FDI in India for UK Companies

FDI in India is investment by a person resident outside India in the equity of an Indian company (or capital of an LLP), typically to build or control a business there. India recorded gross FDI inflows of about US$94.5bn in 2025-26, according to RBI data. For a UK company, the subsidiary it sets up or acquires in India is FDI.

Key points

• Three instruments set the rules: the DPIIT's Consolidated FDI Policy (as amended by Press Notes), the FEMA (Non-Debt Instruments) Rules, 2019, and the RBI's Master Direction on Foreign Investment in India.

• Most technology and professional services activity is open to 100% FDI under the automatic route, with no prior government approval.

• Shares must be priced at or above fair value, issued within 60 days of receiving funds, and reported in Form FC-GPR within 30 days of issue.

• When a foreign-owned Indian company invests in another Indian company, that downstream investment is treated as indirect FDI and has its own rules.

• The framework is being rewritten: draft Foreign Investment Rules, 2026 were released for consultation in July 2026.

If you are planning the whole entry, start with our guide on how to set up a company in India from the UK. This article covers the FDI layer in detail.

What is FDI in India?

FDI in India is an investment by a non-resident in an unlisted Indian company, or 10% or more of a listed Indian company's post-issue paid-up equity. Below 10% of a listed company it is generally portfolio investment instead. The definition matters because FDI carries its own sector caps, pricing rules and reporting duties.

Three layers of rules apply:

• Policy. The DPIIT's Consolidated FDI Policy sets which sectors are open, the caps and whether approval is needed. Changes are made through Press Notes; three were issued in 2026 alone, covering insurance, investment from countries sharing a land border with India and export-only e-commerce.

• Law. The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 give the policy legal force under FEMA.

• Procedure. The RBI's Master Direction on Foreign Investment in India (updated up to 15 June 2026) sets out pricing, reporting and filings.

Draft Foreign Exchange Management (Foreign Investment) Rules, 2026, released on 21 July 2026, would replace the NDI Rules with a shorter framework built on a 10% threshold between FDI and portfolio investment and a new "foreign controlled entity" concept.

The headline numbers are large but need reading carefully. DPIIT data shows FDI equity inflows of about US$58.8bn in 2025-26, up 18% on the previous year, while RBI data shows gross inflows of about US$94.5bn but net FDI of only about US$7.65bn once repatriation and Indian companies' investment abroad are deducted.

The United Kingdom contributed about US$1bn of equity inflows in 2025-26, per DPIIT figures reported by India Briefing.

What is the difference between the automatic route and the government route?

Under the automatic route, a non-resident invests without prior approval and only reports afterwards. Under the government route, the investor needs prior approval from the relevant ministry, applied for through the Foreign Investment Facilitation Portal, before money comes in. Sectors not specifically listed in the policy are generally open to 100% FDI under the automatic route, subject to applicable laws.

For a UK company the land-border rule rarely bites, but it can: if a Chinese or Hong Kong investor holds a stake in your UK parent, check the beneficial ownership tests. Press Note 2 (2026 Series) reworked those tests around a 10% beneficial ownership threshold and control.

Which sector caps matter for tech and services companies?

For most UK technology and professional services firms, there is no cap at all: software, IT services, consultancy, engineering services and analytics are open to 100% FDI under the automatic route. Caps and conditions start to matter in financial services, media, telecoms-adjacent and defence-linked work.

Some activities are prohibited outright, including lottery, gambling and betting, chit funds, Nidhi companies, real estate business and manufacture of tobacco products.

What are the pricing guidelines and FC-GPR reporting rules?

When an unlisted Indian company issues shares to a UK investor, the price must be no lower than fair value, worked out under an internationally accepted pricing methodology on an arm's length basis and certified by a Chartered Accountant, a SEBI-registered merchant banker or a practising cost accountant. The company then reports the issue to the RBI.

The sequence for a typical UK-funded subsidiary:

1. The UK parent remits subscription money through banking channels to the Indian company's account with an Authorised Dealer bank.

2. The Indian company obtains a valuation certificate and issues shares within 60 days of receiving the funds. If it cannot, the money must generally be refunded.

3. Within 30 days of issue, it files Form FC-GPR on the RBI's FIRMS portal, with the valuation report, the foreign inward remittance certificate and KYC of the investor.

4. Every year it files the Annual Return on Foreign Liabilities and Assets by 15 July.

5. Later transfers of shares between residents and non-residents are reported in Form FC-TRS, with the same fair value principle applied in the right direction.

Late or missed filings can usually be regularised with a late submission fee or through compounding, but the cost and delay are avoidable. If you are buying rather than building, the same pricing rules apply to the share purchase; our guide on how to acquire an Indian company covers valuation and due diligence.

How does downstream investment work?

Downstream investment is investment by an Indian company that is owned or controlled by non-residents into another Indian company. It is counted as indirect foreign investment, so the second company must also respect the sector caps, entry route and pricing rules, as if the foreign investor had invested directly.

In practice, for a UK group:

• Your Indian subsidiary, once more than 50% owned or controlled by the UK parent, is a foreign-owned or controlled company for this purpose.

• If it buys or sets up another Indian company, that investment must comply with the FDI conditions for the target's sector.

• The funds generally must come from abroad or from the subsidiary's internal accruals, not from borrowing in the domestic market.

• The investment needs board approval and is reported in Form DI within 30 days.

The RBI's updated Master Direction also confirms that structures allowed for direct investment, such as share swaps and deferred consideration, are available for downstream investment too.

The Greenwolf view: commercial design first, tax follows functions

FDI compliance is the easy part of an India entry. The harder part is deciding what the Indian company is for, because that sets how much capital it needs, whether to fund it with equity or debt, and how cash comes home later. A subsidiary capitalised for a 10-person support team looks very different from one that will employ 100 engineers and own product.

The questions we ask before the first remittance:

1. Is India a customer market, a delivery base, or both, and does that need a subsidiary, a branch or simply a partner? Our comparison of a subsidiary, a branch office or a liaison office sets out the options.

2. How much equity does the business plan need in year one, and what should be funded later by intercompany service income?

3. Is any part of the activity in a capped or approval-route sector?

4. Does anyone in the UK group's ownership chain trigger the land-border rules?

5. Will the Indian company later invest in or acquire other Indian companies, making downstream rules relevant?

6. How will profits return to the UK: service fees, dividends or interest, and at what tax cost?

We do not promise outcomes. The right structure depends on functions, risks and substance, and the FDI paperwork should follow that design rather than lead it.

Planning a move?

Read our corridor guide on how to set up a company in India from the UK, and follow Greenwolf Advisors on LinkedIn for updates as India's foreign investment rules change.

This article is general information, not advice for a specific case.