Two Routes to Raise ECBs

• Automatic Route – No prior RBI approval needed; just go through your bank (Authorised Dealer Category-I).
• Approval Route – Prior RBI approval mandatory requirement

Who can borrow?

Entities eligible for Foreign Direct Investment (FDI) and others like:

• Port trusts
• SEZ units
• SIDBI & EXIM Bank
• Registered microfinance institutions
• Not-for-profit companies, societies, trusts, NGOs

Who Can Lend?

Recognised lenders include:

• Residents of FATF/IOSCO-compliant countries
• Multilateral finance institutions (e.g., World Bank)
• Foreign equity holders (Direct with min holding of 25% or Indirect with min holding of 51%) (for listed bonds/debentures)
• Foreign branches/subsidiaries of Indian banks (only for foreign currency ECBs)

End use of funds – know the restrictions

• Real estate activities
• Investing in capital markets or equity
• General working capital or corporate purposes (unless specific conditions are met)
• Repaying rupee loans
• On-lending for any of the above

Limits and Thresholds

• Up to USD 750 million (or equivalent) per financial year.
• In case of FCY denominated ECB raised from direct foreign equity holder, ECB liability-equity ratio for ECB raised under the automatic route cannot exceed 7:1.

Minimum Maturity Periods (MAMP) -

MAMP is the minimum weighted average time for which the loan must be held by the borrower.

Here’s a quick snapshot of minimum average maturity period based on loan classification:

Purpose	Maturity
General ECBs	3 years
Manufacturing companies (up to USD 50M)	1 year
From foreign equity holders (for working capital/general)	5 years
General ECBs	3 years
Manufacturing companies (up to USD 50M)	1 year
From foreign equity holders (for working capital/general)	5 years
From others (for working capital/general purposes or on-lending by NBFCs)	10 years
For repayment of rupee loans (capital expenditure)	7 years
For repayment of rupee loans (non-capital expenditure)	10 years

Reporting & Compliance

• Loan Registration Number (LRN): Mandatory before any ECB transaction.
• Form ECB: Submit to your bank with loan details.
• Form ECB 2: Monthly reporting within 7 working days.
• Late Submission Fee: ₹7,500 to regularize delays.

The Currency Risk Trap

Let’s understand this through an example! ABC Ltd., an Indian company borrowed $1million from ABC Inc., a company based in the US.

• At inception of the loan
  Exchange rate stood at 1$= INR 80
  Total Liability = INR 80million
• Fast forward 3 years - it’s time for repayment.
  The Rupee has weakened and $1 = INR 90
  Total liability = INR 90million.
• Result?
  An increase in liability by INR 10million solely due to currency fluctuations.
  Additionally, since interest is paid in USD too, interest cost rises as the Rupee weakens.
• How can companies manage this better?
  Companies can mitigate currency risk by using hedging instruments such as forward contracts, options, or swaps to lock in exchange rates and reduce uncertainty.

What’s Changing?

On October 3, 2025, RBI proposed updates to simplify and expand the ECB framework. These are currently in draft stage, pending public comments and finalisation.

• The borrowing limits are proposed to be linked to a borrower’s financial strength and ECB are proposed to be raised at market determined interest rates.
• The end-use restrictions and Minimum Average Maturity requirements are proposed to be simplified.
• The borrower and lender base eligible for ECB transactions is proposed to be expanded to enhance opportunities of credit flow.
• Reporting requirements are being simplified to ease compliance obligations.

Why It Matters

These changes aim to make it easier for Indian entities to access global capital, boosting growth and competitiveness. Whether you are a startup in a SEZ or a large manufacturer, ECBs could be your ticket to international funding.

• Section 97: Provides the conditions under which an arrangement is considered as lacking commercial substance, e.g., round trip financing or artificial steps in a structuring arrangement.
• Section 98: Grants Assessing Officer (AO) authority to recharacterize or ignore part/all of the arrangement, re-compute income.
• Section 99: Defines the computation of "tax benefit"—including reductions, deferment, refunds, or usage under treaties.
• Section 100: Clarifies that GAAR applies in addition to (and may override) other provisions.

(ii) Supporting Circulars & Clarifications

• CBDT Circular No. 7/2017 (27 Jan 2017):
  • GAAR and SAAR can coexist; neither excludes the other.
  • GAAR won't apply if Limitation of Benefits (LoB) clause under treaty already addresses avoidance.
  • Jurisdiction decisions based on non-tax commercial considerations are outside GAAR scope.
  • Grandfathering allowed for investments pre 1 April 2017—including bonus shares, CCPs, split/shares generated.
• CBDT Circular 01/2025 (21 Jan 2025):
  • Clarified that the Principal Purpose Test (PPT) under DTAA applies prospectively only.
  • GAAR, SAAR, and judicial anti-abuse rules operate independently, unaffected by PPT guidance.

B .Principal Purpose Test (PPT)

The Principal Purpose Test (PPT) is a broad anti-abuse rule embedded in India’s tax treaties through the Multilateral Instrument (MLI) to curb treaty-shopping and align with OECD BEPS Action 6. PPT is a minimum standard. Under PPT, treaty benefits must be denied if it is reasonable to conclude that obtaining such benefit was a principal purpose of any arrangement unless the taxpayer proves that granting the benefit is consistent with the object and purpose of the applicable treaty provision.

