FC-TRS Filing: Share Transfer between Resident and Non-Resident

When a resident Indian shareholder sells shares to a foreign investor, or a non-resident investor exits to a resident buyer, the transaction triggers two separate compliance chains simultaneously: one under the Foreign Exchange Management Act (FEMA) 1999 and one under the Income Tax Act 1961. Form FC-TRS is the mandatory FEMA reporting form at the centre of that first chain. Filing it incorrectly, or missing the 60-day deadline, can result in a Late Submission Fee (LSF), compounding proceedings under Section 13 of FEMA, and in some cases a block on future filings. The compliance picture got more layered in 2026: Press Note 2 (2026 Series), notified on 15/03/2026 and operationalised on 02/05/2026, revised the land-border-country FDI approval requirement, with direct consequences for any secondary transaction involving a Chinese-connected investor or a fund with significant LBC beneficial ownership. This article covers when FC-TRS applies, the pre-filing approval checks (including the land-border-country question), how to file on the RBI FIRMS portal, pricing rules, the LSF vs compounding decision, tax obligations that run alongside the filing, and the seven mistakes that Treelife sees most often on live deals.

What is FC-TRS and when must it be filed?

Form FC-TRS (Foreign Currency Transfer of Shares) is the Reserve Bank of India’s prescribed reporting form for the transfer of capital instruments between a person resident in India and a person resident outside India, and vice versa. The filing obligation arises under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) and the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (FEMA 395, as amended up to 15/01/2025). FC-TRS must be filed with the Authorised Dealer Category-I (AD Cat-I) bank within 60 days of the date of transfer of capital instruments or the date of receipt or remittance of consideration, whichever is earlier. The form is submitted through the RBI’s FIRMS (Foreign Investment Reporting and Management System) portal.

What capital instruments does FC-TRS cover?

The NDI Rules define “capital instruments” to include equity shares, compulsorily convertible preference shares (CCPS), compulsorily convertible debentures (CCDs), and share warrants. All of these trigger FC-TRS when they are transferred between a resident and a non-resident. The key feature is that FC-TRS applies to secondary transfers of existing instruments, not to fresh issuances, which are reported through Form FC-GPR within 30 days of allotment.

The form covers both sale transactions (where consideration is paid) and gift transactions (where shares are transferred without consideration). In the case of shares purchased by a foreign entity on a recognised stock exchange under the FDI scheme, reporting responsibility shifts to the non-resident buyer through their AD Cat-I bank.

Transactions that do not require FC-TRS:

• Transfers between two persons resident in India (only Form SH-4 applies, stamped at 0.25% of consideration)
• Fresh issuance of capital instruments to a non-resident (FC-GPR applies instead)
• Transfers from a non-resident holding instruments on a non-repatriable basis to a resident, and vice versa, where the repatriation status does not change and the transaction is treated as domestic
• Transfers between two non-residents both holding on a repatriable basis, where there is no change in repatriation status
• Transfer of NRI-held shares from NRI to a foreign company does not require FC-TRS, unless the NRI is holding on a non-repatriable basis and the foreign company will hold on a repatriable basis (which converts the investment from domestic to FDI and triggers the full compliance chain)

Who files FC-TRS?

The obligation to file rests on the resident party. Where a resident is the transferor, the resident seller files. Where a resident is the transferee, the resident buyer files. The onus is placed on the Indian-resident party precisely because FEMA regulates residents and their interactions with foreign exchange. A non-resident holding instruments on a non-repatriable basis who transfers to a resident (or vice versa) is also responsible for filing.

One practical implication for founders on secondary deals: even if the foreign investor initiates the transaction and the deal terms are driven by the investor’s exit needs, the resident founder or the investee company will be the one managing the FC-TRS process. This means building the FC-TRS timeline into the deal calendar, not treating it as a post-closing formality.

FEMA pricing rules: what price can you agree?

Pricing is the single most technically complex part of FC-TRS for unlisted companies, and it is the area where deal terms agreed at a commercial level most often need recalibration before FEMA compliance can be signed off.

Transfer from resident to non-resident (resident selling)

For an unlisted company, the transfer price must not be lower than the fair value of the capital instruments, as determined by an internationally accepted valuation methodology on an arm’s length basis (Rule 21, NDI Rules, 2019). The valuation must be certified by a Chartered Accountant, a SEBI-registered Merchant Banker, or a practising Cost Accountant. The valuation certificate must not be more than 90 days old at the time of filing.

