Money into India is FDI. Money out of India is ODI. That much is settled in a sentence, and it is where most explanations stop.
The regulation governing your transfer turns on two further things: whether you are an individual or a company, and whether the entity receiving the money is listed.
Get either one wrong and the filing you owe is not the one you made.
TL;DR
- Direction is the easy half: FDI is foreign money coming into an Indian company, ODI is Indian money going into a foreign entity. FEMA sits above both.
- Capital account is what carries a filing. FEMA permits transactions unless it regulates them, and FDI, ODI and ECB all sit on the regulated side.
- The 10% test is widely misquoted: it applies only to listed foreign entities. Any equity in an unlisted foreign entity is ODI at any percentage.
- Individuals can do ODI. A resident individual may invest in an operating foreign entity under Schedule III, and it draws against the same USD 250,000 LRS ceiling.
- The Liberalised Remittance Scheme (LRS) is USD 250,000 per financial year, individuals only. Companies cannot use it. The TCS threshold on it rose from ₹7 lakh to ₹10 lakh in April 2025.
- External Commercial Borrowing (ECB) was rewritten on 16 February 2026. Maturity is now standardised at three years and the all-in-cost ceiling is gone.
- FDI into India runs on two routes. Automatic for most sectors, government approval for sensitive ones, with a defined prohibited list. The land-border screen was eased in March 2026.
- A routing table near the end maps each move to its route and its first filing, because what you are doing settles the route.
- The filing comes before the money. No remittance toward a foreign entity happens until the Unique Identification Number is issued, and the annual report falls due every 31 December. The costly errors are remitting before the UIN exists and stacking more than two layers of subsidiaries.
FDI vs ODI: The Difference in One Table
Both sit under the Foreign Exchange Management Act, 1999. FEMA is the parent statute governing every foreign exchange transaction; FDI, ODI, LRS and ECB are the specific routes beneath it.
| FDI | ODI | |
|---|---|---|
| Direction | Into an Indian company | Out of India into a foreign entity |
| Who invests | A person resident outside India | An Indian entity, or a resident individual |
| What counts | Any issue of shares to a non-resident, subject to sectoral caps | Any equity in an unlisted foreign entity; 10% or more, or control, in a listed one |
| Routes | Automatic or Government | Automatic, with RBI approval above the limits |
| Main limit | Sectoral caps, by activity | 400% of net worth for an Indian entity; the LRS ceiling for an individual |
| Core filing | Form FC-GPR on issue of shares | Form FC for the UIN, then an annual report |
| Governing rules | Non-Debt Instruments Rules and the Consolidated FDI Policy | Overseas Investment Rules and Regulations, 2022 |
The definition of ODI is narrower than most summaries suggest, and it is what decides your actual obligation.
FEMA Permits Unless It Regulates, and the Split Decides Your Filing
The Foreign Exchange Management Act, 1999 replaced FERA and changed the premise. FERA treated foreign exchange transactions as prohibited unless permitted. FEMA treats them as permitted unless regulated, which is why most ordinary cross-border payments need no approval at all.
The Act splits every transaction into two categories, and the category decides how much scrutiny applies:
| Current account | Capital account | |
|---|---|---|
| What it covers | Trade payments, travel, education, medical treatment, family maintenance | Investments, loans, immovable property, transfers that create or alter assets and liabilities abroad |
| Default position | Generally freely permitted | Regulated, permitted only as the rules allow |
| Where the rules live | Current Account Transactions Rules, 2000 | Overseas Investment Rules, Non-Debt Instruments Rules, Borrowing and Lending Regulations |
FDI, ODI and ECB are all capital account transactions, which is why each carries a filing. LRS straddles both: paying a foreign university is current account, while buying shares in a foreign company through the same USD 250,000 ceiling is capital account.
Why "10% Ownership" Is the Wrong Test for ODI
A great deal of published guidance says ODI applies when an Indian investor holds 10% or more of a foreign entity. Read as a general rule, that is wrong, and it is wrong in the direction that causes missed filings.