India has implemented the PPT via the MLI across most of its double taxation avoidance agreements (DTAAs) (covering over 90 treaties), and in some cases, through bilateral protocols - for instance with Hong Kong, Chile, Iran, etc.

C. Structures where GAAR and PPT can be applicable

We have highlighted below some of the structures where the provisions of GAAR and PPT might get triggered:

Structure	Applicability of GAAR and PPT
Conduit Arrangements - Global group sets up an intermediate entity in Singapore to route investments into India for capital gains exemption.	GAAR: If entity lacks substance (no employees, no real decision-making), GAAR applies. PPT: Treaty benefit denied unless commercial rationale proved.
Round Trip Funding - If an Indian promoter indirectly invests into India through an offshore SPV (Mauritius) solely to claim treaty benefits without genuine offshore substance	GAAR: If the Mauritius entity is a shell with no employees, or decision-making power, GAAR applies - lacks commercial substance PPT: Under MLI, treaty benefit denied if principal purpose is tax advantage and offshore SPV lacks substance.
Foreign EPC contractor splits a large project into multiple short-term contracts through related entities to avoid PE threshold.	GAAR: Recharacterize contracts as a single arrangement. PPT: Treaty benefit (e.g., lower WHT) denied since splitting was primarily for tax avoidance.
Indian company merges with a foreign entity incorporated in a low-tax jurisdiction, primarily to access treaty benefits for future capital gains.	GAAR: Trigger if Main purpose = tax benefit and lacks commercial substance. PPT: Treaty benefit (e.g., reduced withholding tax) denied if merger is for tax advantage without commercial rationale
Group demerges Intellectual property (IP) into a foreign subsidiary to reduce royalty withholding tax.	GAAR: If IP transfer lacks commercial substance, GAAR applies. PPT: Treaty benefit on royalties denied if principal purpose is tax savings.

Key points to consider in Restructuring – from GAAR and PPT perspective

• Substance first. Build genuine functions (management, risk, capital, people) into holding entities; minute decisions etc.
• Purpose memo. For every reorganization, keep a memo outlining non tax objectives (synergy, regulatory, governance, market access).
• Treaty hygiene. Test PPT before claiming relief; align facts with treaty object/purpose.
• Dispute readiness. Document facts consistent with Azadi/Vodafone principles; avoid McDowell hallmarks (colourable devices).

D.Judicial precedents – Substance over form

We have highlighted a few judicial precedents which provide that colourable structures would be disregarded and not eligible for tax benefits:

• Azadi Bachao Andolan v. Union of India (Supreme Court, 2003) – highlighted on “beneficial ownership”, held that mere legal title doesn't grant treaty benefits. Entities serving as conduits are ineligible for treaty relief.
• McDowell & Co. case emphasized that colourable devices and dubious methods can be disregarded—signalling a purposive approach against evasion.

In addition to GAAR and PPT, both Income-tax Act and tax treaties use anti-abuse provisions like limitation of benefits clause, beneficial ownership clause, thin capitalization provisions etc.

Key Obligations:

• Players: The DPDPA defines three-players under the guise of regulation, one Data Principal, i.e., the person whose personal data is being collected; two, Data Fiduciary, i.e., person who determines the purpose of processing data, viz the employer; and lastly, Data Processor, i.e., persons who process personal data on behalf of the employer/Data Fiduciary.
• Personal Data: Unlike in the SPDI rules, the definition of “personal data” is not an exhaustive list. Under the DPDPA, “personal data” has an expanded scope of application as it applies to all data that identifies the Data Principal. So, Personal Data would include employment agreement, Aadhar card details, educational certificate, background verification reports, etc.
• Consent: Under DPDPA, prima facie, processing of data is consent based. However, the Act enumerates an exhaustive list of “legitimate use” wherein the consent is deemed. This “Legitimate use” includes processing of data for employment purposes. That is to say that the employers need not obtain express consent for processing employee data.
• Retention: Data retention is purpose based, and time-limit driven. Certain data can be deleted once the purpose of processing is completed unless, retention is necessary for compliance with any law. In specific, tax laws, corporate compliance obligations, labour laws, and litigation considerations provide for varying retention periods. Hence, corporates must adopt effective internal policy to avoid creating data junkyard and excessive cost of safely securing data.
• Security Measures: The DPDPA mandates implementation of security measures such as encryption, obfuscation, controlling access to computer resources, monitoring access of personal data, and effective safety safeguards.
• Grievance redressal and POC: The DPDPA requires Company to establish mechanism to redress grievance regarding processing of personal data. The DPDP Rules further require every Data Fiduciary to display on its website or app clear contact information for queries related to processing personal data. This may be the contact of a designated officer or a Data Protection Officer.
• Significant Data Fiduciaries: The Government is yet to roll-out the list of establishments or class of establishments classified as significant Data Fiduciaries. The Significant Data Fiduciaries have stricter obligations such as appointment of Data Protection officer, conducting regular audits and periodic assessments.

