The Foreign Contribution (Regulation) Amendment Bill, 2026, introduced in the Lok Sabha, proposes a significant overhaul of the 2010 Act. This legislative initiative aims to close operational gaps and establish a centralized, statutory framework for the oversight of foreign inflows.

I. Institutional Oversight & Asset Management

The Bill replaces framework of Section 15 with a comprehensive regime for handling assets when a registration is no longer active.

• The Designated Authority: A new “Designated authority” is established to supervise, manage, and safeguard foreign contributions and assets.
• Provisional vs. Permanent Vesting: Assets “provisionally vest” in the Authority upon cancellation, surrender, or cessation of a certificate. Vesting becomes “permanent” if the entity fails to renew or restore its registration within a prescribed period.
• Disposal of Assets: The Authority may transfer assets to Government agencies or sell them, crediting proceeds to the Consolidated Fund of India.
• Places of Worship: A specific safeguard ensures that if a vested asset is a place of worship, its religious character must be maintained during management.

II. Governance & Expanded Liability

Defining “Key Functionary”: The term “key functionary” is introduced to replace fragmented terms like “directors” or “office bearers”. This definition now explicitly covers Kartas of HUFs, partners in firms, trustees, and any individual responsible for the management or affairs of the person.

Individual Accountability: Under the new Section 39, key functionaries are deemed guilty of offences committed by the entity unless they can prove the offence happened without their knowledge or despite their due diligence.

III. Compliance Lifecycle & Timelines

• Cessation of Certificate: New Section 14B clarifies that a certificate “ceases” automatically upon expiry if a renewal application is not made, is refused, or is not granted before the expiry date.
• Time-Bound Utilization: Prior permission is now valid only for a specific purpose or amount; funds must be received and utilized within a period to be prescribed by the Government.
• Suspension Safeguards: While a certificate is suspended, entities are expressly prohibited from alienating or encumbering any assets created from foreign contributions without prior Government approval .

IV. Rationalized Enforcement & Penalties

• The maximum term of imprisonment for contravening the Act is reduced from five years to one year.
• The penalty provision now explicitly includes the illegal utilization of foreign contributions, alongside acceptance.
• A significant procedural hurdle is introduced – no investigation into an offence under the Act can be initiated without the prior approval of the Central Government.

In conclusion, the proposed amendments signify a decisive move towards a more structured, transparent and enforcement-oriented regulatory regime under the FCRA framework. By addressing existing gaps and introducing clearer accountability, procedural safeguards and asset management mechanisms, the Bill is poised to enhance regulatory certainty while imposing heightened compliance expectations on regulated entities.

The post THE FOREIGN CONTRIBUTION (REGULATION) AMENDMENT BILL, 2026 first appeared on MMJC.

The Reserve Bank of India has revised the External Commercial Borrowings (ECB) framework under Schedule I of the Foreign Exchange Management (Borrowing and Lending) Regulations. The revised framework introduces significant changes aimed at simplifying cross-border borrowing rules, expanding borrower eligibility, increasing borrowing limits, and providing greater flexibility in structuring ECB transactions.

The following FAQs address the key regulatory changes and their practical implications for borrowers and lenders.

1. Who is eligible to raise ECB under the revised framework?

Under the revised framework, any person resident in India (other than individuals) that is incorporated, established or registered under a Central or State Act is eligible to raise External Commercial Borrowings, provided such borrowing is permitted under the applicable laws governing that entity.

Entities undergoing restructuring or corporate insolvency resolution process (CIRP) may also raise ECB where such borrowing is specifically permitted under the restructuring or resolution plan.

Further, a person against whom investigation, adjudication, or appeal proceedings are pending under FEMA or related regulations may still qualify as an eligible borrower, provided that details of such proceedings are disclosed in Form ECB-1.

2. Which activities/ end use shall be restricted for ECB?

Under the earlier ECB framework, only entities eligible to receive Foreign Direct Investment (FDI) were permitted to raise ECB. The revised framework removes this restriction, thereby broadening the category of eligible borrowers.

