Transfer Of Shares Between Resident And Non-Resident (Private Limited Companies)

20 February 2018 • Mayank Verma

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Transfer Of Shares Between Resident And Non-Resident (Private Limited Companies)

20 February 2018 • Mayank Verma

Transfer of shares between two residents (of India) involves payment of consideration (buyer to the seller) and execution of share transfer deed. Share transfer deed to be duly stamped @ 0.25% of the consideration amount. When the transaction is between a resident and a non-resident, there are regulations concerning inward and outward remittance of funds, valuation of shares and submission of form FC-TRS on e-biz portal. The Reserve Bank of India (RBI) through Notification No. FEMA 20(R)/ 2017-RB dated November 07, 2017, made Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 to regulate investment in India by a Person Resident outside India.

FC-TRS

FORM FOREIGN CURRENCY-TRANSFER OF SHARES (FC-TRS):

Form FC-TRS is required to be filed for transfer of capital instruments (Equity Shares, Fully and Compulsory Convertible Securities) of an Indian Company in the following cases:

  1. When the transfer is made between a person resident outside India (repatriable basis) and a person resident outside India (non-repatriable basis)
  2. When the transfer is made between a person resident outside India (repatriable basis) and a person resident in India.
Who is to file form FC-TRS?

Transfer of capital instruments prescribed above shall be reported on receipt of every tranche of payment. One of the important dilemma between public at large is that who has to file this form with Authorised Dealer Bank?

The onus of reporting FC-TRS shall be on the resident transferor/ transferee or the person resident outside India holding capital instruments on a non-repatriable basis, as the case may be.

What is the Time Limit for filing FC-TRS?

The form FCTRS shall be filed with the Authorised Dealer bank within sixty days of transfer of capital instruments or receipt/ remittance of funds whichever is earlier.

What is the Procedure for filing FC-TRS?

The following steps are included in filing of FC-TRS form:

  1. Execution of Share Transfer Deed and Payment of Stamp Duty: The parties should execute the following documents for transferring their shares:
    • Share Transfer Deed as per SH-4
    • Duly signed Consent letters from the buyers and seller.

Note: While executing the share transfer deed, stamp duty @ 0.25 % on the consideration amount is to be paid by purchasing the share transfer stamps, affixing those on the SH-4 and then crossing the same.

  1. Transfer of Funds: The funds should be transferred through proper Banking channels. Copy of FIRC and copy of KYC of person resident outside India should be obtained from Authorised Dealer Bank.
  1. Registration on E-biz portal: it is mandatory to register the details of the person filing form along with his/her digital signatures (DSC) on e-biz portal.
  1. Filing of form on E-Biz portal with the required attachments: The form is filled online on E-biz portal along with the name of attachments given below. The DSC of the concerned person is affixed while submitting form.
  1. Scrutiny from AD Bank: Post submitting form on E-Biz portal, AD bank scrutinize each and every application and it may send the form for re-submission if any documents/information is incorrect or missing.
  1. Sanction letter/ Certificate issued by AD Bank: AD Bank provides you with a sanction letter or certificate if all the documents and information are satisfactory to them. This is a documentary evidence which states that FDI compliances are duly taken care off by the applicant.
  1. Take on record by the Indian Company: The sanction letter/certificate issued by AD bank is attached with the share transfer form and share certificate and submitted to the Company so that company may take the transfer on its record.

Additional Step may be required in delay submission of FC-TRS: In case the applicant fails to file FC-TRS within 60 days of transfer, then the AD Bank will forward the application to RBI for its approval.

Is there any Statutory Fees for filing FC-TRS?

There is no upfront (like MCA portal) statutory fees for filing FC-TRS on E-biz portal, but AD Bank may charge for processing FC-TRS. The processing fees may vary from Bank to Bank. The bank may ask for an authorisation from Applicant in order to deduct the bank charges from account.

What are the Attachments to be filed with form FC-TRS on E-biz portal?

Form FC-TRS is an online form that is to be filled and filed through E-biz portal along with the following important documents:

  1. Consent Letter from Buyer and Seller.
  2. Copy of FIRC in cases of foreign remittance is received by resident Indian.
  3. Copy of KYC of the buyer (NRI) on the letterhead of the bank.
  4. Valuation Report from the Certified Valuer certifying the value of shares.
 Is there any prescribed method for valuation of shares?

Price of share shall be decided on the basis of valuation of Shares as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant.

  • While transferring shares from resident to non-resident, the minimum bar on price is set. The price cannot be less than the price determined from the valuation report.
  • In case the shares are transferred from non-resident to resident investor, the upper cap for price is set. The price cannot be more than the price determined from the valuation report.

128 comments

  1. In a Indian Company there are two share Holders. 55% hold by an Indian Company and 45% hold by a foreign Company. Now 55% Indian Company wants to transfer share his share to an another foreign Company(not to that 45% share holding Company).

    Is there any approval required from existing 55% share holding Company?

    1. Dear Reader,

      From your query, it is not clear in which sector the company operates.

      Pursuant to provision of Section 56(1) of the Companies act 2013, A company shall not register a transfer of securities of the company unless a duly stamped instrument of transfer in the Form SH-4 dated and executed by or on behalf of the transferor and the transferee has been delivered to the company by the transferor or the transferee within a period of sixty days from the date of execution.

      Further, as per provision of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, a person resident in India holding capital instruments of an Indian company, may transfer the same to a person resident outside India by way of sale, provided that a Form Foreign Currency-Transfer of Shares (FC-TRS) shall be filed with the Authorised Dealer bank within sixty days of transfer of capital instruments or receipt/ remittance of funds whichever is earlier. The onus of reporting shall be on the resident transferor/ transferee or the person resident outside India holding capital instruments.