Roadmap for Implementation:

• Immediate Action Points – First step in compliance begins with understanding the personal data being handled by your organisation. Identify every single personal data being collected by your organisation and create a data inventory. Based on the data inventory consult your lawyers to understand the necessary compliance under DPDPA.
• Action items by May 2027 – Ensure to establish clear privacy policies, notices and consent log, adopt security measures, train employees, maintain records, establish grievance redressal, retention and deletion policies, report any breach of personal data etc.
• On-going action points – Compliance demands continuous effort, not an one-time effort—it's a sustained cultural transformation. Routinely assess and refine your privacy framework to address emerging challenges and evolving regulations.

Conclusion:

In conclusion, the DPDPA ushers in a transformative era for employee data governance in India, alleviating consent burdens whilst imposing robust obligations on employers as data fiduciaries. By embracing the outlined roadmap—from data inventory and policy formulation to ongoing audits and cultural integration—companies can mitigate risks, ensure compliance, and foster trust. Proactive adherence not only averts huge penalties but also positions organizations as leaders in ethical data stewardship amid evolving regulations.

What are the common hurdles observed?

For overseas companies setting up shop in India, helping the new subsidiary cover initial expenses feels logical and straightforward. There is an obvious need to pay for office space, legal fees, and consultants before the business starts generating revenue.

But here’s the catch: in the chaos of incorporation and operational setup, FEMA compliance often gets sidelined. It doesn’t seem urgent—until the Indian entity tries to reimburse the foreign parent. That’s when the roadblock appears. Banks and regulators scrutinize these transactions, and if documentation or categorization isn’t right, reimbursements can be delayed or even rejected.

The lesson? Plan FEMA compliance from day one. Clear agreements, proper categorization of payments, and early engagement with your Authorized Dealer (AD) bank can save you from costly surprises later.

Quick checklist to keep in mind from the very beginning –

• Nature of Payment
  • Indian residents generally cannot accept deposits from non-residents unless specifically permitted by RBI. A simple mislabelling by an accounts personnel where advance rent or service fees is tagged as “deposit” can trigger compliance issues.
• Reimbursement Restrictions
  • RBI approval is mandatory if reimbursement exceeds 5% of the investment or USD 100,000, whichever is higher.
• Documentation Gaps
  • Agreements often fail to clarify that payments are made on behalf of the soon-to-be incorporated entity, complicating compliance.
• Direct Vendor Payments
  • If the foreign parent pays Indian vendors directly, invoices must clearly reflect the Indian entity’s details. Missing this can block reimbursements.
• Set-Off Restrictions
  • oPre-incorporation expenses cannot be offset against operational receipts later.

Small steps now = big savings later. Don’t let compliance derail your India entry strategy. Engage with the AD Bank from the start and have documentation with precise terms.

What are the different ways to reimburse an overseas entity?

If your Indian subsidiary isn’t generating enough revenue to settle pre-incorporation expenses, there’s another alternative—convert those payables into equity. This route often makes sense because, in most cases, the overseas parent already holds the majority stake. However, this isn’t just an accounting adjustment; it triggers FDI compliance requirements under FEMA.

Approvals, reporting timelines, and sectoral caps come into play, and you’ll need to follow RBI guidelines for capitalization. Done right, this approach strengthens the subsidiary’s balance sheet and avoids cash flow stress—while keeping your India entry fully compliant.

1. Direct Reimbursement

• Requires RBI approval if thresholds are exceeded.
• Must route through authorized banking channels.
• Supporting documents like rental agreements, invoices, and auditor certifications are essential.

2. Capitalization into Equity

• Allowed under the automatic route for sectors with 100% FDI approval.
• Expenses can be converted into equity instruments within prescribed limits:
  • Up to 5% of authorized capital or USD 500,000, whichever is lower.
• Reporting to RBI via Form FC-GPR within 30 days of issuance.

Final Thoughts

Pre-incorporation costs may look small, but mishandling them can derail your India entry strategy. Structuring agreements properly, maintaining documentation, and following RBI guidelines are non-negotiable for a smooth start. Ignore this, and you risk more than delayed reimbursements—foreign payables sitting on your balance sheet beyond prescribed timelines can trigger FEMA non-compliance. Best way to stay compliant is to assess every forex transaction from day one. It’s easier to plan upfront than to fix compliance gaps later.

Regulatory Landscape as a Valuation Sensitivity

While valuers generally factor in historical performance, business outlook, capex and borrowing plans, regulatory developments often remain underweighted despite their ability to materially alter valuation outcomes. Regulatory changes can directly impact cost structures, revenue drivers, operational flexibility, and investor risk perception — all of which flow into valuation assumptions.

In regulated industries, failure to anticipate regulatory shifts or assess compliance readiness can result in optimistic projections that may quickly become unsustainable. Let’s look at a few examples below:

1.IndiGo: Regulatory Preparedness and Earnings Visibility

Consider the example of IndiGo, India’s largest airline by market share. The revised Civil Aviation Requirements (CAR) relating to Flight Duty Time Limitations (FDTL) issued by the DGCA materially altered operational realities in Indigo’s case.

Following the implementation deadline, IndiGo faced widespread flight cancellations driven by pilot availability constraints and scheduling challenges. Despite a transition window of nearly two years, operational preparedness proved insufficient, leading to network disruption and adverse market reaction. Analysts responded by materially revising earnings expectations downward, reflecting heightened uncertainty around execution capability and cost escalation.