For a listed company, the transfer price must comply with applicable SEBI pricing guidelines, typically based on the preferential allotment pricing formula for the relevant period preceding the date of transfer.

The FEMA floor is a one-sided constraint in this direction: the resident can sell at or above fair value, but not below. A discount to FMV for a resident seller would constitute a violation. This creates a structurally important situation in secondary deals where an investor wants to buy at a discount, perhaps due to a down round scenario or a side letter arrangement: the resident seller cannot agree to such terms without breaching the NDI Rules.

Pricing compliance table: resident selling to non-resident (unlisted company)

Fair value (valuation report)	Transfer price agreed	FEMA compliant?
₹120 per share	₹150 per share	Yes — at a premium to FMV
₹120 per share	₹120 per share	Yes — at FMV
₹120 per share	₹100 per share	No — below FMV, FEMA violation

Transfer from non-resident to resident (non-resident selling)

For an unlisted company, the transfer price must not exceed the fair value certified by the same categories of professionals using an arm’s length methodology. The constraint is now a ceiling: the non-resident can sell at or below FMV, but not above.

This is the constraint that prevents assured exit clauses at a guaranteed minimum return. FEMA does not permit a contractual guaranteed return to a non-resident investor. When shares are eventually transferred, the price must reflect fair value at the time of transfer, not a guaranteed rate from the time of entry. SHA provisions that purport to guarantee a minimum IRR on exit need to be read carefully against this rule, since the actual FC-TRS filing will expose the transfer price to AD bank scrutiny.

Pricing compliance table: non-resident selling to resident (unlisted company)

Fair value (valuation report)	Transfer price agreed	FEMA compliant?
₹150 per share	₹150 per share	Yes — at FMV
₹150 per share	₹120 per share	Yes — below FMV (investor takes a haircut)
₹150 per share	₹170 per share	No — above FMV, FEMA violation

Pricing for convertible instruments

For CCPS and CCDs, the conversion price must be determined at the time of issuance in accordance with NDI Rules. On transfer, the price cannot be lower than the fair value of equity shares at the time the convertible instrument was originally issued. If a CCPS is issued at ₹100 with a conversion price of ₹50, the conversion ratio is 2:1 (each CCPS converts into two equity shares). This ratio may be adjusted for bonus issues or stock splits to preserve the investor’s economic position, but the underlying pricing constraint carries forward.

Does your investor trigger a land-border-country approval requirement?

Before the FIRMS portal is opened, one pre-condition applies to a specific and growing category of transactions: whether the non-resident party to the transfer is connected to a country sharing a land border with India.

The regime before March 2026

Press Note 3 (2020), issued by the Department for Promotion of Industry and Internal Trade (DPIIT) on 17/04/2020, required prior government approval for all FDI from entities incorporated in or with beneficial owners in land-border countries (LBCs): China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, and Afghanistan. This applied regardless of sector and regardless of whether the investment was incoming or involved a secondary transfer. A transfer of shares to a Chinese-connected buyer, or a secondary sale by a Chinese-connected seller, required government approval before FC-TRS could be filed.

What Press Note 2 (2026) changed

The Union Cabinet approved amendments on 10/03/2026, formalised through Press Note 2 (2026 Series) issued by DPIIT on 15/03/2026 and operationalised via the Foreign Exchange Management (Non-Debt Instruments) (Amendment) Rules, 2026 notified on 02/05/2026. The revised position as it applies to FC-TRS transactions:

Transfers involving an LBC investor with less than 10% non-controlling beneficial ownership can now proceed without prior government approval. However, they are subject to a mandatory PN2 Reporting Requirement: the investment must be reported to the government even though approval is not required.

Transfers where the LBC investor holds 10% or more, or exercises control regardless of shareholding, continue to require prior government approval before FC-TRS can be filed. The approval process now operates on a 60-day fast-track for priority sectors where the investee company is majority Indian-owned, but the approval is still a prerequisite.

Pakistan and Bangladesh remain under the full approval requirement with no relaxation under the 2026 amendments. Pakistan additionally faces sector-specific restrictions that are independent of PN2.

Practical implication for secondary sales: If the seller in a secondary transaction is a Chinese-connected fund or a fund with Chinese LPs above the 10% ownership threshold, the resident buyer cannot complete the transfer or file FC-TRS until government approval is in hand. The same applies to a new buyer that is LBC-connected. The PN2 beneficial ownership test uses the PMLA Rule 9(3) definition, with 10% as the trigger threshold, tracing through every intermediate entity in the ownership chain.