      So on the basis of the facts stated by you it can be inferred that Indian shareholder shall take relevant steps in respect of reporting under FEMA and Companies Act, 2013.

  2. A company is incorporated on 31st march 2023. They want to add NRI Shareholder with 25000 Contributions. will they have issue New share or to be done by transfer of shares?

    1. Dear Reader,

      Both methods i.e. issuance of fresh shares and transfer of shares can be used in the instant case.

      Assuming that the individual (NRI) intends to maintain the investment on a repatriable basis (wherein the invested funds can be repatriated to the country of residence), in accordance with the prevailing FEMA guidelines, the following reporting requirements shall be applicable:

      If Company opts to issue fresh shares, it shall be required to file Form FC-GPR within 30 days of issuance of such shares. In case shares are transferred from the existing resident shareholder to NRI, the resident shareholder shall be liable to report the transaction in form FC-TRS within 60 days of the date of remittance or the date of transfer, whichever is earlier.

      However, if the intention is to retain the investment on non-repatriable basis, the above reporting’s shall not be necessary, as such investment is deemed to be domestic investment.

  3. Dear Sir,

    Can Individual (shareholder of Private Limited Company) transfer its 99% shares to foreign Company after incorporation, is there any restriction under FEMA?

    1. Dear Reader,

      Pursuant to the provisions of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, a person resident outside India holding equity instruments of an Indian company or a person resident in India, may transfer such equity instruments to a person resident outside India (which includes a foreign company) by way of sale, subject to the adherence to entry routes, sectoral caps/ investment limits, pricing guidelines and other attendant conditions and documentation and reporting requirements for such transfer as specified by Reserve Bank of India.

      For further assistance in this regard, you may seek professional advice in this matter.

  4. Thank you for such a wonderful explanation.
    I want to ask a question regarding while transferring shares from resident Individual to Nonresident Individual. Liability to file FC TRS to whom?
    Company will create accounts on Firms portal and acknowledge the transfer or Resident Individual create accounts on Firms portal and acknowledge the transfer.
    who will create register user and business user?

    1. Dear Reader,

      The onus of reporting such transfers to the RBI lies with the Resident individual. In your case, the resident individual shall register himself / herself as a business user at the FIRMS portal and file the required forms.

      For any professional assistance in this regard, feel free to contact us.

  5. If the indian private company wants to transfer one share held by an entity resident outside india in indian entity to another entity resident outside india, what compliances are to be followed ? Also, do we require a valuation report as no funds will be remitted to India since transaction will be between foreign entities only and india will not be involved.

    1. Dear Reader,

      Since the transfer of shares are taking place outside India between two non-resident entity, compliance as per the Companies Act, 2013 needs to follow, such as transfer of shares related documentation, endorsement of share certificates etc. Further, regarding the valuation report the law does not mandate valuation in case of transfer as it is being taking place between two person and also FC TRS is not required to be filed in this case therefore it will be voluntary act. Please note as that funds are not flowing in India but the shares are related to Indian company therefore consideration should not be less than the face value of shares.

  6. Hi,
    what is the time limit for filing FC -TRS. Is it Sixty days from board approval od share transfer or 60 days from inward remittance ?

    1. Dear Reader,

      Reporting of transfer of shares between residents to non-residents and vice-versa needs to be made in Form FC-TRS in accordance with the Foreign Exchange Management Act 1999 and the same should be submitted with the AD Category – I bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor / transferee who is the resident of India.

  7. Hi,

    The FEMA is silent on the valuation date which needs to be considered for the valuation. Can you please let us know the standard practice in the industry. Is it compulsory that the balance sheet as on the valuation date should be audited?

    Thanks

    1. Dear Reader,

      The banks accept valuation report which have been during the past one year. Hence, it can be assumed that the standard practice in the industry is to count the validity of valuation report as one year. However, it may please be noted that in Draft Foreign Exchange Management (Non-debt Instruments – Overseas Investment) Rules, 2021 RBI has prescribed the validity of valuation report as six months.

      Further, it is not compulsory that the balance sheet as on the valuation date shall be audited.

  8. This is actually expected from a Professional, making layman understand the Bare Act. Hats-off and I hope this should continue.

  9. Sir, your articles are really very helpful and easy to understand. This is the best article which I’ve come across related to FEMA.

  10. Sir, it is relating to transfer of shares of a person who is staying in US . He is holding some shares in a company (with indian address , ie when he purchased he is in India only) . Now he wants to sell his shares to other indian person. How do we execute SH4 . Normal like two indian persons share transfer formality or any notary etc… reqd in US as he signs the SH4 there. Pl guide.

    1. Dear Reader,

      As per the provisions of Section 56 of the Companies Act, 2013, in case of transfer of shares, a share transfer deed duly stamped, dated and executed in Form SH-4 along with the original share certificate or letter of allotment of shares is required to be filed with the Company to get the transfer registered in the records of the Company.

      However, the Companies Act, 2013 is silent on any explicit requirement to get the share transfer deed notarized/apostilled/consularized in case of transfer of shares between resident and non-resident.

      Hence, in the present case as well, the said requirements shall be applicable similar to that of transfer between Indian residents.

  11. What is the process to transfer of Shares between non resident shareholder of indian company to non resident or Foreign company.