The impact of this was clearly visible on the market price of Indigo’s share.

Source: NSE

This episode demonstrates how regulatory preparedness materially affects earnings visibility and the risk assumptions embedded in valuation models.

2.Paytm Payments Bank: Regulatory Non-Compliance and Going-Concern Risk

While some regulatory changes lead to downward valuation adjustments, others fundamentally challenge business continuity. Paytm Payments Bank (PPBL) provides a compelling illustration. Persistent compliance shortcomings culminated in the Reserve Bank of India (RBI) imposing severe operational restrictions in early 2024, including a prohibition on accepting new deposits.

The regulatory action had immediate spillover effects on its parent entity, One97 Communications, with the stock declining sharply within days, erasing substantial market cap.

Source: NSE

The restriction on deposit inflows materially impaired the bank’s revenue engine and raised concerns regarding the sustainability of its business model. From a valuation standpoint, such intervention introduces material uncertainty around the entity’s ability to continue as a going concern. Businesses that could earlier be valued using Income or Market approaches may now need reassessment under the Asset Approach, where recoverability of tangible assets takes precedence over uncertain future cash flows.

3.Online Real Money Gaming: Industry-Wide Regulatory Shifts

Regulatory risk is not limited to individual companies; it can reshape entire industries. For instance, India’s Online Real Money Gaming (ORMG) sector, once a fast-growing market with hundreds of start-ups and a significant share of investor funding, faced severe disruption following the introduction of the Promotion and Regulation of Online Gaming Act (PROGA), 2025.

The revised regulatory framework curtailed real-money gaming activities, leading to operational shutdowns, lay-offs, and erosion of enterprise value across the sector. An industry which was projected to grow rapidly over the medium term instead faced severe uncertainty around business continuity and future viability due to regulatory interventions.

For instance, this change curtailed the operations of Pokerbaazi considerably, and the impact of this change was clearly visible on stock prices of Nazara Technologies, who was one among the major investors.

Source: NSE

Such developments make historical growth trajectories and comparable market multiples largely irrelevant, forcing valuers to reassess assumptions, increase risk premiums, and, in certain cases, reconsider the choice of valuation methodology altogether.

Regulatory Influence on Valuation Approach Selection

Above examples reinforce that regulatory developments influence not only valuation outcomes, but also the appropriateness of valuation approaches:

• Income and Market Approaches rely on regulatory stability, predictable cash flows, and business continuity.
• Asset Approach gains relevance when regulatory action threatens business and revenue sustainability or introduces going-concern uncertainty.
• Regulatory non-compliances also often necessitate adjusting the valuation assumptions like higher discount rates, compressed valuation multiples etc.

Conclusion: Regulatory Landscape as a Core Valuation Variable

Ultimately, valuation outcomes are shaped not only by business strategy, historical performance, and capital investment, but also by the regulatory landscape and the target company’s compliance readiness. Regulatory changes have the power to alter revenue models, invalidate projections, and redefine risk profiles.

For valuation professionals, regulatory awareness must extend beyond mandatory disclosures. Continuous monitoring of regulatory developments, assessment of compliance preparedness, and timely incorporation of regulatory risk into valuation models are essential to ensure that valuation methodologies, assumptions and outcomes are both analytically sound and professionally defensible.

Regulatory Landscape

The Regulatory landscape can be divided in twofold:

1. Regulators

Given that the Fin-techs are a creation of the neo-tech age, there are multiple regulators and can be succinctly put as follows:

• In additional to these regulators, the fin-tech space is also regulated by Ministry of Information and Technology, Ministry of Corporate Affairs, Department for Promotion of Industry and Internal Trade, Central Board for Direct and Indirect Taxes, State labour departments, and many more. Phew!
• This only indicates that the Indian regulators are multi-fold and multifarious, lacking a single window mechanism for fin-tech companies.

2.Product based legislations:

We can broadly classify the fin-tech products as follows and identify the applicable special laws hereinbelow:

1. Investment and Wealth Management:

These platforms act as middlemen between investors and the capital markets, providing tools for trading, research, and financial advice through both consumer apps and business partnership models.

• Stockbrokers and Trading Platforms:
  Regulation: Securities and Exchange Board of India (Stock Brokers) Regulations, 1992 along with rules prescribed by stock exchanges
• Portfolio Managers:
  Regulation: SEBI (Portfolio Managers) Regulations, 2020
• Mutual Fund Distributor
  Regulation: Need to be registered with Association of Mutual Funds in India (“AMFI”) and follow the AMFI’s code of conduct. They are also required to pass the NISM V-A certification to receive an AMFI Registration Number (“ARN”)
• Research Analyst
  Regulation: SEBI (Research Analysts) Regulations, 2014
• Registered Investment Advisers
  Regulation: SEBI (Investment Advisers) Regulations, 2013
• Insurance
  Regulation: IRDAI (Insurance Web Aggregators) Regulations, 2017, IRDAI (Registration of Corporate Agents) Regulations, 2015
2. Digital Assets

Digital Assets like digital gold, crypto currency are still a regulatory grey area in India. The government has only introduced taxation on such assets.