Founders whose cap tables include Chinese-connected investors (which includes several US and Singapore funds with significant Chinese LP bases, depending on the ownership structure) should verify the beneficial ownership position before any secondary transaction is initiated. Proceeding without this check is the fastest route to a live FEMA contravention.

How to file FC-TRS on the RBI FIRMS portal: step by step

The FIRMS portal is the single online submission channel. There is no offline route for FC-TRS. The process has two prerequisites: Entity User registration (the company’s identity in the system) and Business User registration (the individual authorised to file forms).

Step 1: Create an Entity User on FIRMS

The company registers on the RBI FIRMS portal at firms.rbi.org.in by providing its CIN, company email, mobile number, PAN, and an authorisation letter on company letterhead. RBI reviews the application and sends login credentials to the registered email on approval. If the application is rejected, the identified gap must be corrected and resubmitted.

Step 2: Register entity and create a Business User

After logging in as the Entity User, the company completes registration under the Entity Master (CIN, address, NIC code for primary business activity, and paid-up capital on a fully diluted basis). A Business User is then created by providing the authorised person’s details, selecting the AD bank, and uploading a Business User Authorisation Letter. Approval usually takes a few working days.

Step 3: Initiate the FC-TRS return

Log in as the Business User, navigate to Single Master Form (SMF), select FC-TRS, and click “Add New Return.” If the company has previously filed FC-GPR or an earlier FC-TRS, you may need to enter the earlier acknowledgement number. This creates continuity in the RBI’s records of the company’s foreign investment history.

Step 4: Enter transfer and transaction details

The form requires: transfer by way of (sale or gift), direction of transfer (resident-to-non-resident or reverse), FEMA classification of the transfer type, date of transfer, nature of transfer (private arrangement, IPO offer for sale, etc.), and KYC details of buyer and seller. The date of transfer must align precisely with the executed Share Purchase Agreement or Share Transfer Deed (Form SH-4).

Step 5: Enter capital instrument details

Inputs required: type of instrument (equity, CCPS, CCD, warrant), number of instruments transferred, face value, conversion ratio (if applicable), fully diluted equity shares, transfer price per instrument, total consideration, and the fair value per the valuation certificate. Every number must match the supporting documents. A mismatch between the form and the valuation report is the most common reason for an AD bank resubmission request.

Step 6: Enter remittance details

For sale transactions, disclose the mode of payment (authorised banking channel), name and branch of the AD bank, amount received or remitted in rupees, whether remittance was received in tranches, and attach the Foreign Inward Remittance Certificate (FIRC) or debit statement plus KYC of the foreign entity. Gift transfers are exempt from this step.

Step 7: Submit and track

On submission, the form is routed to the AD bank. The AD bank may approve the filing, raise a resubmission request (with specific queries), or reject the filing. Resubmission requests must be resolved within the stipulated timeline. Final acknowledgement from the AD bank closes the FC-TRS compliance cycle.

Documents required

For sale transactions:

• Board resolution approving the transfer
• Form SH-4 (Share Transfer Deed)
• Shareholding pattern before and after transfer
• Share Purchase Agreement
• Consent letters from buyer and seller
• Declaration by the non-resident transferee
• Valuation certificate (not older than 90 days from date of transfer)
• Foreign Inward Remittance Certificate (FIRC) or bank debit/credit statement
• KYC of the foreign investor (in RBI-prescribed format)
• Press Note-3 declaration (Consolidated FDI Policy compliance)

For gift transactions (stricter scrutiny):

• Name and address of donor and donee
• Relationship between transferor and transferee
• Reason for gift
• Valuation certificate
• Undertaking regarding the USD 50,000 annual limit
• Executed gift deed
• Sectoral cap compliance certificate

Gift transfers within a family (relatives as defined under Section 2(77) of the Companies Act 2013) are permitted subject to the 5% of paid-up capital threshold, sectoral cap compliance, and the donee being eligible to hold the instrument under the relevant repatriable schedule. Gifts outside the family definition require prior RBI approval.

What is the deadline and what happens if you miss it?