    1. Dear Reader,

      Please note that a transfer of shares by a Non Resident holding capital instrument in an Indian Company to another Non- resident or foreign company shall involve the following procedure-

      Under section 56 of the Companies Act, 2013, the parties, i.e., transferor and transferee shall execute a duly stamped, dated and signed share transfer deed in the prescribed Form SH-4 along with the original share certificate and other prescribed attachments and submit the same to the Company within sixty days from the date of such execution. The Company shall upon scrutiny of the submitted documents approve the transfer of shares in its board meeting and issue endorsed share certificates to the transferee within a period of one month from the date of receipt of the instrument of transfer and register the name of the transferee in its Register of Members.

      Considering in the present case there is an involvement of non-resident, therefore, we also need to access the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 read with the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019. According to which if a transfer of equity instruments held in an Indian Company by a person resident outside India, assuming it is being held on non-repatriable basis to a person resident outside India or foreign company holding equity instruments on a non-repatriable basis shall not be required to be reported in Form FC-TRS.

  12. If the shares of a wholly owned Indian subsidiary held by a Singapore based Holding company been transferred to UK based company which will become new Holding company. What are the compliances as per company Act and FEMA ??
    Also whether FC-TRS required to be filed

    1. Dear Reader,

      The following compliances shall be required:

      Under the Companies Act, 2013, the parties, i.e., transferor and transferee shall execute a share transfer deed in Form SH-4 and such form along with other necessary attachments are required to be delivered to the Company within sixty days from the date of such execution. The share transfer deed shall be duly stamped as per the provisions of the Indian Stamp Act.

      Under the Foreign Exchange Management (Transfer or Issue of Security by a Person resident Outside India) Regulations, 2017, Under the Foreign Exchange Management (Transfer or Issue of Security by a Person resident Outside India) Regulations, 2017, Form FC-TRS is not required to be filed for transfer of capital instruments (Equity Shares, Fully and Compulsory Convertible Securities) of an Indian Company between non-residents.

      However, the same shall be required if the transfer is between the person resident outside India holding equity instruments on repatriable basis to a person resident outside India on non-repatriable basis within a period of 60 days of transfer of capital instruments or receipt/ remittance of funds, whichever is earlier.

      Further, the prior approval of Government shall be required to be obtained where the Company is engaged in a sector which requires Government approval.

  13. Sir, when the transfer of shares of a foreign company is from a foreign resident to an Indian resident, will FCTRS be applicable. Here the company is incorporated outside India. Please guide.

    1. Dear Reader,

      Please note, as per Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, form FC-TRS is required to be filed in case of transfer of equity instruments of an ‘Indian company’ within sixty days of the transfer of equity instruments or receipt/remittance of funds whichever is earlier.

      Further, as per Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2004, an ‘Indian party’ means a company incorporated in India or a body created under an Act of Parliament or a partnership firm registered under the Indian Partnership Act, 1932’.

      Hence, in case of transfer of shares of a company incorporated outside India, the requirement of filing of form FC-TRS shall not be required.

    1. Under FEMA guidelines, buyback from Non-Resident is considered as a transfer of shares by Non-Resident to Resident and hence the Company needs to comply with the provisions as applicable in case of transfer of shares (viz. pricing guidelines, filing FC-TRS, valuation norms, etc).

      Further, the onus of filing Form FC-TRS is on the resident transferor or transferee. Thus, in your case, the Company, being the resident transferee, would be required to file Form FC-TRS.

  14. Hi Sir,
    If a Private Company in India has two wholly own Subsidiaries, one in Bangladesh and another in India and company wants to transfer it’s shareholding in Bangladesh entity to Indian entity. What provisions would be applicable.

    1. Basis our understanding of your query, it involves disinvestment of ODI in Bangladesh entity and on the other hand, transfer of this investment to another Indian entity, which shall result in ODI by this transferee Indian entity. Please refer to FED Master Direction No. 15/2015-16 for provisions on ‘eligible Company’ to make ODI, method of funding, financial commitment. Form ODI, Part-I, II, III to be reported by the respective companies, through their respective AD banks. For further details, you are requested to seek professional guidance.

      1. What is procedure for:
        Transfer of shares in a Private Limited Company. Comprised of Indian Resident Directors and Non Indian resident Directors.

        Shares transffered from an Indian resident (director of the company)
        to a
        Non Indian resident (director of the company)

        1. In case of a Private Company, the right to transfer shares is restricted and subject to approval of the Board of Directors. Hence, the transferor should first send an intimation to the Pvt. Company as to his intention to transfer the shares. The Company will thereafter informs the shareholders of such intimation and if no present member of the Company comes forward to buy such shares, the Company will allow such transfer of shares. The parties will execute a Share Transfer Deed in form SH-4, and present it before the Board for approval. Upon the receipt of approval of Board by means of a resolution, the transfer will be effective and the shares will be transferred in the name of the Non-Resident transferee.

          As far as the FEMA Regulations are concerned, this transaction is to be reported to RBI in Form FC-TRS i.e a transfer between a person resident in India, holding capital instruments in an Indian company to a person resident outside India holding capital instruments on repatriable basis. The onus of reporting shall be on the resident transferor/transferee or the person resident outside India holding equity instruments on a non-repatriable basis, as the case may be.

          The form FCTRS shall be filed within sixty days of the transfer of equity instruments or receipt/remittance of funds whichever is earlier, along with relevant attachments including the Valuation Certificate.

          1. In the Current scenario, one of the shareholder is transferring the shares of the Indian Company to the foreign company then India Company will file FC-TRS for individual shareholder will file.

            Please help me out

  15. Hi

    I have a query, in case the 100% percent money is received from Holding co, but there are 2 shareholders, one is holding co holding 99.99% shares and the other resident individual is holding 0.01% shares as registered owner only. The 100% beneficial interest is with the company. We have filed MGT-6 as well.
    Kindly advice on the following:
    1. How to show this Shareholding in MGT-7?
    2. Whether we need to file FC-TRS in case the registered owner only is being changed from Resident individual to non-resident individual?