3. Lending

Lending has become one of the most active areas in India’s fintech landscape, driven by platforms that provide quick, convenient, and technology-enabled credit through online and mobile channels. Using advanced data tools, these companies handle everything from credit evaluation and customer onboarding to loan disbursal and repayment.

In recent years, the RBI has tightened its supervision of this sector to address issues related to consumer safety, operational transparency, and potential gaps in regulatory compliance.

• i.NBFC – Digital Lending Platforms:
  Regulation: Master Direction on Non-Banking Financial Company – Scale Based Regulation Directions, 2023
• Buy-Now Pay-Later:
  Regulation: Reserve Bank of India (Digital Lending) Directions, 2025. Some BNPL’s also obtain NBFC licenses.
4. Payment Systems:

Payment systems facilitate the transfer of funds between individuals, and entities. This acts as a backbone in this digital economy.

• Payment Aggregators and Payment Gateways:
  Regulation: Payment and Settlement System Act, 2007 along with Guidelines on Regulation of Payment Aggregators and Payment Gateways issued by the RBI dated March 17, 2020
• Point of Sale
  Regulation: Draft RBI (Regulation of Payment Aggregators) Directions, 2025
• Unified Payments Interface
  Regulation: RBI Regulates UPI under Payment and Settlement System Act, 2007 and NPCI manages operational aspects of UPI

Conclusion:

The regulatory environment governing the fintech industry in India is vast, multifaceted, and continuously evolving. With multiple regulators, complex product-based legislations, and increasing oversight from authorities like the RBI and SEBI, compliance is no longer optional. Fintech companies must approach regulatory obligations with serious consideration and seek expert professional guidance to navigate these intricate frameworks. Proactive compliance and sound legal consultation are essential to avoid regulatory hurdles and ensure sustainable, lawful business operations in an increasingly stringent ecosystem.

B. Why companies preferred overseas jurisdiction

Companies earlier preferred to set up in overseas jurisdictions on account of the following reasons (included but not limited to)

• Ability to list on overseas stock exchange, attract a larger investor base, access to foreign capital via offshore Venture Capital
• Achieve Higher valuation in foreign markets providing attractive exit
• Increased Intellectual Property protection (Stringent IP protection laws)
• Favorable regulatory requirements, avail tax benefits resulting in ease of doing business
• Lucrative global markets and brand recognition
• Favorable tax regimes for repatriation of profits to investors/ exit

The jurisdictions favoured for flipping were Singapore, UAE, Netherlands, Luxembourg, the Cayman Islands, Mauritius, the United States, and the United Kingdom

C. What is the drive to shift back to India

In the recent times, many Indian Companies have considered to return back to India majorly on account of the following:

• Investor and business friendly reforms made in Indian tax and regulatory regulations viz. Ease of the regulatory compliances – deployment of digital platforms for regulatory filings and compliances, reduction in tax rates etc.
• Demographic advantage – Massive customer base, youthful and dynamic workforce, competitive costs of workforce etc.
• Increased access to the capital markets – Maturity of Indian IPOs market viz. measures taken by SEBI to curtail the approval timelines, streamlining the processes etc.
• Magnificent growth opportunities in diverse sectors in India boosting the return of investment
• Massive digital growth, digital infrastructure (such as UPI), acting as a global technology hub, recent thrust to AI, blockchain development etc.
• Emergence of GIFT City - with tax incentives, relaxed FEMA regulations, and access to international listing opportunities
• Strategic Global positioning viz. preferred alternative destination for manufacturing, strengthening global ties viz. FTAs with major economies like EU, UK etc.

D. Ways of Reverse Flipping

Some of the prevalent structures considered for reverse flipping to Indian jurisdiction are as follows:

1. Inbound Merger of offshore Hold Co into the India Co

Offshore Hold Co would be merged with the Indian Co. In consideration of merger, India Co would issue shares to the shareholders of the offshore Hold Co i.e. founders/ promoters

Key Tax and regulatory considerations

1. Income-tax
   • Merger to be tax-neutral subject to prescribed conditions
   • If India Co has carried forward losses, such losses would lapse
   • GAAR implications if transaction lack commercial substance
   • Valuation requirements to be complied with
   • Tax implications as per the laws of the overseas jurisdiction to be considered
2. Company Law
   • Inbound mergers to comply with section 234 of the Companies Act, 2013 (“CA, 2013”) – Fast Track Merger provisions under section 233 of the CA, 2013 apply
   • Company law of the Hold Co jurisdiction to permit the inbound merger
3. FEMA
   • FEMA (Cross Border Merger) Regulations to be complied with - issue of shares to comply with pricing guidelines, entry routes, sectoral caps etc. under FEMA FDI regulations
   • Valuation of India Co and Hold Co to be done as per internationally accepted valuation principles
   • RBI approval required – compliance with the FEMA (Cross Border Merger) Regulations deemed as prior RBI approval
4. Stamp Duty implications in the respective state to be considered

2. Transfer of shares of India Co by Hold Co to Founders/ Promoters

• Under this option, Hold Co transfers the shares of India Co to Founders/ Promoters (consideration to remain outstanding)
• Hold Co to liquidate and distribute its net assets to Founders/ Promoters (shareholders)

