FEMA compliance for an Indian startup means following the Foreign Exchange Management Act rules and RBI reporting deadlines that apply whenever foreign money comes in or goes out. The moment a startup takes a cheque from an overseas investor, borrows from a non-resident or invests in a company abroad, it acquires filings that run alongside its MCA and tax calendar.
Most of these filings are made on the RBI's FIRMS portal or through the startup's authorised dealer (AD) bank. Late reporting can usually be regularised with a late submission fee, but repeated or long delays lead to compounding and penalties. This guide from Casela Advisors, a firm of Chartered Accountants in Andheri East, Mumbai, sets out the rules and deadlines in the order founders usually meet them. It reflects the law and published sources as of 30 October 2026, including two changes that make older guides out of date: the ECB framework notified on 9 February 2026 and Press Note 2 of 2026 on land-border investors. Startups set up as LLPs should also read our first-year compliance checklist for LLPs.
Key takeaways
- FDI runs on 60 and 30. Allot within 60 days of receipt, file FC-GPR within 30 days of allotment, and file the FLA return by 15 July every year.
- Never below fair value. Shares issued to non-residents need a valuation by a CA, SEBI-registered merchant banker or practising cost accountant.
- One ECB framework since February 2026. The separate startup route is gone; the limit is the higher of USD 1 billion or 300% of net worth, with event-based ECB 2 reporting.
- ODI within 400% of net worth. Report in Form FC and file an Annual Performance Report for each foreign entity by 31 December.
- Land-border rules eased, not removed. Press Note 2 of 2026 moved some non-controlling cases to the automatic route from 2 May 2026; others still need approval.
- Late reporting is fixable, but not free. Delays up to three years carry a late submission fee; beyond that, compounding and section 13 penalties.
01What Does FEMA Compliance Cover for a Startup?
Four areas matter most. Two bring money in, one sends money out, and one is an annual return that applies to every company with foreign investment, whether or not anything new happened during the year.
Foreign investment
Shares, CCPS, CCDs or convertible notes issued to non-residents at or above fair value, allotted in 60 days and reported in FC-GPR.
Foreign borrowing
Loans from non-residents under the framework revised on 9 February 2026, registered through the AD bank before drawdown.
Overseas investment
Subsidiaries or stakes abroad within 400% of net worth, reported in Form FC with an APR by 31 December.
Annual return
The Foreign Liabilities and Assets return on the FLAIR portal by 15 July, for any company with foreign investment.
02Which RBI Filings Apply, and When?
Each event that moves money across the border has its own form. The table lists the ones a startup is most likely to meet, with the deadline and the channel used to file.
| Event | Form | Deadline | Filed through |
|---|---|---|---|
| Shares or CCPS/CCDs issued to a non-resident | FC-GPR | 30 days from allotment (allot within 60 days of receipt) | FIRMS |
| Transfer between resident and non-resident | FC-TRS | 60 days from transfer or receipt of funds, whichever is earlier | FIRMS |
| Convertible note issued to a non-resident | CN | 30 days from issue | FIRMS |
| ESOPs or sweat equity to a non-resident | ESOP | 30 days from issue | FIRMS |
| Downstream investment by a foreign-owned company | DI | 30 days from investment | FIRMS |
| FDI in an LLP; disinvestment | LLP-I; LLP-II | 30 days from capital receipt; 60 days from disinvestment | FIRMS |
| Annual foreign liabilities and assets | FLA return | 15 July each year | FLAIR portal |
| ECB: registration; changes; drawdown or repayment | ECB 1; revised ECB 1; ECB 2 | Before drawdown; 7 days after month-end | AD bank |
| Overseas direct investment; annual report | Form FC; APR | At the time of investment; 31 December each year | AD bank |
Before the first FIRMS filing, the company registers an entity master on the portal. Check the LLP-II and FC-TRS timelines against the current RBI Master Direction on Foreign Investment in India.
03What Are the FDI Rules for Startups?
Most startup sectors allow 100% foreign direct investment under the automatic route, so no government approval is needed before the money arrives. The work lies in choosing a permitted instrument, pricing it correctly and reporting on time. Our page on FDI filing with the RBI covers the filing mechanics.
The FDI reporting sequence
- Register on FIRMSEntity master set up before the first filing
- Value and receiveFair-value report; remittance via AD bank
- Allot in 60 daysOr refund within the next 15 days
- FC-GPR in 30 daysFrom the date of allotment
- FLA by 15 JulyEvery year from then on
- Route: check sector caps and conditions in the consolidated FDI policy before signing a term sheet, even where 100% is the norm.