The revised framework also aligns the end-use principles broadly with paragraph 2 of Schedule I to the FEMA (Non-Debt Instruments) Rules, subject to certain restrictions.

ECB (Reg. 3A) vs NDI Rules –Prohibition Comparison Table

Sector / Activity	ECB (Borrowing & Lending Reg. – Restriction on end use)	NDI Rules (FDI Prohibited Sectors)
Lottery business	Not expressly restricted	Prohibited (includes online lotteries, etc.)
Gambling / Betting / Casinos	Not expressly restricted	Prohibited
Chit funds	Prohibited	Prohibited
Nidhi company	Prohibited	Prohibited
Real estate business / construction of farm houses	Prohibited Exception: Construction-development projects allowed subject to trunk infrastructure conditions Industrial parks allowed subject to conditions (min. 10 units, 66% industrial use, etc.)	Prohibited Exception (broad): Development of townships, construction of residential/commercial premises, infrastructure, REITs, leasing income etc. are not treated as “real estate business”
Agriculture & animal husbandry	Prohibited Exceptions: Controlled environment agriculture, seeds, allied services, pisciculture, aquaculture, apiculture, allied services etc.	Not in prohibited list → Permitted subject to sectoral conditions under FDI policy
Plantation sector	Prohibited Exception: Tea, coffee, rubber, cardamom, palm oil, olive oil	Not prohibited → Permitted with conditions under FDI policy
Trading in Transferable Development Rights (TDR)	Prohibited	Prohibited
Investment / dealing in securities	Prohibited Exception: Strategic transactions (merger, demerger, acquisition, IBC, SARFAESI, etc.)	FDI allowed subject to sectoral caps/conditions
Tobacco (cigars, cigarettes etc.)	Not expressly restricted	Prohibited
Activities not open to private sector (e.g., atomic energy, railway operations)	Not expressly restricted	Prohibited
On-lending for prohibited purposes	Prohibited (explicitly restricted)	NA
Repayment of domestic loan (linked to restricted use / NPA)	Prohibited	Not specifically covered
Foreign technology collaboration in prohibited sectors	Not covered	Prohibited (for lottery & gambling sectors)

3. Who qualifies as a recognised lender under the revised ECB framework?

The revised framework recognises the following categories of lenders:

• a person resident outside India;
• a branch outside India of an entity whose lending business is regulated by the Reserve Bank of India; and
• a financial institution or a branch of a financial institution established in an International Financial Services Centre (IFSC).

Under the earlier framework, lenders were generally required to be residents of International Organisation of Securities Commissions (IOSCO) or Financial Action Task Force (FATF) compliant jurisdictions. The revised framework removes this requirement, thereby expanding the scope of potential lenders.

4. Can foreign branches or subsidiaries of Indian banks lend ECB in Indian Rupees?

Under the earlier ECB framework, foreign branches or subsidiaries of Indian banks were permitted to lend ECB only in foreign currency.

The revised framework no longer imposes such restriction. Accordingly, foreign branches or subsidiaries of Indian banks may now extend ECB denominated in Indian Rupees, thereby providing additional flexibility in structuring cross-border financing.

5. In what currency can ECB be raised?

Under the revised framework, ECB may be raised in foreign currency (FCY) or Indian Rupees (INR).

This position is consistent with the earlier framework; however, the revised regulations provide greater flexibility regarding conversion of the currency of borrowing during the tenure of the loan.

6. Can the currency of ECB be changed during the life of the borrowing?

Yes. The revised framework permits conversion of the currency of borrowing, including:

• from one foreign currency to another foreign currency;
• from foreign currency to INR; and
• from INR to foreign currency.

Under the earlier ECB regime, conversion from INR to foreign currency was not permitted. The revised framework therefore provides greater flexibility in managing currency exposure.