Key Tax and regulatory considerations

1. Income-tax
   • Transfer of shares – Subject to capital gains tax in India, Exemption under the respective DTAA may be explored.
   • Valuation provisions under IT Act to be complied
   • Withholding taxes to be deducted - Section 195 of IT Act
   • Liquidation of Hold Co - No India tax implications for Hold Co. For non-resident promoters, No India tax implications. For resident promoters (LLP), implications as per section 46. Laws of overseas jurisdiction to be considered.
   • Carried forward business losses in India Co would lapse
2. Company Law
   • Changes to the shareholding of India Co to be captured
   • In case of liquidation, the laws in country of Hold Co to be complied with
3. FEMA
   • Transfer of shares – For Transfer between non-residents, Valuation norms/ reporting as per FEMA FDI regulations not required. For transfer to resident promoter (LLP), Valuation and reporting requirements to be complied with
4. Stamp Duty implications on transfer of shares to be considered

3. Swap of shares of Hold Co against the shares of New India Co

• Shareholders of Hold Co. to set up a New India Co – Shareholders to transfer the shares of Hold Co to New India Co. in exchange of shares of New India Co
• Hold Co to liquidate and distribute its assets and liabilities (including shares in the existing India Co) to New India Co.

Key Tax and regulatory considerations

1. Income-tax
   • Indirect transfer tax implications may arise for non-resident promoters. For Indian promoters (LLP), swap would be taxable
   • Valuation requirements under IT Act to be complied
   • Withholding taxes to be deducted as applicable
   • Liquidation of Hold Co - No India tax implications for Hold Co. Taxability on New India Co as per section 46
   • Liquidation of Hold Co - No India tax implications for Hold Co. Taxability on New India Co as per section 46
   • Carried forward business losses, if any, in India Co may lapse
2. Company Law
   • Investment thresholds under section 186 of CA, 2013 to be complied with by New India Co
   • Changes in shareholding of New India Co and existing India Co to be recorded – Recording of Investments in New India Co.
   • In case of liquidation, the laws in country of Hold Co to be complied with
3. FEMA
   • Permissible as per FEMA regulations
   • Valuation norms under both FDI and ODI regulations to be complied with
   • However, very important that ODI limits under FEMA ODI regulations are complied with – if not complied, RBI approval required - other consequences in case of non-compliances
   • Suitable reporting/ filing to be made under the FEMA FDI/ ODI regulations
   • Liquidation of Hold Co - Pricing guidelines, reporting requirements under FEMA ODI regulations to be complied with

Other ways to undertake reverse flipping include Re-domiciliation of offshore Hold Co to India

E. Companies which have reverse flipped their structures recently

Few companies which have adopted reverse flipping structures to return to India are below:

• Phone Pe – Reverse Flip from Singapore - share transfer
• Groww – Reverse Flip from USA - Inbound merger
• Pepperfry - Reverse Flip from Singapore - Inbound merger
• Flipkart – Redomiciling Singapore parent entity to India
• Zepto – Reverse Flip from Singapore - Inbound merger

F. Consideration of GIFT IFSC as a hub for Reverse Flipping

IFSCA introduced International Financial Services Centres Authority (Listing) Regulations, 2024 to provide access to global capital without domestic listing and has set up Padmanabhan committee to develop a plan.

Key recommendations made by the Committee for reverse flipping to GIFT IFSC

• GIFT IFSC - considered as nodal office for incorporation and other regulatory approvals
• Tax neutral structure for relocation of Hold Co and its shareholders
• Grandfathering for existing investment of Hold Co
• No lapse of losses of the India Co
• Participation exemption for GIFT IFSC Hold Co on levy of capital gains tax
• Concessional tax regime for Dividend in the hands of GIFT IFSC Company

Once the above recommendations are finalized, GIFT IFSC would be a preferred destination for reverse flipping. Companies to keep a close eye on the finalization of these recommendations.

When Nykaa listed, for instance, its physical assets were limited. But investors back‑valued its strong brand and customer loyalty. Similarly, Indian IT majors like Infosys and TCS derive the lion’s share of their enterprise value from their IPs, proprietary platforms, and deep client relationships rather than heavy plants or equipment.

A striking example is Flipkart’s acquisition by Walmart in 2018. Walmart paid US $16 billion for a 77% stake—implying a total valuation exceeding US $20 billion—despite Flipkart having minimal fixed assets. Walmart wasn’t acquiring warehouses or factories; it was buying reach, brand trust, and data.

Intangibles: The Invisible Asset That Commands Premiums

Brand Value

In India, brand value often drives valuation multiples well beyond what physical assets justify. Taking Hindustan Unilever (HUL) as an example: its market capitalization is approximately ₹5.7 lakh crore as of November 2025, and it’s trading at a price-to-book ratio above 11x. Its factories and machinery can be replicated, but the consumer trust in its brands like Surf Excel and Dove is far harder to reproduce. That trust allows HUL to command premium pricing and retain investor confidence.

A contrast in the Indian FMCG landscape is Patanjali versus Dabur. While Patanjali rapidly expanded distribution, concerns over its governance, product consistency, and brand sustainability caused its valuation multiples to shrink. Meanwhile, Dabur, with over 135 years of heritage, continues to command stable multiples—testament to how long‑term brand and reputation resilience matters more than reach alone.

