The Department of Economic Affairs (DEA), under the Union Finance Ministry, has recently notified updated norms for residents wanting to invest in overseas entities. Presently, the overseas investment by a person resident in India is governed by the Foreign Exchange Management Regulations 2004 and 2015.


About the ‘Foreign Exchange Management Act (1999)’

  • The Foreign Exchange Management Act (1999) or in short FEMA has been introduced as a replacement for earlier Foreign Exchange Regulation Act (FERA).
  • Objectives –
    • To consolidate and amend the law relating to foreign exchange,
    • To facilitate external trade and payments and
    • To promote the orderly development and maintenance of foreign exchange market in India.
  • Under FEMA, every transaction involving a non-resident and resident can be classified either as a capital account or a current account transaction.
  • Current account transactions –
    • All transactions undertaken by a resident that do not alter his/her assets or liabilities, including contingent liabilities, outside India are current account transactions.
  • Capital account transactions –
    • All those transactions which are undertaken by a resident of India such that his/her assets or liabilities outside India are altered (either increased or decreased).



  • FEMA is applicable to the all parts of India. The act is also applicable to all branches, offices and agencies outside India owned or controlled by a person who is resident of India.
  • Under the Act, FEMA regulations are notified which seek to regulate acquisition and transfer of a foreign security by a person resident in India.


Who is a ‘resident’ as per FEMA?

A ‘person resident in India’ is defined in Section 2(v) of FEMA, 1999 as –

    • Barring few exceptions, a person residing in India for more than 182 days during the course of the preceding financial year.
    • Any person or body corporate registered or incorporated in India.
    • An office, branch or agency in India owned or controlled by a person resident outside India.
    • An office, branch or agency outside India owned or controlled by a person resident in India.


Foreign Exchange Management (Overseas Investment) Rules, 2022

  • Ministry of Finance, in consultation with the Reserve Bank of India, has undertook a comprehensive exercise to simplify the FEMA rules.
  • The new rules will be administered by the RBI, and will subsume all existing norms pertaining to overseas investments as well as acquisition and transfer of immovable property outside India.


Major changes to the rules

  • Restrictions on investments — No Indian resident shall be allowed to make investments into foreign entities that are engaged in real estate activity, gambling in any form, and dealing with financial products linked to the Indian rupee without the central bank’s specific approval.
  • No Objection Certificate for certain category of people – The new rules mandate they secure a No Objection Certificate (NOC) from their lender or investigative agencies before making any ‘financial commitment’. This is to make it difficult for bank defaulters and fraudsters to acquire assets abroad.
  • This NOC shall be mandatory for any person –
        • Who has a bank account classified as a non-performing asset, or
        • Who is labelled a wilful defaulter by any bank, or
        • Who is under the investigation by a financial service regulator, the ED or CBI.
  • If lender banks or the concerned regulatory body or investigative agency fail to furnish the NOC within 60 days of receiving an application, it may be presumed that they have no objection to the proposed transaction.


What does it mean?

  • In view of the evolving needs of businesses in India, in an increasingly integrated global market, there is need of Indian corporates to be part of global value chain.
  • The revised regulatory framework for overseas investment provides for simplification of the existing framework for overseas investment and has been aligned with the current business and economic dynamics.
  • Clarity on Overseas Direct Investment and Overseas Portfolio Investment has been brought in.
  • Various overseas investment related transactions that were earlier under approval route are now under automatic route, significantly enhancing “Ease of Doing Business”.