Every month I get the same call. A founder or a finance head, slightly rushed: "We're wiring money into our Indian company next week — anything we need to file?" Usually, yes. Usually, the wiring is already scheduled and the question comes second. This guide is my attempt to fix that order.

India's foreign investment rules are not actually complicated. They look complicated because most explanations start with the law instead of the logic. So let's start with the logic.

What FDI actually means

FDI — foreign direct investment — is simply money from outside India that buys a lasting stake in an Indian business. Not a loan. Not a portfolio trade. A real ownership position.

The line India draws is 10%. If a non-resident holds 10% or more of a company's equity (on a fully diluted basis), it's FDI. Below that, it's generally portfolio investment, which runs on a different track. For most readers here — founders setting up subsidiaries, investors taking real stakes — you're in FDI territory. The money can come as equity shares, convertible preference shares, or convertible debentures. The form matters less than the route it travels.

The two routes: automatic and government

Here's the analogy I use with every client, because it's the one that sticks.

Think of a supermarket. The automatic route is the self-checkout lane. You scan your own items, pay, and walk out. Nobody stops you, nobody signs anything. But you keep the receipt — because the store can audit you later. The government route is the lane where the item sits in a locked cabinet. Same supermarket. But someone senior has to walk over with a key before you can buy. The purchase still happens. It just takes longer and needs a signature.

That's genuinely all there is to it. Automatic doesn't mean unregulated — it means no prior permission. Government doesn't mean forbidden — it means permission first, investment second.

The automatic route

Under the automatic route, you don't ask anyone's permission before investing. No RBI approval. No ministry clearance. You bring the money in, issue the shares, and report it afterwards.

Most of India's economy is on this route. IT services, manufacturing, e-commerce marketplaces, renewable energy, greenfield pharmaceuticals, medical devices, single-brand retail — all 100% FDI under the automatic route. The government follows a negative-list approach: unless your sector is specifically restricted or prohibited, you're on the automatic route by default.

The government (approval) route

Some sectors need a key. You apply for approval before the money moves, through the Foreign Investment Facilitation Portal run by DPIIT (the Department for Promotion of Industry and Internal Trade). The old Foreign Investment Promotion Board was abolished back in 2017 — today the application goes to the administrative ministry that handles your sector, and DPIIT coordinates.

Timelines vary — straightforward cases move in weeks, sensitive sectors take longer. The approval comes with conditions, and those conditions are not suggestions. They bind how you run the business.

If you're planning setting up a company in India as a foreigner in a regulated sector, build the approval timeline into your launch plan. I've seen founders sign office leases before their approval came through. Don't be that founder.

Sector caps that actually matter

Caps are the maximum foreign ownership allowed in a sector. Here are the ones I get asked about most:

  • Defence: up to 74% automatic route; beyond 74% needs government approval, typically where it brings modern technology.
  • Telecom services: 100% automatic route (liberalised in 2021).
  • Insurance: up to 74% automatic route. The 2025 Union Budget proposed raising this to 100% — check the current position before you invest, because this one is moving.
  • Single-brand retail: 100% automatic route.
  • Multi-brand retail: up to 51%, and only through the government route, with conditions attached (minimum investment thresholds, local sourcing requirements).
  • Pharmaceuticals: greenfield (new projects) 100% automatic; brownfield (existing companies) up to 74% automatic, government route beyond that.
  • Private sector banking: up to 74% total — automatic up to 49%, government route from 49% to 74%.
  • Civil aviation: airlines 100% (automatic up to 49%, government route beyond); airports 100% automatic.
  • Space: since the 2024 reform — 100% automatic for establishing and operating satellites, 74% automatic for satellite manufacturing, 49% automatic for launch vehicles; beyond those caps, the government route.
  • Digital and print media (news): 26%, government route.