- Instruments: equity, compulsorily convertible preference shares and debentures, warrants, and convertible notes for DPIIT-recognised startups (₹25 lakh or more per tranche, convertible or repayable within ten years).
- Pricing: the issue price cannot be below fair value under an internationally accepted method; Companies Act valuation rules for preferential allotments also apply. Our business valuation guide explains the common methods.
- Timing: allot within 60 days of receipt, or refund within the next 15 days.
- Land-border investors: since 2 May 2026, Press Note 2 of 2026 allows some non-controlling investments with land-border beneficial ownership of up to 10% under the automatic route; others need government approval.
Shares issued to or transferred to a founder who is an NRI or OCI count as foreign investment unless held on a non-repatriation basis, and need the same pricing and reporting. Check residential status at the time of each transaction, not at incorporation.
04How Does ECB Work After the 2026 Changes?
The Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, notified on 9 February 2026, folded the separate startup ECB route into one framework for all eligible borrowers. The table compares the old and new positions.
| Point | Before February 2026 | From 16 February 2026 |
|---|---|---|
| Startups | Separate startup ECB route | Unified Same framework as other eligible borrowers |
| Eligible borrowers | Specified categories | Any resident entity (not an individual) set up under a Central or State law, where that law permits borrowing |
| Lenders | Recognised lenders in FATF/IOSCO-compliant countries | Any person resident outside India, subject to KYC |
| Limit | USD 750 million per financial year | Higher of USD 1 billion or total borrowings of 300% of net worth |
| Maturity and cost | Varied by category; all-in-cost ceilings | 3-year minimum average maturity; market pricing for 3 years or more |
| Reporting | Monthly ECB 2 | Event-based ECB 2 within 7 calendar days after month-end |
ECBs registered before 9 February 2026 stay under their earlier terms, but the new reporting applies to them. End-use restrictions continue, including real estate business, capital market investment and on-lending for those purposes. Reporting runs through the AD bank: Form ECB 1 for a Loan Registration Number before drawdown, a revised ECB 1 for changes in terms, and ECB 2 within 7 calendar days after the end of any month with a drawdown or repayment.
05What Should Startups Know About ODI?
Overseas direct investment is governed by the Overseas Investment Rules and Regulations, 2022. Startups usually meet it when they open a foreign subsidiary for sales or hiring, or when they unwind an earlier offshore structure. Our overseas direct investment page sets out the process in more detail.
- An Indian company or LLP can invest abroad through its AD bank, within total financial commitments of 400% of net worth based on its latest audited balance sheet.
- Report the investment in Form FC, file an Annual Performance Report for each foreign entity by 31 December, and report any disinvestment.
- Structures with more than two layers of subsidiaries are restricted, and overseas entities that invest back into India need care under the round-tripping rules.
- Startups that moved their holding company abroad ("flipped") and are now moving back should map each step against both the ODI and FDI rules.
06What Does Late FEMA Reporting Cost?
Missed deadlines rarely end a funding round, but the cost rises with time. The three tiers below show how a delay is treated as it grows.
Up to 3 years
Reporting delays can be regularised with a late submission fee, generally ₹7,500 plus 0.025% of the amount involved for each year of delay.
Beyond 3 years
Longer delays, and contraventions such as late allotment or wrong pricing, go through compounding under the 2024 Compounding Rules.
Section 13 penalty
Up to three times the amount involved, or ₹2 lakh where it cannot be quantified, plus ₹5,000 a day for continuing contraventions.
Startups with overseas subsidiaries should prepare their Annual Performance Reports now: the APR for each foreign entity is due by 31 December 2026. If an earlier FC-GPR or FLA return was missed, regularising it before the next funding round avoids questions in investor due diligence.
This article is general information based on the law and published sources as of 30 October 2026. It is not professional advice. FEMA rules, forms and deadlines change; check the current RBI Master Directions and FEMA rules, and consult a Chartered Accountant or Company Secretary before acting.
07What Should Startups Watch Into 2027?
Several of the 2026 changes are still being worked into RBI directions and portals. Keep an eye on the following:
- 1ECB Master Direction. RBI Master Direction updates reflecting the 2026 ECB framework.
- 2Press Note 2 timelines. Notification of the 60-day approval timeline for specified manufacturing sectors.
- 3Overseas investment changes. Further amendments to the ODI rules, including treatment of reverse flips.
- 4Portals and deadlines. FLA return deadlines and any change to the FIRMS and FLAIR portals.