7. Which transactions are not treated as ECB?

The revised framework clarifies that the following transactions do not constitute ECB:

• trade credit with original maturity up to three years;
• export advances received under FEMA Export Regulations;
• investments received under the FEMA (Debt Instruments) Regulations, 2019;
• investments through convertible notes issued under the FEMA (Non-Debt Instruments) Rules, 2019; and
• debt investments made by Foreign Venture Capital Investors (FVCIs) under the FEMA (Non-Debt Instruments) Rules.

This clarification provides greater certainty regarding the classification of cross-border funding structures.

8. What are the borrowing limits under the revised ECB framework?

Under the earlier ECB framework, borrowers could raise ECB up to USD 750 million (or equivalent) per financial year.

The revised framework introduces a new borrowing limit structure. An eligible borrower may raise ECB up to the higher of:

• outstanding ECB upto USD 1 billion , or
• Total outstanding borrowings (external and domestic) up to 300% of its net worth, based on the latest audited standalone financial statements.

For this purpose:

• “Outstanding borrowings” include only fund-based debt;
• Exclude non-fund based facilities (e.g., guarantees, LCs) and mandatorily convertible into equity; and
• The proposed ECB (other than refinancing) must also be included while checking the limit.

These limits do not apply to borrowers regulated by financial sector regulators, who are governed by separate prudential norms.

9. What is the minimum average maturity period (MAMP) under the revised framework?

The revised ECB framework prescribes a minimum average maturity period (MAMP) of three years.

For borrowers engaged in the manufacturing sector, ECB may be raised with a maturity period between one and three years, provided that the outstanding amount of such ECB does not exceed USD 150 million.

Under the earlier framework, the MAMP varied depending on the purpose of the borrowing, as specified in the ECB Master Directions.

10. What is the permitted cost of borrowing under the revised ECB framework?

Under the revised framework, the cost of borrowing must be aligned with prevailing market conditions.

For ECB with an average maturity period of less than three years, the cost of borrowing must comply with the cost ceiling applicable to trade credit under the relevant regulations.

Under the earlier ECB framework, the all-in-cost ceiling was capped at 450 basis points over benchmark interest rates. The revised framework therefore moves towards a more market-driven pricing mechanism.

11. Have the reporting requirements changed under the revised ECB framework?

Yes. The revised framework introduces updated reporting formats and timelines.

Applications for obtaining the Loan Registration Number (LRN) and reporting any changes in ECB parameters must be submitted through the designated Authorised Dealer Category-I bank in Form ECB-1.

Changes to previously reported parameters must be reported through Revised Form ECB-1 within seven calendar days from the end of the month in which the change becomes effective.

Illustration:

If the interest payment schedule is revised during March, the change must be reported in Revised Form ECB-1 by 7 April.

Further, any event affecting the outstanding borrowing under a particular LRN including receipt of ECB proceeds or debt servicing must be reported in Form ECB-2 within seven calendar days from the end of the relevant month.

The revised reporting formats no longer require certification by a Chartered Accountant or Company Secretary, as was mandated under the earlier framework.

The post Revised External Commercial Borrowings Framework – Key FAQs first appeared on MMJC.

The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) were introduced to govern the inflow of equity and other non-debt capital instruments. However, these rules originally lacked clarity regarding the issuance of partly paid units to foreign investors by investment vehicles such as Alternative Investment Funds (AIFs).

Before March 14, 2024, there was no express provision under the NDI Rules allowing the issuance of partly paid units to non-residents. As a result, fund managers and legal practitioners operated within an area of regulatory uncertainity. Many investment vehicles cautiously avoided such issuances, while others proceeded based on legal interpretations, exposing themselves to the risk of non-compliance under FEMA. Moreover, the absence of a dedicated reporting mechanism within the RBI’s FIRMS portal added another layer of uncertainty.

