ODI Rules Explained
How Indian Companies Invest Abroad Under the 2022 Overseas Investment Framework
Overseas direct investment (ODI) is an Indian resident's investment in the unlisted equity of a foreign entity, or in 10% or more (or with control) of a listed one. It is governed by India's 2022 overseas investment framework, which lets an Indian entity commit up to 400% of its net worth abroad under the automatic route (RBI).
Key points
Three instruments govern ODI: the FEMA (Overseas Investment) Rules, 2022, the FEMA (Overseas Investment) Regulations, 2022 and the RBI Master Direction on Overseas Investment, last updated on 1 April 2026. They apply whether you are setting up an Indian company in Dubai or a UK subsidiary.
An Indian entity's total financial commitment abroad is generally capped at 400% of net worth, and anything above USD 1 billion in a financial year needs prior RBI approval.
Loans and guarantees to a foreign entity are allowed only once the Indian entity has made ODI in it and has control.
Form FC is filed before the first remittance, evidence of investment within six months, and the Annual Performance Report by 31 December every year.
Late filings can be regularised with a late submission fee for up to three years; until then, further investment is blocked.
Most Indian companies meet these rules when they set up their first overseas entity: a Dubai trading arm for an exporter, a sales company for an Indian services business expanding to Dubai, or a UK subsidiary of an Indian company. This guide explains the framework those structures sit in.
What is overseas direct investment (ODI)?
ODI is investment by a person resident in India in a foreign entity that gives a lasting business interest, as opposed to a portfolio holding. Under the RBI Master Direction, ODI means any of three things:
acquiring any unlisted equity capital of a foreign entity, or subscribing to its memorandum of association;
investing in 10% or more of the paid-up equity capital of a listed foreign entity; or
investing with control in a listed foreign entity, even below 10%.
Once an investment is classified as ODI, it stays ODI even if the holding later falls below 10% or control is lost.
A few definitions do most of the work:
Foreign entity: an entity formed outside India, including in an IFSC in India, with limited liability. Unincorporated structures are allowed only where the core activity is in a strategic sector such as energy and natural resources.
Control: the right to appoint a majority of directors or control management or policy decisions, including through 10% or more of voting rights.
Equity capital: equity shares, perpetual or irredeemable instruments, and fully and compulsorily convertible instruments. Anything redeemable, non-convertible or optionally convertible is treated as debt.
Financial commitment: the total of ODI, debt (other than portfolio investment) and non-fund based facilities such as guarantees given to all foreign entities.
The legal basis is the FEMA (Overseas Investment) Rules, 2022 (notification G.S.R. 646(E)), the FEMA (Overseas Investment) Regulations, 2022 (notification FEMA 400/2022-RB), both dated 22 August 2022, and RBI Master Direction No. 15/2024-25, most recently updated on 1 April 2026. That update routes approval-route applications through RBI's PRAVAAH portal.
Every ODI must be in a foreign entity engaged in a bona fide business activity. Most investments go through the automatic route via your bank.
Who can make ODI and how much: the 400% net worth limit
An Indian entity can make financial commitments abroad of up to 400% of its net worth as on the date of its last audited balance sheet, across all foreign entities together. "Indian entity" covers companies, bodies corporate, LLPs and registered partnership firms. Net worth follows the Companies Act definition for companies, with an equivalent capital-plus-reserves measure for LLPs and firms.
Example: a ₹120 Cr Pune engineering exporter with audited net worth of ₹40 Cr can, in principle, commit up to ₹160 Cr abroad across equity, loans and guarantees, provided no single financial year exceeds USD 1 billion, which would need prior RBI approval even within the 400% limit.
Other eligibility rules that often decide the structure:
Resident individuals can make ODI only within the Liberalised Remittance Scheme limit of USD 250,000 per financial year, only in an operating foreign entity not engaged in financial services, and only where that entity has no subsidiary in which the individual has control. Individuals cannot lend to the foreign entity.
Financial services: an Indian entity not itself in financial services can invest in a foreign financial services entity (other than banking or insurance) only if it has posted net profits in each of the preceding three financial years. The profitability test does not apply to such investment in an IFSC in India.