The Overseas Investment Rules, 2022 define ODI across three limbs:
- Acquisition of any unlisted equity capital, or subscription as part of the memorandum of association of a foreign entity
- Investment in 10% or more of the paid-up equity capital of a listed foreign entity
- Investment with control where the holding in a listed foreign entity is under 10%
Unlisted Foreign Entities: Any Amount Is ODI
The 10% figure appears only in the clauses about listed foreign entities. For an unlisted one, acquiring any equity capital at all is ODI.
This is the clause that catches founders. A Delaware C-corp or a US LLC you have just incorporated is unlisted by definition, so subscribing to its charter documents makes the transaction ODI from the first dollar.
A 2% stake in an unlisted foreign startup is ODI. No de minimis floor applies.
The practical consequence: a founder who reads the 10% rule as universal, takes a 5% stake in an unlisted US entity and files nothing has an unreported ODI on their hands, and the exemption they were relying on does not exist.
Listed Foreign Entities: The 10% Line, and Control Below It
For a listed foreign entity the 10% threshold does real work. Below 10% and without control, the investment is Overseas Portfolio Investment, which the rules define as investment other than ODI in foreign securities. OPI carries a lighter reporting burden.
The rules define control as the right to appoint a majority of the directors, or to control management or policy decisions, including through shareholding, management rights, shareholders' agreements or voting agreements entitling 10% or more of voting rights.
Control can pull an investment into ODI, and ODI status never lapses on its own:
- A 6% economic stake in a listed foreign company can still be ODI where the shareholders' agreement gives you a board seat or weighted voting
- An investment that qualified as ODI stays ODI even if the holding later falls below 10% or control is lost, so the classification does not reset on its own
Can an Individual Do ODI? Yes, and It Runs Through LRS
The routing tables on most competing pages send individuals to LRS and companies to ODI, as though the two were alternatives. For the most common cross-border situation FinStackk sees, that split gives the wrong answer.
A resident individual incorporating a US company is doing both at once. The investment is ODI, and the money moves under the LRS ceiling.
What Schedule III Allows
Schedule III of the Overseas Investment Rules permits a resident individual to make ODI by way of equity capital in an operating foreign entity not engaged in financial services activity, including where the individual holds control.
Schedule III only reaches an operating foreign entity outside financial services:
- The foreign entity must be operating, so a shell or holding vehicle with no business activity is outside the route
- It must not be engaged in financial services, with narrow carve-outs for inheritance, sweat equity and employee stock plans
- Where the individual holds control, the foreign entity must not itself have subsidiaries in which that control extends
The USD 250,000 Ceiling Is Shared
ODI by a resident individual is subject to the overall ceiling under the Liberalised Remittance Scheme. The capital you put into your US entity and the money you send for anything else that year draw on one shared limit.
A founder who sends USD 120,000 as seed capital and USD 60,000 for family expenses and property has used USD 180,000 of the 250,000. The scheme tracks against PAN across every bank, so using a second bank does not create headroom.
LRS: What the USD 250,000 Actually Covers
The Liberalised Remittance Scheme permits remittances by resident individuals up to USD 250,000 per financial year, measured April to March.
The scheme is not available to corporates, partnership firms, HUFs or trusts. An Indian company funding a foreign subsidiary is outside LRS entirely and runs on the entity route, where the financial commitment limit is 400% of net worth as on the last audited balance sheet.
Permitted capital account transactions under LRS include opening foreign currency accounts abroad, acquiring immovable property abroad, and both ODI and OPI. Providing a PAN is mandatory for every remittance.
TCS on LRS Changed in April 2025
Tax collected at source is not a FEMA rule, and it is where founders most often get a surprise at the bank counter. Two changes took effect from 1 April 2025:
- The threshold above which TCS applies to LRS remittances rose from ₹7 lakh to ₹10 lakh in a financial year
- Remittances for education funded by a loan from a specified financial institution are no longer subject to TCS under section 206C(1G)
TCS is a collection mechanism rather than a final charge. It is creditable against your income tax liability, so the cost falls on cash flow and timing.
FDI: Money Coming Into India
FDI is the mirror image and the one most Indian founders touch only when they raise from a foreign investor.
Automatic Route vs Government Route
Under the automatic route, no prior approval is needed from the government or RBI, and most sectors sit here. Under the government route, prior approval is required before the investment, and the sectors are those the policy treats as sensitive.