• March 2024 Amendment:

Recognizing the pressing need for clarity, the Foreign Exchange Management (Non-Debt Instruments) (Second Amendment) Rules, 2024, were notified via notification S.O. 1361(E) on March 14, 2024. This amendment explicitly permitted investment vehicles to issue partly paid units to persons resident outside India, thus bringing long-awaited certainty to the sector. The change aligned India’s capital markets more closely with global norms, especially in how staged investments can be structured over time.

• Treatment of Prior Issuances: Compounding as a Remedy

To address the issuances made prior to March 14, 2024, the RBI issued A.P. (DIR Series) Circular No. 7, dated May 21, 2024 directing such transactions to be regularized through compounding under FEMA.

This required investment vehicles to first report the details of the partly paid units on the FIRMS portal, followed by submitting an application for compounding. Additionally, Authorized Dealer (AD) Banks were instructed to support this process by providing conditional acknowledgments and ensuring proper documentation.

The reporting and timelines for reporting partly paid unts in Form InVi still remained a question.

• Reporting Obligations:

The RBI vide A.P. (DIR Series) Circular No. 06 dated May 23, 2025 provided for reporting of Partly paid Units in Form InVi within 30 days of the issuance date in terms of Regulation 4(10) of the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019

• One-Time Window for Delayed Reporting

180-Day Window for Regularizing Delayed Reporting for Issuance Prior to Notification

Understanding that many investment vehicles could not report earlier due to lack of clarity to both to the applicants and Authorised Dealer banks, the RBI’s May 2025 circular provided a one-time 180-day window (180 days shall be counted from the date of circular) for delayed filings without any late submission fees.

However, for issuances on or after the date of the circular, the standard 30-day reporting deadline continues to apply, and delays will attract penalties as per FEMA regulations.

• Compounding for any other contraventions

It is important to note that this amnesty window is limited to delays in filing Form InVI and does not cover other forms of non-compliance or contraventions under FEMA (including issue of partly paid units prior to March 14, 2024). Entities must ensure that all other regulatory obligations are met independently and, where necessary, addressed through appropriate compounding or late filing fees.

• Timely Compliance and Institutional Best Practices

With the updated regulatory and technical framework in place, timely reporting has become non-negotiable. Investment vehicles must implement internal compliance mechanisms to track and report issuances promptly. AD Banks now play a more active role in oversight, ensuring that submissions are in line with regulatory expectations.

The article is written by Ms. Ridhi Gada and is published at Taxguru. The link is

https://taxguru.in/rbi/issue-reporting-partly-paid-units-investment-vehicles.html

The post From Ambiguity to Certainty Issues and reporting of partly paid units by Investment vehicles first appeared on MMJC.

1. Which entities are required to submit the FLA Return?

The annual return on Foreign Liabilities and Assets (FLA) is required to be submitted by the following entities which have received FDI (foreign direct investment) and/or made FDI abroad (i.e. overseas investment) in the previous year(s) including the current year i.e. who holds foreign assets or/and liabilities in their balance sheets;

• A Company within the meaning of section 1(4) of the Companies Act, 2013.  
• A Limited Liability Partnership (LLP) registered under the Limited Liability Partnership Act, 2008
• Others [include SEBI registered Alternative Investment Funds (AIFs), Partnership Firms, Public Private Partnerships (PPP) etc.]

[Source: FAQ’s published by Department of Statistics and Information Management, RBI]

2.The Company has not received any Foreign Direct Investment or Overseas Direct Investment in the current financial year, is the Company required to submit FLA?

Yes, an entity which has received FDI or made ODI in the current or previous year and has FDI/ ODI as on 31st March of the relevant year shall be required to file FLA.

3.The Company does not have FDI/ ODI and has availed External Commercial Borrowing, is the Company required to submit FLA?

No, the Company shall not be required to file FLA in case there is no FDI/ ODI in the Company.

4.Whether the entity submitting Annual Return on Foreign Liabilities and Assets (FLA) are required to submit financial statements on FLAIR portal?

No, entity submitting Annual Return on Foreign Assets and Liabilities may file the return on the basis of audited/ provisional financials, there is no requirement of provision for attachment of financial statement to the form.