Related guidance from Casela Advisors
FEMA reporting sits alongside MCA filings, valuation and tax. These pages cover each filing in more detail.
For allotments to foreign investors, see FC-GPR filing.
For share transfers with non-residents, see FC-TRS filing.
For the 15 July annual return, see FLA return filing.
For foreign capital in an LLP, see FEMA filings for LLPs.
For subsidiaries abroad, see overseas direct investment.
For the overall inflow process, see FDI filing with the RBI.
Related reading from Casela Advisors
08What Are the Most Asked Questions About FEMA Compliance for Startups?
Which FEMA filings does a startup need after raising foreign investment?
After receiving FDI and allotting shares, a startup files Form FC-GPR on the RBI's FIRMS portal within 30 days of allotment. It must allot within 60 days of receiving the money. From then on it files the Annual Return on Foreign Liabilities and Assets (FLA) by 15 July every year. Other events trigger their own forms, such as FC-TRS for transfers, CN for convertible notes and ESOP for options to non-resident employees.
What happens if shares are not allotted within 60 days?
Under the FDI rules, capital instruments must be issued within 60 days of receiving the inward remittance. If they are not, the money must be refunded within 15 days after the 60 days end. Delays are contraventions that need a late submission fee or compounding.
How must shares issued to foreign investors be priced?
For an unlisted company, shares issued to a non-resident cannot be priced below fair value, determined by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant using an internationally accepted pricing method. On transfers, the price floor applies when a resident sells to a non-resident, and the ceiling when a non-resident sells to a resident.
Can startups raise money through convertible notes from foreign investors?
Yes. A DPIIT-recognised startup can issue convertible notes to a non-resident for ₹25 lakh or more in a single tranche, convertible or repayable within ten years. The startup reports the issue in Form CN within 30 days. Sector caps, approvals and the land-border rules still apply.
What changed for startup ECB in 2026?
The Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, notified on 9 February 2026, replaced the separate startup ECB route with one framework for all eligible borrowers. Any non-resident can lend. The limit is the higher of USD 1 billion or total borrowings of 300% of net worth. The minimum average maturity is generally three years, and pricing is market-linked for loans of three years or more.
How is ECB reported to the RBI?
Through the AD bank: Form ECB 1 to obtain a Loan Registration Number before drawdown; a revised Form ECB 1 for changes in terms; and Form ECB 2 within 7 calendar days after the end of a month in which a drawdown or repayment happens. The 2026 framework replaced the monthly ECB 2 return with this event-based reporting.
Can an Indian startup set up or invest in a company abroad?
Yes, under the Overseas Investment Rules and Regulations, 2022. An Indian company or LLP can make overseas direct investment within an overall financial commitment limit of 400% of its net worth, through its AD bank. It reports the investment in Form FC, files an Annual Performance Report by 31 December each year, and reports disinvestment. Structures with more than two layers of subsidiaries are restricted.
What did the 2026 change to land-border investment rules do?
Press Note 2 of 2026, effective from 2 May 2026, removed the restriction on investors merely situated in a country sharing a land border with India, and allowed some investments under the automatic route where land-border beneficial ownership is non-controlling and up to 10%. Investments by entities or citizens of those countries, or where they are beneficial owners, still need government approval.
What is the penalty for late FEMA reporting?
For reporting delays of up to three years, the RBI allows regularisation by paying a late submission fee, generally ₹7,500 plus 0.025% of the amount involved for each year of delay. Longer delays and other contraventions go through compounding. Under section 13 of FEMA, penalties can reach three times the amount involved, or ₹2 lakh where it cannot be quantified, plus ₹5,000 a day for continuing contraventions.
Do founders who are non-residents create FEMA obligations?
Yes. Shares issued to or transferred to a non-resident founder, including an NRI or OCI, are foreign investment for FEMA purposes unless held on a non-repatriation basis, and need the same pricing and reporting. Check residential status at the time of each transaction.
For Queries on FEMA Compliance
Casela Advisors, Chartered Accountants, Andheri East, Mumbai, advises startups and businesses on company formation, FEMA, MCA compliance, tax and audit. If you have a question about any filing in this guide, you can reach the firm using the details below.
+91 9819 000 227 · +91 9819 000 511 · info@caselaadvisors.com · caselaadvisors.com/contact-us Head Office — Suite No. 102, L1, Ashok Premises, Nicholas Road, Andheri East, Mumbai — 400069 · Monday to Saturday, 10:00 AM – 7:00 PM