    1. The details of the Registered owners are to be recorded in MGT-7, hence, 99.99% will be recorded under Foreign National holding and 0.01% to be recorded under Indian category. The Company can attach a List of Shareholders, mentioning the name of the registered owner and the beneficial owner as well.

      Further, if the shares are to be transferred by Resident individual to a Non-Resident individual and such non-resident shall hold shares on repatriation basis, the liability to file FC-TRS shall arise.

  16. if earlier shares are held on non-repatriation basis and now right issue is made on repatriation basis. is it valid?

    1. As per Rule 7 of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, a person resident outside India having investment in an Indian Company may make further investment in equity instruments by way of rights issue or bonus issue.

      Further, pursuant to Rule 7(f) of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 the investment made by a person resident outside India through rights issue or bonus issue shall be subject to the conditions as are applicable at the time of such issue (i.e. initial investment).

      In light of the above provisions, if the shares were held on non-repatriation basis then the right issue should also be on non-repatriation basis.

  17. Shares are transferred by resident to foreign entity on non repatriation basis – any compliance required to be done with RBI?

    1. Per Regulation 4 (3) (a) of Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, Form FC-TRS shall be filed for transfer of equity instruments in accordance with the rules, between:

      1) a person resident outside India holding equity instruments in an Indian company on a repatriable basis and person resident outside India holding equity instruments on a non-repatriable basis; and

      2) a person resident outside India holding equity instruments in an Indian company on a repatriable basis and a person resident in India.”

      Since shares are transferred on non-repatriation basis FC-TRS is not required to be filed. However pricing guidelines per regulation 11 (2) of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, shall be applicable.

  18. how to seek prior approval from Rbi in case of transfer of shares (private Company) by way of gift from resident to non resident

    1. For the FDI proposal in the sectors falling under the Government Approval Route, the applications are processed by FIFP portal, in consultation with DIPP. FIPP was introduced for a single-window for processing the FDI applications. In the present case, since a prior RBI Approval is required for effecting the transfer, you will have to follow the SOP prescribed by FIPP for making an application for such approval. Please read our article on Transfer of shares by way of Gift – Reporting under FEMA (https://bsamrishindia.com/transfer-of-shares-by-way-of-gift-reporting-under-fema/) for further information.

  19. Sir, if a foreigner holding shares in a private company brought in capital to the company, however, due to various reasons, e-firc was not issued by AD bank upon credit of the amount to the company’s bank account. Can this person transfer shares to an OCI by receiving payment in US by transfer to the foreigner’s bank account from the NRE account of the OCI? Can SH-4 be executed in the US by both the foreigner and OCI?

    1. Pursuant to the provisions of Foreign Exchange Management (Non-debt Instruments) Rules, 2019, where the Indian entity has received any foreign remittance through inward remittance through banking channel, the company is required to file form FC GPR with RBI.

      In your case, your company has received foreign remittance however you haven’t filed form FCGPR with the RBI due to non-issuance of FIRC by AD bank. Therefore, you could first complete the necessary filings for inward remittance with RBI.

      Further, in case of transfer of shares you are required to file form FC TRS with the RBI for which you are required to submit acknowledgement of filing of form FC GPR as an attachment which in your case is not available.

      As for the payment proceeds from OCI, it is to be paid as inward remittance through banking channels or out of funds held in a Non-Resident External (NRE) account.

  20. Sir An Indian unlisted Co is selling its shares to a US Co and the consideration is supposed to be received in three tranches at different dates. My question is what shall be the rate at which FORM SH-4 shall be filled and also the stamp duty be calculated?

    1. As per the pricing guidelines of Rule 21 of Foreign Exchange Management (Mode of Payment and Non-debt Instruments) Rules, 2019, in case of an unlisted Indian Company, the valuation of equity instruments should be done as per internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant or a Merchant Banker registered with the Securities and Exchange Board of India or a practicing Cost Accountant. Further, Thus, the consideration for transfer should be decided as per the pricing guidelines.

      Further, in case of transfer of capital instruments between a person resident in India and a person resident outside India on deferred payment basis, FC-TRS is required to be filed on receipt of every tranche of payment. You can understand this by reviewing Table III- Remittance Details of Form FC-TRS.

      We also suggest you to seek advice from your AD Bank in the present case.

      Further, per the recent amendment in the Finance Act, stamp duty shall be payable at the value of total consideration at the rate of 0.015% in case of transfer of ‘security other than debenture on delivery basis’ or 0.003% for transfer of ‘security other than debenture on non-delivery basis’.

  21. Sir, If US based company issue share to indian resident what all complainces/reporting in Fema act is required ?

    1. Dear Sir,

      If an investment is made by a resident individual or an Indian entity outside the boundaries of the country, by way of capital contribution or subscription to the Memorandum of Association of a foreign entity and acquisition of shares by way of market purchase, private placement or through stock exchange is termed as Overseas Direct Investment (ODI).
      A resident individual or an Indian entity making ODI is required to report the same to Reserve Bank of India by filing of Form ODI physically through Authorized Dealer Category – I Bank (AD Bank). Hence, it is advisable to connect with your AD Bank to complete the filings.

      You can refer to our following blogs to get a detailed view on ODI:
      • Overseas Direct Investment (https://bsamrishindia.com/compliances-under-foreign-exchange-laws/overseas-direct-investment/)
      • Common Violations observed under Overseas Direct Investments (ODI) Compliance (https://bsamrishindia.com/common-violations-observed-under-overseas-direct-investments-odi-compliance/)

  22. An NRI invested in a pvt limited company by buying shares through automatic route in 2010. The person’s now has changed as resident indian. What paperwork should be done.