FC-TRS must be filed within 60 days of the date of transfer of capital instruments or the date of receipt or remittance of funds, whichever is earlier. The earlier of the two clocks is the binding one. If a Share Purchase Agreement is executed on 01/07/2026 and the FIRC for payment lands on 15/07/2026, the 60-day clock started on 01/07/2026, making the deadline 30/08/2026.

Late Submission Fee (LSF) calculation

A delay beyond 60 days can be regularised by paying a Late Submission Fee under RBI Circular No. RBI/2022-23/122 A.P. (DIR Series) Circular No. 16 dated 30/09/2022. The LSF formula for FC-TRS is:

LSF = ₹7,500 + (0.025% × A × n)

Where A = amount involved in the delayed reporting, and n = number of years of delay, rounded upward to the nearest month and expressed to two decimal points.

The maximum LSF is capped at 100% of A, rounded upward to the nearest hundred. The LSF facility is available for up to three years from the original due date of filing. If the LSF is not paid within 30 days of the RBI advice, the advice becomes void and a fresh application resets the reference date for calculating n.

Worked example:

A resident founder sells shares worth ₹2 crore to a US investor. The transfer deed is executed on 01/01/2026. The filing due date is 02/03/2026. The form is filed on 01/09/2026, a delay of 6 months (0.5 years).

LSF = ₹7,500 + (0.025% × ₹2,00,00,000 × 0.5) = ₹7,500 + (0.00025 × 2,00,00,000 × 0.5) = ₹7,500 + ₹2,500 = ₹10,000

At ₹2 crore transaction size and 6 months delay, the LSF is modest. At a ₹20 crore transaction with a 2-year delay, it becomes ₹7,500 + (0.025% × 20,00,00,000 × 2) = ₹7,500 + ₹1,00,000 = ₹1,07,500. Non-payment does not eliminate the liability; it escalates the matter to penal action under Section 13 of FEMA, which carries penalties of up to three times the amount involved.

LSF or compounding: the fork in the road

LSF and compounding are not interchangeable. They serve different purposes and create different records.

LSF is self-initiated and voluntary. The company pays through the FIRMS portal as part of the delayed filing, the AD bank forwards it to RBI, and on payment, the delay is regularised. It is faster and does not create a formal contravention on the company’s RBI record. LSF is the right route whenever the delay is within three years of the original due date and the violation is one of timing, not substance.

Compounding under Section 15 of FEMA is a formal admission of contravention filed with the RBI, now through the PRAVAAH portal, with a ₹10,000 application fee. A compounding officer at the RBI holds a hearing and issues a compounding order specifying the amount payable. Compounding does create a formal record of the contravention. It is the mandatory route in three situations: the three-year LSF window has lapsed; the violation is substantive (wrong price, wrong sector, unauthorised transfer) rather than a missed deadline; or the AD bank has already escalated the matter.

The April 2025 amendments to the RBI Master Directions on Compounding introduced a cap of ₹2 lakh per contravention for certain categories of miscellaneous non-reporting and technical violations. For a first-time, purely procedural FC-TRS delay, this cap is likely to apply, but the company must still go through the full compounding process to benefit from it. The cap does not apply to substantive FEMA violations such as pricing contraventions or transfers in prohibited sectors.

Tax obligations that run alongside FC-TRS

FC-TRS is a FEMA reporting obligation, but the same transaction simultaneously triggers income tax compliance. Three points that are directly relevant to how you structure and execute the deal:

When a resident buyer acquires shares from a non-resident seller, the buyer must deduct TDS under Section 195 of the Income Tax Act before remitting payment. This is not optional and cannot be done retroactively after the FIRC has been issued. The AD bank will, in practice, ask whether TDS was deducted before approving the FC-TRS. A resident paying a non-resident and skipping TDS creates dual exposure: interest under Section 201 of the Income Tax Act and a potential rejection at the AD bank.

For an NRI seller, the default TDS is applied on the gross consideration unless the seller has obtained a lower or nil deduction certificate under Section 197. Without that certificate, TDS at source can significantly exceed the actual tax liability on the gain, and the seller must then file an Indian income tax return to claim a refund, which delays repatriation. Factoring this into deal timelines is the seller’s responsibility, not the buyer’s.

The FEMA pricing floor (resident selling to NR: price cannot be below FMV) and the income tax deemed consideration rule (Section 50CA: if transfer price is below FMV under Rule 11UA, the higher FMV is treated as the sale proceeds) reinforce each other. A below-FMV sale to a non-resident is simultaneously a FEMA violation and creates a taxable deemed capital gain above the actual cash received.