Prohibited activities: no ODI in a foreign entity engaged in real estate activity (buying and selling land or trading development rights, not construction or township development), gambling in any form, or financial products linked to the Indian rupee without RBI approval.
Start-ups: ODI in a start-up must come from internal accruals (or, for individuals, own funds), not borrowed money, with an auditor's certificate.
Lender or investigation status: if the investor's account is an NPA, it is a wilful defaulter or it is under investigation by a financial sector regulator or investigative agency, it needs a no-objection certificate before investing or disinvesting.
Round-tripping: a financial commitment is not allowed in a foreign entity that has invested, or later invests, into India if the result is a structure with more than two layers of subsidiaries. Banks, certain NBFCs, insurers and government companies are exempt. This matters for anyone planning a UK holding company for an Indian startup.
Investor | ODI allowed? | Limit | Debt and guarantees |
|---|---|---|---|
Indian company, LLP or registered firm | Yes, in any bona fide business except prohibited activities | 400% of net worth; above USD 1 billion a year needs RBI approval | Allowed once ODI is made and control is held |
Resident individual | Yes, in an operating entity outside financial services with no controlled subsidiary | Within LRS, USD 250,000 per financial year | No debt |
Listed Indian company (portfolio) | OPI, not ODI | 50% of net worth | Not applicable |
ODI vs OPI: what's the difference?
The difference is control and permanence. ODI is a strategic stake: unlisted equity, or 10% or more or control in a listed company. Overseas portfolio investment (OPI) is any other investment in foreign securities, typically a minority listed holding with no control.
The rules treat them differently:
Who can invest: a listed Indian company can make OPI up to 50% of its net worth. An unlisted Indian entity can make OPI only in limited cases, such as rights or bonus issues, capitalisation of dues, swaps and schemes of arrangement, and in regulated investment funds in an IFSC. Resident individuals can make OPI within the LRS limit.
What is excluded: OPI cannot be made in unlisted debt instruments, in securities issued by an Indian resident outside an IFSC, or in derivatives or commodities unless RBI permits.
Reporting: OPI by entities other than individuals is reported half-yearly, within 60 days of the end of September and March.
Setting up or acquiring a foreign subsidiary: step by step
Setting up or acquiring a foreign subsidiary follows the same core sequence: decide the commercial role, confirm eligibility, file Form FC, remit through your designated bank and then evidence the investment.
Decide what the entity will do. A sales company, a trading hub and an R&D centre need different funding, pricing and substance.
Choose the investor. The Indian company or the promoters. This changes the limits above, funding options and the eventual route for dividends and exit.
Check eligibility. Net worth headroom, sector restrictions, the two-layer rule, any NOC needed and, for financial services, the three-year profit test.
Board approval and documents. Board resolution, constitutional documents of the foreign entity and, for acquisitions, the share purchase agreement.
Valuation. Where the price is not set by a stock exchange or a court-approved scheme, it must be on an arm's length basis supported by a valuation using an internationally accepted methodology, as your bank's board-approved policy requires.
Designate one AD bank. All transactions for that foreign entity go through it.
File Form FC and obtain a UIN. Form FC is submitted to the bank on or before the initial ODI; RBI allots a unique identification number, and no remittance goes until it exists.
Remit through banking channels. Cash investment is not permitted, and an Indian entity cannot route investment through its own overseas branch.
Submit evidence of investment (share certificates or equivalent) within six months of the remittance or capitalisation, or the funds must be brought back.
Deferred consideration is permitted if the deferment period is defined upfront; the deferred part counts as a non-fund based commitment until paid. For acquisitions, earnest money deposits and bid bonds are allowed for bidding. We cover deal structures in how to acquire a UK company from India and the setup route in setting up a UAE subsidiary of an Indian company.
Funding the subsidiary: equity, loans and guarantees
A foreign subsidiary can be funded with equity, loans or guarantees, and every route counts towards the same 400% limit.