    1. In this case, the shareholder can intimate the Company about the said change via letter along with the documentary proofs. Further, since the investment by this NRI has now become Indian investment, you no longer need to report this as a foreign liability in your FLA Return.

  23. 1. If NRI sells shares held in private company to Resident Indian is any compliance like FC TRS required? 2. If for above transfer is made by making payment in INR would answer differ ? Thank You

    1. 1) FC-TRS is required to be filed when the transfer is made between a person resident outside India (repatriable basis) and a person resident in India. Therefore, in first case FC-TRS is required to be filed as transfer made on repatriable basis.

      2) If the consideration in above transfer paid in INR, we are assuming that the consideration will be received in NRO Account and all transactions under the NRO Account are deemed to be domestic investment, hence FC-TRS is not required to be filed. However, note that as per Schedule I of the Regulation 3.1 of FEMA (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, the sale proceeds (net of taxes) of the capital instruments may be remitted outside India or may be credited to the NRE/ FCNR(B) account of the person concerned.

  24. Sir,2 quries:
    what are the requirements
    1) if shares of Pvt Ltd. transferred from resident to Non Resident us Citizen pain in INR
    2) Transfer from Pvt ltd. co.’s share by one foreign co. to another co.

    1. As per the provisions of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, transfer of equity instruments of Indian Company by or to a person resident outside India (i.e. Non-Resident) should be subject to the following terms and conditions:

      1. prior government approval shall be obtained for any transfer in case the company is engaged in a sector which requires government approval;
      2. should adhere to entry routes, sectoral caps, investment limits, pricing guidelines, documentation and reporting requirements (i.e. filing of Form FC-TRS)

      Since your both the cases involve one Non-Resident party, hence the transfer should comply with the aforesaid provisions

      Also, the Form FC-TRS should be filed for the first case. However, for the second case, Form FC-TRS shall be filed only if the NR held shares on a repatriable basis and transferring it on non-repatriable basis.

  25. Sir, can you please let me know the pricing and other documentation guidlines for Shares of Unlisted Private Limited Company are being sold by Foreign Company incorporated in US to person Resident in India.

  26. Dear Sir,
    Thank you for this article.
    My question is transferor is Indian and the transferee is foreign national. Form SH-4 signed by foreign national is in USA. Whether Apostillation required in this case as the document signed by him in USA and if so, once done whether Stamping/franking to be done here in India. Please advice.
    Thanks in Advance.

    1. The Companies Act, 2013 and the FEMA Regulations do not specify the requirement to get the transfer deed notarized/apostilled/consularized in case of transfer of shares between resident and non-resident. Also, at the time of reporting to RBI by filing the form FC-TRS, no documents is required to be apostilled, however, the transfer deed being a document must be validly stamped/ franked as per the law of the Indian state.

  27. An Indian Company holding Equity Shares in Foreign Company. Now the Indian Company wants to sell these shares to a Foreign National. Please specify all the respective FEMA Compaliance and also confirm whether FC-TRS is required to filed or not.
    Please reply…

    1. I have the same query. Equity shares of Foreign company is held by Indian company who wishes to transfer it to another Foreign company. What will be the FEMA compliance ?
      Please reply

      1. The transfer of equity instruments of an Indian Company between a person resident outside India and a person resident in India is governed through Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 read with Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019.

        Such transfer is required to be reported to RBI via filing of Form FC-TRS within 60 days from the date of transfer of equity instruments or date of receipt of funds whichever is earlier.

      2. Dear Sir,
        The Equity Shares of Foreign Company are held by Indian Company now the Indian Company wants to sell these shares to Foreign National. Is FCGPR required?

        1. Assuming that in the given case the Equity Shares that are being transferred are that of a foreign subsidiary company incorporated in India, form FC-TRS is to be filed.

          However, if the company whose shares are being transferred is a company incorporated outside India, the reporting provisions pursuant to para 10 of the Master Direction – Direct Investment by Residents in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) Abroad (https://m.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10199#10) is to be followed.

  28. Can the NRI transfer its shares to Resident at a value which is more than the Valuation Certificate provided by CA/Merchant Banker?
    Do we need to take prior approval if it is so?

    1. As per Foreign Exchange Management (Non-Debt Instrument) Rules, 2019, in case of transfer of equity instruments from NRI to Resident Indian, the sales consideration shall not be more than the fair value of shares determined as per any internationally accepted pricing methodology on arm’s length basis and duly certified by a Chartered Accountant or a SEBI registered Merchant Banker. However, if the transfer does not meet the prescribed condition, prior approval of RBI shall be required.

  29. In my case, I want to transfer of shares through gift deed from Non Resident to Resident in India. What are the additional document required apart from transfer deed, gift deed, valuation certificate and consent from both Donor and Donee for reporting to RBI in form FCTRS.

    1. The said transfer from a Non- Resident to Resident in India by way of gift shall be governed by Regulation 7.6 of the Master Direction – Foreign Investment in India dated Jan 04, 2018 (https://rbidocs.rbi.org.in/rdocs/notification/PDFs/MD11_04012018B4D0DB4E6DA04CC4B7AF62AA03D902BE.PDF).

      Apart from the along stated documents following documents shall be required for FC-TRS Reporting:
      1. Relevant regulatory approvals, wherever applicable,
      2. Declaration by Non-Resident

    1. As per Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 read with Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, a person resident outside India (“NR”) holding equity instruments of an Indian Company may transfer the same to the person resident in India by way of gift or sale subject to the pricing guideline and reporting requirements.

