1. Introduction
Overseas Direct Investment (ODI) allows Indian companies to invest in businesses outside India. Such investments may support international expansion, overseas subsidiaries, joint ventures, and strategic business activities. However, companies must follow India’s foreign exchange rules before making an overseas investment. The current RBI framework is based on the Foreign Exchange Management (Overseas Investment) Rules, 2022, the related Regulations, and the RBI’s Master Direction on Overseas Investment.
2. What Is Overseas Direct Investment?
Under the RBI framework, ODI generally covers investment in unlisted equity of a foreign entity. It can also cover an investment of 10% or more in the paid-up equity capital of a listed foreign entity. An investment below 10% can also qualify when it gives the investor control. Once an investment becomes ODI, it continues to be treated as ODI even if the holding later falls below 10% or control is lost.
3. Who Can Make Overseas Investment?
An Indian entity can make overseas investment subject to the applicable FEMA framework. The RBI defines an Indian entity to include companies, certain bodies corporate, LLPs, and registered partnership firms. The overseas investment must generally relate to a bona fide business activity and must comply with the applicable conditions.
4. Financial Commitment and Investment Planning
Before making an investment, companies should calculate their total financial commitment. This can include ODI, eligible debt, and certain non-fund-based commitments such as guarantees. Therefore, companies should review existing overseas commitments before entering into a new transaction.
5. Automatic Route and Approval Route
The ODI framework provides a general permission or automatic route for eligible transactions. Some transactions may require approval from the relevant authority. Where approval is required, the proposal is submitted through the designated Authorised Dealer bank. The bank reviews the proposal before forwarding it to the RBI where applicable.
6. Role of the Authorised Dealer Bank
The Authorised Dealer (AD) bank plays an important role in ODI compliance. An Indian company must provide the required information and documents through its designated AD bank. The company also needs to follow the applicable reporting process and obtain the required Unique Identification Number (UIN) for the foreign entity before the relevant transaction.
7. Reporting and Annual Compliance
Reporting does not end after the investment is made. Companies must report overseas investment transactions through the designated AD bank. The RBI framework also provides for the Annual Performance Report (APR) for applicable overseas investments. Incomplete filings can be treated as non-submission. Delayed reporting may also attract the applicable Late Submission Fee.
8. Tax and Corporate Compliance
ODI also requires proper corporate and tax planning. Companies should maintain board approvals, transaction documents, valuation records, accounting records, and supporting evidence. They should also review tax and transfer-pricing implications where applicable. From 1 April 2026, the Income-tax Act, 2025 and Income-tax Rules, 2026 form the new direct-tax framework.
9. Key 2026 Compliance Points
In 2026, Indian companies should review their ODI records before starting a new transaction. The compliance checklist should include the investment structure, financial commitment, required approvals, AD-bank documentation, UIN, reporting, APR, and supporting records. Companies should also check the rules applicable to the foreign jurisdiction and the proposed business activity. The RBI’s current Master Direction remains the central operational reference for overseas investment compliance.
10. How Derecho Consulting Can Help
Overseas Direct Investment involves several connected legal and financial requirements. Derecho Consulting can support Indian companies with ODI structuring, FEMA compliance reviews, transaction documentation, corporate approvals, AD-bank coordination, reporting support, overseas subsidiary documentation, and ongoing compliance checks.
Conclusion
Overseas Direct Investment by Indian Companies requires planning before the money is remitted and continued compliance after the investment is completed. Companies should review the transaction structure, approvals, financial commitment, documentation, reporting, tax position, and ongoing obligations. A structured compliance process can help businesses manage overseas investments more effectively.