Key tax rates for unlisted share transfers (on or after 23/07/2024)

Seller type	Holding period	Tax rate	TDS applicability
Resident individual	Over 24 months	12.5% LTCG (Section 112)	No TDS on resident seller
Resident individual	Up to 24 months	Slab rate STCG	No TDS on resident seller
NRI / foreign company	Over 24 months	12.5% LTCG (Section 112)	Section 195, deducted by resident buyer
NRI / foreign company	Up to 24 months	Slab rate STCG	Section 195, deducted by resident buyer

Common mistakes that cost founders time and money

1. Missing the earlier of two deadlines

The 60-day window starts from the date of transfer or date of funds, whichever is earlier. Many founders treat receipt of the FIRC as the trigger. If the Share Purchase Agreement was signed and Form SH-4 executed before the FIRC arrived, the clock already started. By the time the FIRC lands, a significant part of the window may be gone.

2. Getting the repatriable vs non-repatriable classification wrong

Whether an NRI investor holds shares on a repatriable (Schedule I, NRE account) or non-repatriable (Schedule III, NRO account) basis determines whether the transaction requires FC-TRS at all, and if it does, how it must be classified. Misclassifying a non-repatriable holding as repatriable inflates the perceived FDI cap utilisation and can trigger a sectoral cap concern. The AD bank will verify this against the FIRC or bank account type at the time of entry, so inconsistencies surface at the filing stage.

3. Using a valuation certificate that is over 90 days old

The most frequent reason for AD bank rejection. The valuation must not be more than 90 days old at the time of filing. On transactions that take time to close (due to board approvals, SHA amendments, or RBI-required government approvals in certain sectors), the valuation may expire before the filing window opens. A fresh certificate must be obtained even if the deal price was agreed months earlier.

4. Ignoring the sectoral cap before closing

FC-TRS is a reporting mechanism, not an approval mechanism. Sectors requiring government approval under the FDI policy are the exception. Sectors such as defence, media and broadcasting, pharmaceuticals (brownfield), and multi-brand retail require prior government approval, and FC-TRS cannot be filed until that approval is in place. Closing a transfer in a government approval sector without obtaining the approval and then filing FC-TRS does not cure the violation; it memorialises it.

5. Not linking to the correct previous filing

If the transferor previously received shares from a non-resident via a primary round (reported through FC-GPR), the FC-TRS must correctly reference that FC-GPR acknowledgement number. A missing or incorrect reference is a common resubmission trigger at the AD bank.

6. Treating the last tranche as the clock trigger in instalment deals

When consideration is paid in multiple tranches, the 60-day clock starts from the first receipt, not the last. A founder receiving instalment payments (say, Tranche 1 on 01/01/2026 and Tranche 2 on 01/04/2026) must file FC-TRS by 02/03/2026, not after the final tranche arrives. Waiting for complete payment before starting the filing process is one of the most preventable ways to incur LSF. In the FIRMS portal, each tranche is disclosed separately within the same FC-TRS return; the filing itself does not need to wait for the last payment.

7. Filing an incorrect form and assuming it pauses the clock

When the AD bank raises a resubmission request or rejects a filing, many founders assume the compliance clock was paused by the act of submission. It was not. The 60-day window runs from the original trigger date regardless of portal activity. If an FC-TRS is submitted on day 55 with a valuation error, and the AD bank rejects it on day 70, the company is already 10 days beyond the deadline at the point of correction. The corrected refiling on day 80 requires LSF calculated from day 61. Filing early, even with minor uncertainties that may generate a resubmission query, is always better than filing close to the deadline with a complete document set.

Treelife practitioner note

In the FC-TRS engagements we have run at Treelife, the most consequential errors happen not at the portal but at deal structuring stage, weeks before anyone has opened the FIRMS portal. The two patterns we see repeatedly:

The first is a SHA that contains a put option or guaranteed IRR clause for the non-resident investor. These are commercially common. An investor agrees to come in partly because of a defined minimum return on exit. But the NDI Rules prohibit assured returns to non-residents, and when the put option is exercised, the transfer price in the SHA often exceeds the FMV at the time of actual transfer. The company then faces a choice between filing FC-TRS at the agreed (above-FMV) price and breaching FEMA, or renegotiating the exit price, which can blow up the deal.