      Since the definition of equity instrument includes “Compulsory Convertible Debenture” (CCDs), it can be construed that CCD’s can be transferred from NR to Resident before conversion provided that they must comply with the pricing guidelines and reporting requirements.

  30. In the case of gift of shares from Resident to Non Resident, is the cap of 5% of the total paid up share capital per donee?

    1. Dear Sir,
      As per Regulation 7.7.1(b) of the Master Direction issued by the RBI on Foreign Investment in India dated January 4, 2018, a person resident in India may gift shares of an Indian Company to a Non Resident provided the gift does not exceed 5% of the paid up capital of the Indian company.
      Please note that this limit is a cumulative limit for a donor to one particular donee.

      1. The regulation cited is wrong. as per regulation 7.7.1(b):
        7.7.1.An NRI or an OCI holding securities of an Indian company on a non-repatriation basis or a person resident in India may transfer the securities so held by them to a person resident outside India by way of gift with the prior approval of the Reserve Bank and subject to the following conditions:

        (a) The donee is eligible to hold the securities under FEMA 20(R);

        (b)The gift does not exceed 5 percent of the paid up capital of the Indian company/ each series of debentures/ each mutual fund scheme; this limit is a cumulative limit for a donor to one particular donee.

  31. Hello Sir,
    Can you tell me that if NRI holding CCDs on repatriation basis & want to transfer it to Foreign company which is incorporated outside India?
    Do we need to take the prior approval of RBI and what are the others compliances to be done in FEMA?

    1. As per Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 read with Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, a NRI holding equity instruments (which includes Compulsory Convertible Debentures) of an Indian Company on repatriation basis may transfer the same by way of sale or gift to person resident outside India (NR) subject to the prior government approval.

      However, please note that the prior government approval shall be required only if the company (whose shares are being transferred) is engaged in a sector which requires government approval. Further, reporting for transfer of CCD’s shall be made to RBI by resident transferor/transferee via filing of Form FC-TRS within sixty days of transfer of or receipt/remittance of funds whichever is earlier.

  32. Hello,
    My query is: while transferring the shares from Resident to Non Resident, who will obtain the Valuation Report? The transferor or the transfarree

    1. In case of transfer of shares between resident and non-resident, FEMA regulation only mandates to obtain the valuation report from SEBI registered merchant banker, practicing chartered accountant or from practicing cost accountant in case of an unlisted Indian company.
      However, it does not specify who has to obtain the valuation report. Hence, in general practice, the valuation report is obtained either by transferor or transferee or at the mutual consent of each other.

  33. Sir, I wish to ask that if transfer of shares are taking place between two Non Resident /NRI then what are the Fema Compliance’s?

    Further, if an NRI invested $ 100000 in 2008 @ 42.88 and now he is transferring its shares to another NR , what price we shall take or how we will record in share transfer deed.. in dollars or in Rs.?

    1. As per Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, In case of transfer of shares between resident and non-resident there is a requirement to file Form FC-TRS. The Form FC-TRS shall be filed by the resident transferor or transferee.

      The price for transfer of shares between a person resident in India to a person resident outside India shall be backed by the valuation report obtained from Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant. However, in case of listed company the same shall be worked out in accordance with the relevant Securities and Exchange Board of India guidelines

      Further, there is no specific denomination prescribed for recording the consideration for transfer so shares between non-resident and resident but it is advisable to record the same in Indian rupee.

  34. If the shares are to be transfered from Resident to Non resident ,will the documents executed by non resident needs to be apostiled?

    1. “As per the provisions of Section 56 of the Companies Act, 2013, in case of transfer of shares, a share transfer deed duly stamped, dated and executed in Form SH-4 along with the original share certificate or letter of allotment of shares needs to be filed with the Company to get the transfer registered in the records of the Company.

      The same shall also be delivered to the Company in case of transfer of shares between resident and non-resident. However, the Companies Act, 2013 and the FEMA Regulations does not specify the requirement to get the deed notarized/apostilled/consularized in case of transfer of shares between resident and non-resident.

      Whereas at the time of reporting to RBI by filing the form FC-TRS, no documents is required to be apostilled.

  35. is there any specific format in which CA can issue certificate for transfer of shares from resident shareholder to non resident shareholder

  36. A Resident sold shares of an Indian Company, to a Non-reside nt and received consideration in Indian currency. What are the regulations regarding this transaction?

    1. In such case, FDI Reporting compliances have to be done as regulated in terms of section 6(3)(b) and section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Transfer or Issue of a Security by a Person resident Outside India) Regulations, 2017 issued vide Notification No. FEMA 20(R)/2017-RB dated November 7, 2017.

      The following are the compliances involved in the above case:

      1. Shares held by Non-Resident is on Repatriation basis:

      Reporting under FC-TRS under SMF has to be done within 60 days of transfer of capital instruments or receipt / remittance of funds whichever is earlier.The onus of reporting FC-TRS shall be on the resident transferor/ transferee.

      2. Shares held by Non-Resident is on Non-Repatriation basis:

      Reporting under FC-TRS is not required

  37. can 100% shares of a pvt. Co. where 100% automatic route held by resident Indians be transferred to a foreign Company to make it holding Company

    1. There is no restriction under the FEMA provisions to transfer the 100% shares of private limited company to non-resident (foreign company), subject to approval of Reserve Bank of India in case of approval route. The necessary filings under the Companies Act and FEMA regulations shall be complied with (filing of Form FC-GPR, payment of stamp duty etc.). However, while transferring the 100% shareholding, it is important to ensure that there shall atleast be two members in a private limited company so as to meet the criteria of minimum number of members.