Intellectual Property, R&D and the Innovation Premium

In sectors like pharmaceuticals, biotech, and software, intellectual property is often the main value driver. Consider Biocon: its market capitalization is around INR 52 thousand crores as of November 2025, and its stock often reacts sharply to R&D breakthroughs and regulatory milestones. In such businesses, patents, licensing deals, and pipeline potential overshadow factories or land.

Customer Networks & Platform Economics

Intangibles play a central role in consumer tech and platform businesses. Paytm, at its IPO, was valued at nearly ₹1.4 lakh crore largely on the strength of its registered users and merchant network, not merely on its earning potential or its assets.

In non‑digital sectors too, customer loyalty and network effects matter. Amul, structured as a cooperative, does not own vast factories proportional to its reach, but it’s the bond with its registered consumers which acts as a powerful intangible.

Valuing Intangibles: Methods & Practical Hurdles

Most Common valuation approaches:

• Relief‑from‑Royalty Method (Income Approach) – Brands, Trademarks, Patents etc.
• Multi Period Excess Earnings Method (Income Approach) – Customer relationships, Tech Platforms, Non-compete etc.
• Replacement Cost / Reproduction Cost (Cost Approach) – Workforce, IPs which are generally not the primary business drivers

Yet in India, implementing these has challenges:

• Lack of comparable benchmarks and data in public domain
• Identification of primary business drivers and applying the appropriate valuation methodologies
• Revenue / Profits attribution in case of valuing multiple Ips
• Unrecognized IP’s in Books
• Dependence on Subjective Assumptions

Conclusion: Recognize What Lies Beneath

In India’s evolving valuation landscape, ignoring intangibles is as good as turning our back to reality. From Flipkart’s multibillion-dollar acquisition to HUL’s market cap built on its customer base, we see that real value often hides beyond books and numbers. As India pivots deeper into digital and service economies, intangibles—brands, patents, trademarks, customer relationships, technology platforms, human resource capital will matter even more.

For valuation professionals and investors, the challenge is to supplement conventional valuation models with a detailed assessment of value-generating intangibles. Only then can businesses be fairly valued. Companies should not be penalized in their valuations for having invisible yet powerful assets in the form of intangibles.

Types of M&A – With Examples

There are different types of M&A Transactions. Here's a simple breakdown of the types with examples to relate -

• Horizontal Merger: Two companies in the same industry join forces.
  Example: Vodafone India and Idea Cellular merged to become one of India's largest telecom operators.
• Vertical Merger: Companies at different stages of the supply chain merge. Objective is to improve operational efficiency, reduce costs, reduce competition, increasing market share in a particular industry, benefit from the assets, capabilities and Intellectual properties acquired
  Example: Reliance Industries acquiring Network18, integrating media into its digital ecosystem.
• Congeneric Merger: Companies in related industries but different products.
  Example: A beverage company acquiring a snack brand.
• Conglomerate Merger: Companies from unrelated industries merge. The principal reason for a conglomerate merger is utilization of financial resources, enlargement of debt capacity, foray into diverse businesses.
  Example: Tata Group's acquisition of Corus Steel, expanding into global steel manufacturing.
• Market-Extension Merger: It is done with the objective to expand geographical reach and customer base.
  Example: A South Indian food chain merging with a North Indian counterpart.
• Product-Extension Merger: Merger takes place between companies offering related products in the same market. It is done with the objective to broaden product lines and enhance customer offerings.
  Example: A smartphone brand acquiring a smart accessories company.

Takeovers vs. Acquisitions

A takeover is when one company gains control of another—often by buying a majority stake. An acquisition can be more strategic, involving asset transfers or business restructuring. This can be through a Slump sale for instance.
Example: Zomato's acquisition of Blinkit was a strategic move to enter quick

Legal & Regulatory Maze

There are multiple regulations that come into play during a Corporate Restructuring Action. Here are a few common and significant ones -

Company Law

• Scheme involving mergers, demergers etc. must require approval from NCLT.
• Compliance with the provisions of Section 230 to 232 of the Companies Act (viz. approval from shareholders, creditors, obtaining valuation, approval from other government authorities etc.)
• In cases of merger between holding and wholly owned subsidiary entities, fast track merger procedure under section 233 of the Companies Act needs to be complied with (Approval from Regional Director instead of NCLT)
• In case of cross border mergers, provisions of section 234 of the Companies Act needs to be complied
• In case of takeover by way of investment in new shares of the Company, provisions of section 186 of the Companies Act relating to investment limits needs to be complied with
• In case of preferential allotment of shares, valuation of shares from registered valuer

SEBI Rules

• If acquiring 25% or more in a listed company, an open offer is mandatory.
• Preferential allotments must meet pricing and lock-in norms.
• Stock exchanges must approve merger schemes before NCLT filing.
• Submission of valuation reports, auditor's certificate, no objection letters from lenders is also a prerequisite before NCLT filing

Competition Law

Where a combination (acquisition or merger) crosses the Assets or turnover related thresholds provided under Competition Act, 2002, notification to Competition Commission of India needs to be made

FEMA Compliance

• Foreign investments must follow pricing norms, sectoral caps, and reporting rules under Non Debt Instruments Rules, 2019
• Outbound mergers need to comply with FEMA ODI regulations.