5.How to change the CIN, e mail ID registered on FLAIR portal?

There is no provision for change in e mail, CIN registerd on flair portal. In case of change in name of the Company, registered CIN or e mail ID, send an e mail to surveyfla@rbi.org.in for deactivation of existing user and post de activation, register with updated details.

6.An entity has only Foreign portfolio Investment, is it required to submit FLA?

No, an entity shall be required to submit FLA if there is Foreign Direct Investment or Overseas Direct Investment, since Foreign Portfolio Investment is not classified as FDI, a Company having only Foreign Portfolio Investment as on 31st March of the relevant year shall not be required to file FLA.

7.In case of a listed Company, there are multiple NRI investors, where should the investment held by NRIs be reported in FLA?

In case of shares held by NRI investors are under FDI, the same needs to be classified into less than and more than 10% holding and reported in Point 1.b or 2.b of Sec III of the Form.

8.How do I resolve any technical issues faced while filing the Form?

Any technical issues faced while filing the form, shall be addressed to surveyfla@rbi.org.in

9.The FLA was submitted based on provisional financials. Now there is a change in the audited financials. What should be done?

FLA can be submitted on the basis of provisional numbers as on the due date. However, in case of variation between the provisional and final numbers, FLA should be revised as per the audited financial statements.

For detailed instructions on the revision process, please refer to Questions 70 and 71 in the FAQs published by RBI on the FIRMS portal.

For FAQ’s on FLA, published by Reserve Bank of India please refer https://flair.rbi.org.in/fla/faces/pages/login.xhtml

This article is published on taxguru link below.

https://taxguru.in/rbi/faqs-annual-return-foreign-liabilities-assets-fla.html

The post FAQ’s_ Annual Return on Foreign Liabilities and Assets(FLA) first appeared on MMJC.

On April 24, 2025, the Reserve Bank of India (RBI) issued A.P. (DIR Series) Circular No. 04/2025-26, amending the Directions on Compounding of Contraventions under FEMA, 1999. This update brings welcome relief to individuals and entities by introducing a cap on penalties for specific FEMA violations, reducing uncertainty and compliance costs.

Under Section 15 of the Foreign Exchange Management Act (FEMA), 1999, the RBI is empowered to compound contraventions to facilitate voluntary compliance and ease regulatory burdens in cases of unintentional,reporting or technical breaches.

Pre-Amendment Framework (Row 5 of the Compounding Matrix)

Previously, contraventions classified under Row 5 of the RBI’s compounding matrix—covering “all other non-reporting contraventions not covered under Rows 1 to 4″—were subject to the following penalty structure:

• Fixed Component: ₹50,000 per regulation/rule contravened (per compounding application)
• Variable Component (as a percentage of the amount involved in the contravention):

There was no cap on the total penalty amount, which often resulted in significantly high compounding fees, especially in high-value cases.

What Has Changed?

With the issuance of Circular No. 04/2025-26, the RBI has now introduced a cap of ₹2,00,000 on the total penalty amount under Row 5 of the compounding matrix.

This cap will apply at the discretion of the compounding authority, taking into account:

• The nature and gravity of the contravention
• Exceptional circumstances or mitigating factors
• Larger public interest

The amendment is particularly relevant for common contraventions such as:

• Non adherance of timelines in case of realisation of exports or failure to export in case of advances received
• Failure to repatriate or non-reinvestment of remittances under the Liberalised Remittance Scheme (LRS)
• Procedural lapses in ODI and other foreign exchange transactions

Conclusion

The amendment signals RBI’s proactive and facilitative approach striking a balance between enforcement and enabling ease of doing business in cross-border transactions. The RBI’s introduction of a ₹2 lakh cap on FEMA penalties for certain non-reporting contraventions is a positive, business-friendly reform. It reflects a risk-based regulatory approach while encouraging voluntary compliance

The article is written by Ms. Ridhi Gada and is published at Taxguru. The link is:

https://taxguru.in/rbi/rbi-caps-fema-penalties-predictable-compliance-reduced-burdens.html

The post FEMA Relief by RBI: Predictable Penalties, Streamlined Compliance first appeared on MMJC.