A separate screen applies to investment from countries sharing a land border with India, and it was eased in 2026. Press Note 2 of the 2026 series, issued on 15 March 2026, amended the blanket approval requirement that Press Note 3 of 2020 had imposed.
Stake size and control now decide the route:
- A non-controlling stake of up to 10% can use the automatic route, subject to the sectoral caps that apply to any investor
- Control, at any percentage, still requires prior government approval
- Investments below the approval threshold carry their own reporting, in the format DPIIT has laid down
Screening looks through to beneficial ownership, so it runs up the chain and not only to the immediate investor.
Prohibited Sectors
FDI is not permitted at all in a defined list:
- Lottery business, including government, private and online lotteries
- Gambling and betting, including casinos
- Chit funds and Nidhi companies
- Trading in Transferable Development Rights
- Real estate business or construction of farm houses
- Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or tobacco substitutes
- Sectors closed to private investment, such as atomic energy and railway operations other than permitted transport systems
Foreign technology collaboration, including franchise and trademark licensing, is also barred for lottery and for gambling and betting. "Real estate business" here is a defined term and does not sweep in township development or construction of buildings.
On issue of shares to a non-resident, the Indian company reports the allotment in Form FC-GPR, generally within 30 days of issue.
ECB Was Rewritten on 16 February 2026
External Commercial Borrowing is how an Indian entity raises debt from a foreign lender. The Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, notified as FEMA 3(R)(5)/2026-RB on 9 February 2026, came into force on 16 February 2026.
The framework it replaced had end-use-linked maturities running from three to ten years and a fixed ceiling on borrowing cost. Both are gone.
What Changed
| Item | Before | From 16 February 2026 |
|---|---|---|
| Minimum average maturity | End-use linked, 3 to 10 years | Standardised at 3 years |
| Manufacturing sector | Limited short-tenor carve-out | 1 to 3 years, capped at USD 150 million outstanding |
| All-in-cost | Fixed ceiling over benchmark | Market-determined, arm's length for related parties |
| Automatic route ceiling | Sector-linked caps | Higher of USD 1 billion outstanding or 300% of net worth |
The seven-year and ten-year maturity requirements have gone. So has the separate ceiling on prepayment charges.
Who Can Borrow Now
Eligible borrowers were widened to any person resident in India other than an individual incorporated, established or registered under a Central or State Act, which brings LLPs in for the first time.
End-use restrictions were relaxed for infrastructure activity, specified own-use acquisitions and real estate broking services. Restrictions outside those carve-outs continue to apply, so the end-use test still has to be run.
For a founder: a US or Singapore parent lending working capital into its Indian arm now faces one maturity rule instead of five, and a cost of borrowing set by the market instead of by a formula over a benchmark.
Reporting did not loosen:
- An ECB is registered with RBI through Form ECB to obtain a Loan Registration Number, before drawdown
- Form ECB-2 is no longer a standing monthly return. It is filed only for a month in which something changes the outstanding balance, such as a drawdown, repayment, interest payment or waiver, within 7 calendar days of that month's end
- A month with no such transaction needs no filing at all
Which Regulation Applies to Your Transaction
What you are doing settles the route, and who you are settles only the limit:
| What you are doing | Route | First obligation |
|---|---|---|
| Incorporating a foreign company as an individual | ODI under Schedule III, within LRS | Form FC for the UIN, before remitting |
| Your Indian company funding a foreign subsidiary | ODI, entity route | Form FC for the UIN, before remitting |
| Buying under 10% of a listed foreign company, no control | OPI | Half-yearly reporting |
| Sending money abroad for travel, education or property | LRS, current or capital account as applicable | PAN and Form A2 at the bank |
| Raising equity from a foreign investor | FDI | Form FC-GPR on issue of shares |
| Raising a loan from a foreign lender | ECB | Loan Registration Number before drawdown |
Two transactions can sit in different rows on the same day. An Indian company that raises a foreign round and funds a US subsidiary in the same quarter is doing FDI and ODI at once, with separate filings and separate clocks.
In the first row, both regimes apply to the same transfer. The LRS ceiling is the constraint; the ODI rules are the compliance.