Income Tax

• Mergers can be tax-neutral under Section 47, but conditions apply.
• Compliance with conditions under section 2(1B) and 2(19AAA) of the IT Act and Section 47 for tax neutrality
• Conditions relating to carried forward losses under section 72A, cost of acquisition of shares in amalgamated company, holding period of shares etc. to be complied with
• Valuation reports are crucial to comply with tax laws under Sections 50CA and 56(2)(x).

Other Considerations

• GAAR: GAAR and Principal Purpose test – Arrangements are tested for substance and for arm's length pricing , to have non-tax commercial reasons
• GST: Generally not applicable if the transfer is a going concern but would need specific analysis
• Stamp Duty: Varies by state and can be significant.

Final Thoughts

M&A in India is a powerful tool for growth, diversification, and innovation. But it's not just about strategy—it's about compliance, valuation, and timing. Whether you're a startup eyeing expansion or a global player entering India, understanding the legal and tax landscape is key.

Always consult legal and financial advisors before diving into a deal. The right structure can save you time, money, and regulatory headaches.

Under FEMA:

• An NRI is an Indian citizen residing outside India.
• The Reserve Bank of India (RBI) is the key regulator, issuing rules, notifications, and Master Directions that guide NRI investments.

Real Estate: What You Can Own

NRIs can acquire immovable property in India—but with a few caveats. You’re free to buy:

• Residential or commercial property
• Property received as a gift from a close relative (resident Indian, NRI, or OCI)
• Property inherited from a resident or a compliant non-resident

However, you cannot purchase:

• Agricultural land
• Farmhouses
• Plantation property

You can transfer property to resident Indians or other NRIs, as long as it’s not in the restricted categories. All payments must be made through banking channels or from compliant non-resident accounts.

Repatriation vs. Non-Repatriation: Know the Difference.

• Repatriation Basis: You can send your capital and profits back abroad. It’s ideal if you want liquidity outside India.
• Non-Repatriation Basis: Your investment is treated like a domestic one. You can’t freely send the money back overseas, but you can reinvest or use it within India.

Repatriation Investments: What’s Allowed

NRIs can invest on a repatriation basis in several ways:

Where You Can Invest

• Equity instruments of listed Indian companies (via designated branches)
• Units of domestic mutual funds (with more than 50% equity exposure)
• Shares in public sector enterprises under disinvestment
• Subscription to the National Pension System (NPS)

Investment Limits for investment in listed Indian companies

• Individual NRI: Max 5% of paid-up capital
• All NRIs combined: Max 10%, extendable to 24% with shareholder approval

Mode of Payment

• Inward remittance through banking channels
• Funds from NRE account (as per FEMA Deposit Regulations, 2016)
• For stock market investments, your NRE account must be designated as a Portfolio Investment Scheme (PIS) account
• Mutual fund investments can be made from NRE/FCNR(B) accounts
• NPS subscriptions can be funded from NRE/FCNR(B)/NRO accounts

Remittance of Sale Proceeds

• Equity sale proceeds (net of taxes) can be repatriated or credited to your NRE (PIS) account
• Proceeds from mutual funds and NPS can be repatriated or credited to NRE (PIS)/FCNR(B)/NRO accounts, based on your preference

Non-Repatriation Investments: What’s on the Table

If you’re not looking to send your money back abroad, non-repatriation investments offer more flexibility and fewer limits.

Where You Can Invest

• Equity instruments of Indian companies
• Units of investment vehicles
• Capital contribution to LLPs, firms, or proprietary concerns
• Convertible notes issued by startups

These investments are treated as domestic, just like those made by resident Indians.

Mode of Payment

• Inward remittance through banking channels
• Funds from NRE, FCNR(B), or NRO accounts

What You Can’t Invest In

• Nidhi companies
• Agriculture or plantation activities
• Real estate business or farmhouses
• Transfer of development rights

Remittance of Sale Proceeds

• All sale or disinvestment proceeds (net of taxes) must be credited only to your NRO account
• No repatriation of the original investment or capital gains is allowed

LEC (NRI): The Reporting Rule You Can’t Ignore

Every time you buy or sell equity instruments on Indian stock exchanges, your Authorised Dealer (AD) bank must report the transaction to the RBI using Form LEC (NRI).

What’s your responsibility? Keep your AD bank informed. If they don’t know about your transaction, they can’t report it—and that could lead to compliance issues.

Regulatory Filing Requirement for Share Transactions When an NRI acquires shares in an Indian company—either through a primary issuance (fresh allotment) or a secondary transaction (transfer from an existing shareholder)—certain filings are mandated under FEMA. Specifically:

• Form FC-GPR must be filed for primary issuances.
• Form FC-TRS must be filed for secondary transfers.

Importantly, the responsibility for filing these forms lies with the resident party to the transaction, not the NRI investor. This ensures regulatory compliance while simplifying the process for non-resident participants.

In Conclusion

Investing in India as an NRI is a beautiful blend of emotion and opportunity. It’s a way to stay connected, contribute to India’s growth, and build wealth in a market you understand. But it’s also a journey that requires awareness and adherence to FEMA’s rules.

Whether you’re buying property in your hometown, trading stocks in Mumbai, or backing a startup in Bengaluru, make sure your investments are not just heartfelt—but also fully class="mb-20compliant