  38. Hello Sir,

    My query is when a father(indian citizen) appoints his son (UK citizen) as Joint shareholder of a Indian company. Is there requirement of filling Form FC-TRS

    1. The Form FC-TRS stands for Foreign Currency -Transfer of Shares, further as per section 2(ze) of FEMA transfer means, sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien.

      And in the given situation there is no transfer involved, So, there is no requirement to file FC-TRS.

  39. Transfer of shares from non resident to resident on a non repatriation basis, Viz, by Transfer of consideration to NRO account. Are we required to file FC-TRS, get valuation etc

    1. The basis to check if form FC-TRS is to be filed depends upon the investment type of non resident at the time of transfer of shares. If shares were held on repatriation basis then Form FC-TRS shall be filed and if shares were held on non-repatriation basis, no reporting shall be done in Form FC-TRS.
      In your case, you are suggested to confirm the investment type of non-resident and comply with the requirement accordingly

    2. Sir can a foreign Company buy out 100% equity shares of a start up Company in port & shipping where 100% FDI allowed. the FEMA regulations only talks of issue of shares to Non resident entities. or do we need to seek approval of RBI ? your views will be of immense value to me.

      1. If the said foreign company is eligible person under the FEMA regulations then it can buy out 100% equity shares of Indian Company, where 100% FDI is allowed. RBI approval is not required for investment is through automatic route.
        However, it would be suggested to seek the case based opinion before investment.

  40. What is the position under FEMA for the transfer of shares by the Indian resident to NRI in consideration for the settlement of the suit ?

    1. As per as per point no.3 Schedule 4 [See Regulation 5(4)] of of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017- “The amount of consideration shall be paid as inward remittance from abroad through banking channels or out of funds held in NRE/ FCNR(B)/ NRO account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.”

      So, the consideration other than cash is not permissible.

  41. Hello Sir,

    Can you tell me that if NRI holding 80% in an Indian Company transfer its shares to Foreign company which is incorporated outside India?

    If yes, do we need to take the prior approval of RBI and what are the others compliances to be done in FEMA?

    1. Dear Sir,
      Yes, NRI can transfer its shares to the Foreign Company which is incorporated outside India.

      NRI would be required to check whether the Company falls under the Automatic Route or Approval Route and the applicable sectoral cap as per the RBI Guidelines. If it falls under the Approval Route then prior approval of RBI would be required.

      Also, in case of transfer of shares from NRI to Foreign Company, reporting of FC-TRS is not required unless the NRI is holding the shares on non-repatriable basis and transferring the shares to foreign company on repatriable basis.

  42. Sir, thankyou for your articles. My query is:
    NR company transfers shares to Resident company. Does the onus of reporting lie on the Resident Company (Transferee) or on the Company whose shares have been transferred?

    1. As per Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 onus of submission of Form FC-TRS is on the resident transferor or transferee.

      Therefore in your case, Resident Company is required to file Form FC-TRS.

      1. Sir the equity shares of an Indian Company (ABC) is proposed to be transferred to a foreign Company (XYZ) to make ABC 100% subsidiary of XYZ. the sector is shipping & logistics where 100% FDI is allowed. do we need the approval of RBI ? the valuation will be as per the regulations prescribed under FEMA for transfer of shares. kindly advise if we need to take approval of RBI ? FCTRS (NOW SMF) will be filed.

        1. The Government of India has allowed Foreign Direct Investment (FDI) of up to 100 per cent under the automatic route for shipping and logistics sector. Hence, in this case RBI approval is not required for transferring shares of Indian Company to Foreign Company. However, necessary filings under Companies Act and FEMA shall be done.

  43. A Foreign co. paid expenses on behalf of the Indian co. but the Indian co. does’t have cash to paid them. So the Indian co. want to give some shares to Foreign co. What is the procedure under Income tax act, companies act and FEMA ?

    1. This is a case of issuing of shares on consideration other than cash (indirect loan to the Indian company)

      As per the provisions of the Companies Act, 2013, prior to the transaction, an agreement is to be entered and approved by the shareholders (special resolution) for issuing shares on consideration other than cash basis

      If the above provisions are complied then you may proceed with the following procedure:

      Companies Act
      1. Issue a letter from the foreign company for exercising its right as per the terms of the agreement approved.
      2. Conduct a Board Meeting and allot the shares based on the valuation of a registered valuer.
      3. Filing of Form PAS-3 with ROC within 30 days of allotment on other than cash basis.
      4. Payment of stamp duty within 30 days of allotment of securities

      FEMA
      1. Report to RBI in Form FC-GPR Within 30 days of allotment of shares
      2. Attach (i) the copy of the agreement (ii) the FIRC or proof of payment of expenses by the foreign company. (iii) Valuation Report (iv) CS Certificate and Auditor Certificate and (viii) Other documents as prescribed.

      Income tax
      If shares are issued at a value higher that the value determined in the valuation report, the provisions of capital gain will apply.

  44. Shares hold at the time of resident status on Non Repat basis and later sold to NR Entity with Repat basis, while the resident status change to NR at the time of share purchase agreement.

    Kindly advise what status to be consider of seller for FCTRS filing. and whether the filing is applicable and require RBI approval or not.

    1. The status of non-resident shall be considered as at the time of executing share purchase agreement, therefore, the status of the resident has been changed to non-resident.

      Yes, shares acquired by resident can be sold on repatriation basis to non-resident.

      But as per RBI Guidelines, in case of transfer of capital instruments from a person resident outside India holding capital instruments on non-repat basis to a person resident outside India on repat basis, reporting in Form FC-TRS is required.