The second is a secondary sale where the foreign investor’s existing stake was built over multiple rounds, with some entered via NRE account (repatriable) and some via NRO account (non-repatriable), and the company’s records do not clearly segregate the two buckets. When it comes to filing FC-TRS, the repatriation status of each lot must be accurately disclosed. A consolidated holding reported under the wrong status creates a compounding risk that can outlast the transaction.

The fix in both cases is a FEMA review before deal terms are locked. A 3-5 day review at term sheet stage costs less than the compounding proceeding it prevents.

FC-TRS vs FC-GPR: what is the difference?

Both forms sit within the FIRMS portal and are part of the Single Master Form (SMF) framework. The distinction is primary vs secondary.

Basis	FC-TRS	FC-GPR
Nature	Secondary transfer of existing instruments	Primary issuance of new instruments
Trigger	Sale or gift between resident and non-resident	Fresh allotment to person resident outside India
Filing deadline	60 days from transfer or funds, whichever is earlier	30 days from date of allotment
Filed by	Resident transferor or transferee	Investee company
Valuation requirement	Yes, within 90 days of transfer	Yes, typically at time of allotment
Applies to	Secondary sales, founder secondary transactions, investor exits	Seed, Series A, B rounds; rights issues to non-residents

FAQs

Q: Is FC-TRS required for a gift of shares from a resident to an NRI family member?
A: Yes. Gift transfers between a resident and a non-resident require FC-TRS, with additional documentation including the gift deed, relationship declaration, and confirmation that the gift value is within the USD 50,000 annual limit under FEMA. The donor and donee must also be relatives as defined under Section 2(77) of the Companies Act 2013 for the transfer to proceed without prior RBI approval. Gifts outside this definition require prior approval.

Q: What is the penalty for late FC-TRS filing?
A: Late filing is regularised through the LSF under RBI Circular RBI/2022-23/122. The formula is ₹7,500 + (0.025% × A × n), capped at 100% of A. The LSF facility is available for up to three years from the original due date. After three years, or if LSF is not paid within 30 days of the RBI advice, the matter is liable for penal action under Section 13 of FEMA, with penalties of up to three times the transaction amount.

Q: Can the transfer price be set below FMV if the foreign investor is exiting at a loss?
A: Yes, but only when the non-resident is selling to a resident. In that direction, the price must not exceed FMV but can be below it; the non-resident can accept a haircut. When a resident is selling to a non-resident, the price must not be below FMV. A resident selling below FMV to a foreign buyer is a FEMA violation regardless of the commercial justification.

Q: Who deducts TDS when a non-resident sells shares to a resident Indian buyer?
A: The resident buyer is responsible for deducting TDS under Section 195 of the Income Tax Act, 1961 before remitting payment to the non-resident seller. The rate depends on the nature of the gain: 12.5% for LTCG (for transfers on or after 23/07/2024) and slab rate for STCG. The seller can apply for a lower or nil deduction certificate under Section 197 if the actual tax liability is lower than the TDS amount.

Q: Is FC-TRS required if shares are transferred between two non-resident shareholders of an Indian company?
A: Generally, no, provided both parties hold on a repatriable basis and there is no change in repatriation status. However, if the transfer involves a change from non-repatriable to repatriable (effectively a conversion from domestic to FDI), it will require prior RBI approval and FC-TRS reporting.

Q: What happens if a sector requires government approval and FC-TRS is filed without it?
A: Filing FC-TRS without the required government approval does not regularise the underlying FEMA violation. The AD bank will typically reject the form and flag the transaction. The company and the transferring parties will need to apply for compounding under FEMA, which involves disclosing the contravention, paying a compounding fee, and obtaining a compounding order from the RBI before the transaction can be treated as compliant.

Q: What is the FIRC and why is it critical for FC-TRS?
A: The Foreign Inward Remittance Certificate (FIRC) is issued by the resident’s AD bank confirming receipt of foreign exchange. It is the primary evidence of the inward remittance that the FC-TRS filing must match. The FIRC must reflect the same amount, date, and currency as the remittance details entered in the form. A mismatch, even by a small amount due to bank charges or conversion date differences, triggers a resubmission request.

Q: Is a SEBI-registered Merchant Banker always required for the valuation certificate?
A: No. For unlisted companies, the valuation certificate can be issued by a Chartered Accountant, a SEBI-registered Merchant Banker, or a practising Cost Accountant, using an internationally accepted methodology on an arm’s length basis (Rule 21, NDI Rules, 2019). A Merchant Banker is not mandatory unless the company chooses to use one or the transaction context requires their involvement (for example, in a listed company context for SEBI floor price compliance).