Route | Key conditions | How it counts |
|---|---|---|
Equity | Must be equity capital as defined (including compulsorily convertible instruments) | Full amount |
Loan or debt instrument | Only after ODI is made and control acquired; loan agreement with arm's length interest; an Indian entity cannot lend directly to an overseas step-down subsidiary | Full amount |
Corporate or bank guarantee | Only where ODI is made and control is held; no open-ended guarantees | Full amount |
Performance guarantee | Validity equals the contract completion period | 50% of the amount |
Pledge or charge | Security for facilities to the foreign entity or its step-down subsidiaries | Lower of the security value and the facility |
If a guarantee is invoked, the invoked amount becomes debt and is reported in Form FC. A group company can give a guarantee if it is itself eligible to make ODI, and it uses its own limit.
On the way back, all dues from the foreign entity (dividends, interest, fees) and disinvestment proceeds generally have to be realised and repatriated within 90 days of falling due. To disinvest, the investor must usually have held the ODI for at least one year and, on a full exit, have no dues outstanding from the foreign entity.
Restructuring a loss-making subsidiary's balance sheet is allowed within limits linked to its accumulated losses.
Tax sits alongside FEMA. Interest and fees must be priced at arm's length under transfer pricing rules, and India's Income-tax Act, 2025 has applied from 1 April 2026, so section references in older guidance may have changed.
Reporting: Form FC, APR and common mistakes
Reporting is where most ODI problems start, because the deadlines run for as long as the investment exists.
Filing | When |
|---|---|
Form FC (financial commitment) | At the time of the remittance or commitment, whichever is earlier; UIN before the first remittance |
Evidence of investment | Within six months of remittance or capitalisation |
Annual Performance Report (APR) | By 31 December every year, based on the foreign entity's audited financial statements |
Disinvestment | Within 30 days of receiving the proceeds |
Restructuring | Within 30 days of the restructuring |
Form OPI (entities other than individuals) | Within 60 days of the end of each half-year (September and March) |
Foreign Liabilities and Assets (FLA) return | By 15 July each year on RBI's FLAIR portal |
An APR is not needed where the investor holds less than 10% without control, or where the foreign entity is under liquidation. Where statutory audit does not apply, the APR is certified by a chartered accountant.
Late filings can be made with a late submission fee (LSF), available for up to three years from the due date. The fee is ₹7,500 for periodic returns such as the APR, FLA return or Form OPI, and ₹7,500 plus 0.025% of the amount involved for each year of delay for transactional filings such as Form FC, capped at 100% of the amount.
Until a delay is regularised, the bank cannot allow further remittances or commitments to that foreign entity. For delays under the pre-2022 regulations, the LSF option ran for three years from the notification of the 2022 Regulations, that is, until 22 August 2025, so such cases may now need compounding instead.
Common mistakes we see:
remitting before the UIN is allotted, or before Form FC is filed;
lending to a subsidiary before holding control, or lending directly to a step-down subsidiary;
missing the six-month evidence deadline when the foreign registry is slow;
filing the APR on unaudited numbers or missing 31 December;
forgetting the FLA return because the APR was filed;
adding a holding layer that, with an investment back into India, breaches the two-layer rule;
leaving dues from the subsidiary unpaid beyond 90 days.
The Greenwolf view
ODI compliance is the easy part. The harder decision comes first: what the foreign entity should do, and therefore who should own it and how it should be funded. Commercial design first; tax follows functions, risks and substance.
The questions we work through with clients:
Purpose: Is the entity a sales front, a trading hub, a regional headquarters or an acquisition vehicle?
Ownership: Indian company or promoters? Company ownership uses the 400% limit and keeps the group together; promoter ownership is limited by LRS and individual restrictions, and it separates the entity from the Indian business.
Funding: Equity for long-term capital, loans for working capital that should come back, guarantees for bank facilities. Each choice affects interest, dividends and transfer pricing.
Layers: Will the group ever invest back into India, or bring in investors who will? Design for the two-layer rule now.
Exit: How will cash and value come back, and is the one-year holding period and 90-day repatriation built into the plan?
Planning a move?
Planning a move? Read the corridor guide for your business: India to UAE for goods, India to UAE for services or India to UK for technology. Follow Greenwolf Advisors on LinkedIn for the rest of the #GoGlobalWithGreenwolf series.
This article is general information, not advice for a specific case.
Author – Team Greenwolf
10 October, 2026 | 13 Min Read
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