File Form FC Before the Money Moves, Not After
On the ODI side the sequencing decides whether the transaction is clean:
- Form FC goes to the AD (Authorised Dealer) bank on or before the initial ODI, to obtain the Unique Identification Number for that foreign entity
- No remittance is facilitated until the UIN exists. The bank will not process the transfer first and regularise it later
After that, an Annual Performance Report is due for each foreign entity every year by 31 December. Where statutory audit does not apply, including for resident individuals, a chartered accountant certifies it.
One timing wrinkle catches filers whose foreign entity runs a calendar accounting year. Where that year ends on 31 December, the APR is due by 31 December of the following year, which gives twelve months rather than none.
Financial commitment above USD 1 billion in a financial year needs prior RBI approval even where every other condition is met. Our guide to the ODI rules covers the filing mechanics in detail.
Mistakes That Create FEMA Exposure
Treating the 10% Rule as Universal
The test splits on whether the foreign entity is listed, and founders almost always invest in unlisted ones. That single distinction accounts for more missed ODI filings than any other clause in the rules.
Remitting First and Filing Afterwards
Because the UIN has to exist before the money moves, a transfer sent ahead of the paperwork is not a late filing. It is a remittance the framework did not permit at the time it was made, which is a harder problem to unwind.
Building a Structure More Than Two Layers Deep
Financial commitment in a foreign entity that has invested or invests into India, directly or indirectly, resulting in a structure with more than two layers of subsidiaries, is not permitted. Round-tripping is not banned outright; the layer count is what constrains it.
This bites when a holding company is added to an existing chain for a fundraise, which can push a compliant structure over the line without anyone re-examining it.
Waiting to Be Found Instead of Coming Forward
Penalties for contravention sit in section 13, and section 15 empowers a compounding process that lets many breaches be settled on payment instead of litigated. The framework expects errors.
What it treats differently is who raised them. A voluntary application generally lands better than a gap surfaced during a bank review or an audit, so a filing found late is usually worth disclosing rather than sitting on.
Missing the Valuation Requirement on Entry
Where the investment is not a fresh subscription at face value, the price has to be supported. Rule 16 of the OI Rules requires an arm's length price under any internationally accepted pricing methodology, with the valuation report from any recognised valuer.
The onus sits with the AD bank to satisfy itself on that pricing, so it will ask before processing. Founders buying into an existing foreign company, instead of incorporating a new one, are the group most often caught without a valuation in hand.
Assuming the Annual Report Stops When Activity Does
The APR is due for each foreign entity every year the investment is held. A dormant US subsidiary with no revenue still generates a 31 December obligation.
The reporting runs until the investment is disposed of and the disposal itself is reported. Closing the foreign company without telling the AD bank leaves the UIN open and the annual obligation live against it.
How FinStackk Helps With Cross-Border Structuring
FinStackk is an accounting and tax compliance platform for US businesses, built for founders setting up and running a US entity from outside the country.
Fin-Start handles US incorporation, EIN, registered agent and corporate documentation, alongside ODI compliance support for Indian founders. Our team includes CPAs, CAs and EAs, and every client gets a dedicated SPOC, a single point of contact in-house.
Get in touch to talk through your structure. For the US side of the setup, our entity setup guide for Indian founders covers what happens after the ODI filing clears.
Frequently Asked Questions
Is incorporating a US company from India automatically ODI?
If you are acquiring equity capital in the foreign entity, yes. A newly incorporated US company is unlisted, so subscribing to its charter documents is ODI whatever the percentage held.
The separate question is whether Schedule III covers you as an individual, or the entity route applies.
Can I use LRS to fund my company's foreign subsidiary?
No. LRS is available to resident individuals only, and expressly not to corporates, partnership firms, HUFs or trusts.
An Indian company funding a subsidiary abroad uses the entity ODI route, subject to the 400% of net worth financial commitment limit.
What happens if I have already remitted without a UIN?
The position needs regularising with your AD bank, and on some facts it may require a compounding application to RBI. The outcome turns on specifics and on timing, so this is one to take to a professional.
This article is general information on Indian exchange control regulation and is not legal or tax advice. Rules change and individual facts matter, so confirm your position with a qualified professional before acting.