      So, in this case, FC-TRS is required to be filed.

  45. Hi sir
    Can a NR shareholder Company transfer its 20% shareholding to resident individual by way of gift? If yes what are the necessary documents required to be executed except SH-4, and Board Resolution. In this case, FCTRS would not be required. Pls confirm

    1. As per regulation 10(3) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, a person resident outside India can gift shares to Resident Individual. To approve transfer “SH-4/ gift deed” shall be required along with board resolution.

      FCTRS shall be required to be filed by the resident transferor/transferee.

      Documents required- Transfer Agreement (gift deed) / Valuation Certificate and Relevant Acknowledgement for Initial Investment or Approval letter

  46. Indian company shares held by person resident outside India are transferred to another person resident outside India .Please assist pricing guideline applicable or not. if yes under which head.

    1. As per Regulation 11 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, pricing guidelines are applicable in case transfer is made between resident of India and a person resident outside India and vice versa. However, the Regulation does not mention any pricing guidelines for the transfer of shares by or to a person resident outside India.

      But in such transactions, restriction under Income Tax needs to be taken care of. If the shares or interest derive, directly or indirectly, its value substantially from the assets located in India, the person needs to pay tax in India.

  47. what is
    1. the procedure of transfer of shares from NR to RI

    2. WHen transferring can the share value be discounted to half ?

    1. For procedure of transfer of shares from NR to RI, please read our blogs:
      1. https://bsamrishindia.com/transfer-of-shares-between-resident-and-non-resident-private-limited-companies/
      2. https://bsamrishindia.com/single-master-form-smf-and-the-new-filing-platform-firms/

      Regarding the second question, in case of share transfer from NR to IR, the consideration payable by the IR (Transferee) shall not exceed the valuation of capital instruments done as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant.

      In short, in case of share transfer from NR to IR, the consideration payable by IR shall not exceed the valuation done by the CA.

  48. Our Pvt. Company(ABC Pvt. Ltd) is a wholly owned subsidiary of a Public company(XYZ Ltd.)The shares of ABC Pvt. Ltd are in demat form. Now XYZ Ltd wants to transfer 49% shares to an Korean Company. What are the compliances to be done ?

  49. Shares are transferred by a Resident Individual in a Indian Company to Non-resident company which eventually holds majority stake in Indian company.
    Liability to file FCTRS is with resident individual who has sold shares of Indian company or Indian company shall file FCTRS whose shares are sold by resident individual to Non Resident company.
    Please assist

    1. As per Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 onus of submission of Form FC-TRS is on the resident transferor or transferee.
      But considering the current scenario, individuals cannot registered themselves on FIRMS portal.
      Therefore, Form FC-TRS is to be filed by the company whose shares are being transferred till the time RBI comes up with a clarification in this regard.

    1. The FEMA Regulations do not specify the validity of the valuation report. However, as per general practice, it shall be appropriate if the valuation report is maximum 6 months old from the date of execution of transfer

  50. Hi, I got your reference from one of your ex-employee and would like to extend my best compliments on your blogs. they are really useful and easy to understand.

    I have two major queries related to FEMA:
    1. What is the difference between NRI investment and FDI investment?

    2. I was a resident in India in 2015 and through LRS i incorporated a company overseas (100% my ownership). In 2016, few investors invested in my overseas company and that company became a joint venture. Now in 2019, myself (a NRI) and that company want to do some investments in my Indian Company. this proposed investment would be from my funds i transferred overseas under LRS. Is this transaction permissible under FEMA?
    In crux: Can a NRI make investment in Indian Company with the proceeds he transferred under LRS when he was a resident?

    I hope to receive answer to this query asap.

    1. Sir, thanks for appreciation. There isn’t much difference between NRI and FDI from NR. However, investment from NRI on non repatriable basis is treated as domestic investment.
      Regarding your 2nd query, this is not the medium to seek answer on a very technical issue which needs further examination and research.

  51. The share is transferred from resident to non resident, FCTRS is to be filed in Individual capacity or is to be filed by the company whose shares are transferred.

    1. As per Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 the onus of reporting is on the resident transfer/transferee.
      As per the current scenario, individuals cannot be registered on FIRMS portal. Therefore, the liability of filing FC-TRS is on the Company whose shares are being transferred.

  52. What are the sectoral caps and FDI Policy applicability of an Indian Company with Software Testing and Development operations?

  53. Where foreign Company shares are transferred from resident to Non resident what are the compliance’s to be done?

    1. In accordance to Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000
      “A person resident in India, who has acquired or holds foreign securities in accordance with the provisions of the Act, rules or regulations made thereunder, may transfer them by way of pledge for obtaining fund based or non-fund based facilities in India from an authorised dealer”
      For further detailed information you can visit your respective AD Bank.

  54. In case of transfer of 99% share capital of an indian company (Health Sector) to a Foreign Company, will it be under Automatic route or Approval route?

    1. As per FDI policy, 100% investment in the manufacturing of Medical devices under automatic route is allowed.
      We shall need more information on the exact business of the company to provide conclusive answer.

  55. Non resident has transferred shares to 2 indian resident amounts to Rs. 450 , so we need to take tax clearance certificate for this transaction?? and tax clearance certificate is required every time when transfer from resident to non resident and vice versa.
    Please reply.
    Thanks in advance.

    1. As mentioned in regulation 12 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, all transaction under these regulations shall be subject to payment of applicable taxes and other duties/ levies in India irrespective of the amount remitted.
      Therefore, it is mandatory to obtain tax clearance certificate from either Income tax Authority or from the Chartered Accountant

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