Overview
On April 7, 2025, the Department for Promotion of Industry and Internal Trade (DPIIT) issued a clarification by Press Note 2, providing much-needed guidance on the issuance of bonus shares by Indian companies operating in sectors where Foreign Direct Investment (FDI) is prohibited. The press note clarifies ambiguity on permission to Indian Companies engaged in sectors prohibited for FDI to issue bonus shares to their existing non-resident shareholders, subject to certain conditions, including adherence to sectoral caps and maintaining the existing shareholding pattern.

Background

Under the Consolidated FDI Policy Circular of 2020 (effective from October 15, 2020), Indian companies were permitted to issue bonus shares to non-resident shareholders, provided such issuance complied with applicable sectoral caps. However, the policy lacked explicit clarity on whether this applies to companies operating in sectors where FDI is completely prohibited.

To address this gap, DPIIT has inserted the following clarification under Paragraph 1 of Annexure 3 of the FDI Policy:

“An Indian Company engaged in sector/activity prohibited for FDI is permitted to issue bonus shares to its pre-existing non-resident shareholders, provided that the shareholding pattern of the pre-existing non-resident shareholders does not change pursuant to the issue of bonus shares.”

Implications of the Clarification

The revised policy explicitly permits Indian companies in FDI-prohibited sectors to issue bonus shares to their existing non-resident shareholders—on the condition that the shareholding pattern remains unchanged post-issuance.

FDI is currently prohibited in following sectors such as:

• Lottery business, Gambling and betting (including franchise, trademark, brand licensing, or management contracts for the same or casinos)
• Chit funds and Nidhi companies
• Trading in transferable development rights (TDRs)
• Real estate business and construction of farmhouses
• Manufacturing of tobacco products (e.g., cigarettes, cigars)
• Atomic energy and railway operations (non-open to private sector investment)

Companies in these sectors are not allowed to issue fresh equity shares to non-residents. The new clarification does not override this restriction. Instead, it applies specifically to bonus issuances to existing non-resident shareholders—typically those who invested prior to the enforcement of the Foreign Exchange Management Act (FEMA), 1999, under Foreign Exchange Regulation Act, 1973 (FERA).

Eligibility for Bonus Issue:

Only Indian companies in prohibited sectors with grandfathered foreign shareholding—i.e., investments made in compliance with FERA (prior to FEMA, 1999) shall be allowed issuing bonus shares to existing shareholders pursuant to this clarification. These companies must also ensure that the bonus share issuance does not alter the percentage of ownership held by non-resident shareholders.

This clarification is particularly relevant for legacy companies which operate in sectors in which FDI is now strictly prohibited. Such Companies had received foreign investment before these prohibitions came into force. Until now, the lack of clarity in FDI policy had constrained their ability to undertake routine corporate actions like bonus issue.

Conclusion

The DPIIT’s clarification is a welcome and pragmatic step toward addressing regulatory ambiguity for legacy companies operating in sectors closed to FDI. By enabling such Companies to issue bonus shares to pre-existing foreign investors without altering the shareholding structure, the clarification enhances regulatory certainty and supports efficient corporate functioning.

Importantly, this clarification applies exclusively to bonus issue, as these do not involve fresh capital infusion. However, issue of rights shares or any instrument that entails additional foreign investment remains prohibited in these sectors under the existing FDI policy.

This move is expected to boost investor confidence, especially in companies with long-standing foreign shareholders, while safeguarding the integrity of India’s FDI policy framework.

This article is published on taxguru link below.

https://taxguru.in/corporate-law/bonus-shares-no-go-zones-dpiit-clears-air-fdi-restricted-sectors.html

The post Bonus Shares in No-Go Zones? DPIIT Clears the Air on FDI-Restricted Sectors first appeared on MMJC.