route, Applicable Sectoral Cap, transfer nature (gift/sale), transferor/transferee details, transfer date, etc.
   • Fill in particulars of the transferred capital instruments (type, number, conversion ratio, face value, transfer price).
   • Enter remittance details (mode of payment, bank details, amount received, date).
   • Verify the pre-filled shareholding pattern for accuracy.
   • Review and submit the form.
3. Post-submission Process:
   • You’ll receive an auto-acknowledgement email confirming form submission.
   • The approval/rejection notification will arrive within 3-4 days via email.
   • In case of rejection, the email will include reasons and instructions for resubmission.

Important Reminders:

• Timely filing is crucial to avoid penalties for late submission.
• The Late Submission Fee is generally calculated based on the delayed amount and number of years delayed.
• Ensure accurate and complete information to avoid delays or rejections.

Conclusion:

Understanding the FC-TRS form and filing procedures is essential for businesses and individuals involved in cross-border share transfers in India. By adhering to regulations, you can ensure a smooth and compliant share transfer process.

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.

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