Q: Can FC-TRS be revised after submission?
A: No. Once submitted through the FIRMS portal, the form cannot be edited. If there are errors, the form will need to be rejected (by the AD bank raising a resubmission request) and a corrected filing submitted. A completed and approved FC-TRS cannot be revised; a compounding application would be needed to address material errors in an approved filing.

Q: What is the FLA return and how does it relate to FC-TRS?
A: The Foreign Liabilities and Assets (FLA) annual return must be filed by Indian entities that have received FDI or made overseas investments, reporting foreign assets and liabilities as at 31 March. An FC-TRS transaction in a given FY will affect the company’s FDI position, which must then be reflected in the FLA return for that year. The FLA return for FY 2025-26 was due by 15/07/2026. Missing the FLA return triggers a separate LSF under the same RBI/2022-23/122 circular.

Q: Does a DPIIT-recognised startup get any exemption from FC-TRS filing?
A: No. DPIIT recognition provides certain income tax benefits under Section 80-IAC and ESOP tax deferral under Section 80-IAC read with Section 17, but it does not exempt the company from FEMA reporting obligations. FC-TRS is mandatory for all Indian companies regardless of DPIIT status when capital instruments are transferred between residents and non-residents.

Q: What if consideration for the transfer is paid in tranches?
A: If the consideration is received or remitted in multiple tranches, the FC-TRS must still be filed within 60 days of the date of the first receipt or remittance, whichever is earlier (not the last tranche). Each tranche must be disclosed in the remittance section of the form. Waiting for the final tranche before starting the FC-TRS process is a common error that causes inadvertent delays.

Q: Does a company buyback of shares from a foreign investor require FC-TRS?
A: Yes. Under FEMA, a company buyback from a non-resident shareholder is treated as a transfer of shares from a non-resident to a resident (the company being the resident transferee). FC-TRS is mandatory within 60 days, the pricing ceiling applies (buyback price must not exceed FMV), and the automatic route is available for most sectors. This is distinct from a secondary sale, where the transferee is a third-party buyer rather than the company itself.

Q: Does an NRI employee selling ESOP-exercised shares in an Indian unlisted company trigger FC-TRS?
A: Yes, if the buyer is a resident. When an NRI (or ex-employee who has become non-resident) sells shares acquired through an Indian ESOP to a resident buyer (whether back to the company, to the promoter, or to a third-party acquirer), the transaction is a transfer from a non-resident to a resident and FC-TRS is required. Two compliance points specific to this scenario: the NRI’s cost basis for capital gains purposes is the FMV at the date of exercise (Section 49(2AA) of the Income Tax Act), not the option exercise price; and the holding period runs from the exercise date, not the grant date. The resident buyer must deduct TDS under Section 195 before remitting payment.

Q: Does filing FC-TRS on the FIRMS portal pause the 60-day compliance clock?
A: No. Submitting the form does not pause or reset the clock. If the AD bank raises a resubmission request or rejects the filing, the 60-day window continues to run from the original trigger date (date of transfer or date of first fund receipt, whichever is earlier). A filing submitted on day 55 that is rejected on day 70 means the company is already 10 days beyond the deadline when it corrects and refiles. The corrected filing on day 80 would require LSF calculated from day 61. The practical consequence: submit early, even if the document set is not perfectly assembled, and resolve queries while there is still window remaining.

Regulatory references:

• Foreign Exchange Management Act, 1999 Section 13 (penalties), Section 15 (compounding)
• Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 Rule 21 (valuation), Gazette Notification No. S.O. 3732(E) dated 17/10/2019
• Foreign Exchange Management (Non-Debt Instruments) (Amendment) Rules, 2026 notified 02/05/2026, operationalising Press Note 2 (2026) land-border-country relaxation
• Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (FEMA 395), as amended up to 15/01/2025
• RBI Master Direction on Foreign Investment in India FED Master Direction No. 18/2015-16 dated 01/01/2016 (as updated through 2025)
• RBI Master Directions on Compounding of Contraventions under FEMA, 1999 dated 22/04/2025 (updated 24/04/2025), introducing ₹2 lakh cap for specified technical violations
• RBI Circular No. RBI/2022-23/122 A.P. (DIR Series) Circular No. 16 dated 30/09/2022 uniform LSF matrix