Two warnings. First, caps change — the table above reflects the position as I write this in 2026, and insurance in particular is in motion. Verify your sector's current cap before you structure anything. Second, the cap is not the whole story. Many sectors carry conditions alongside the cap: lock-in periods, sourcing norms, minimum capitalisation. The percentage gets the headlines; the conditions cause the headaches.

Sectors where FDI is simply not allowed

A short list, but absolute. No route — automatic or government — gets you in:

  • Lottery, gambling and betting, including casinos
  • Chit funds and Nidhi companies
  • Trading in transferable development rights
  • Real estate business and farmhouse construction (townships, construction-development projects and REITs are treated separately and are permitted)
  • Manufacturing of tobacco products — cigars, cigarettes and substitutes
  • Atomic energy and railway operations (other than specifically permitted railway-infrastructure segments)

If your business touches any of these, India is not the jurisdiction for that activity. No structuring fixes it.

The Press Note 3 catch

Since April 2020, under Press Note 3, any investment where the investor sits in — or the beneficial owner is a citizen of — a country sharing a land border with India can only come through the government approval route. Sector doesn't matter. Stake size doesn't matter. Automatic route is off the table.

Note the words "beneficial owner." The rule looks through holding structures. A Singapore fund with a Chinese beneficial owner gets caught. This has real teeth for private equity and venture structures with layered ownership — map your ultimate beneficial ownership before you assume the automatic route applies. The Cabinet eased the process in March 2026 for small, passive, non-controlling stakes, but the approval requirement itself stands.

After the money lands: your reporting duties

This is where the self-checkout receipt comes back. The investment is only half the job. Here's what the Indian company must do:

Issue the shares within 180 days of receiving the money. The funds can't sit as an advance indefinitely — if shares aren't issued in time, the money has to go back.

File Form FC-GPR within 30 days of the share allotment. This is the big one — filed on the RBI's FIRMS portal through the Single Master Form, via the company's authorised dealer bank. Thirty days. Not approximately thirty days.

File Form FC-TRS within 60 days whenever shares change hands between a resident and a non-resident (or between two non-residents, for an Indian company's shares) — counted from the transfer or the receipt of consideration, whichever is earlier.

File the FLA return every year by July 15 — the Foreign Liabilities and Assets return. Every company with outstanding foreign investment files this, every year, no exceptions.

You'll also need a Foreign Inward Remittance Certificate (FIRC) from your bank for the incoming funds, and the share pricing must meet FEMA's valuation rules — shares issued to a foreigner can't be priced below fair market value certified by a CA or merchant banker. Arrange the valuation before the allotment, not after.

Miss the FC-GPR deadline and you're looking at compounding proceedings with the RBI — a formal penalty process. It gets resolved, but it costs money and time and marks the company's record. The filings aren't difficult. They're just unforgiving about dates.

Practical tips from someone who files these

Check the cap before you structure, not after. I've unwound holding structures that were built on a wrong assumption about a sector cap. An hour of verification upfront saves months of restructuring later.

Do the Press Note 3 check on beneficial ownership, not just the immediate investor. Layered fund structures are where this bites.

Pick your AD bank deliberately. Not every bank branch handles FEMA reporting with equal competence. A bank that processes FIRCs and FIRMS filings routinely will save you follow-up calls. Ask specifically whether the branch handles FC-GPR filings before you open the account.

Get the valuation done before allotment. Pricing shares without a proper valuation certificate is the most common technical violation I see in early-stage foreign investments.

Calendar the FLA return. It's annual, always July 15, and companies forget it because nothing triggers it — no transaction, no reminder. Put it in the compliance calendar on day one.

The broader point: India's FDI framework is genuinely welcoming — the government reported over USD 80 billion in FDI inflows in FY 2024-25, and the automatic route covers most of the economy. The system rewards investors who respect the paperwork. It punishes the ones who treat reporting as optional.

If you're working through India company registration for foreigners, get the route and the cap confirmed in writing before money moves. Everything after that — the filings, the timelines, the compliance calendar — is just execution. And execution is the easy part, as long as the foundation is right.

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