Foreign Exchange Management explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The Guarantees Regulations, 2026 say when a person resident in India may be a party to a guarantee with someone resident outside India, which guarantees are outside the Regulations, who reports a guarantee and by when, and how the Late Submission Fee for late reporting is calculated. They replace the Guarantees Regulations of 2000. Our FEMA advisory team handles guarantee structuring and reporting questions.
Regulation 3 of the Foreign Exchange Management (Guarantees) Regulations, 2026 prohibits a person resident in India from being a surety, principal debtor or creditor to a guarantee with a party resident outside India, except in accordance with the Regulations. Regulations 5 and 6 give the conditions on which the permission is available. Reporting is quarterly, within fifteen calendar days of quarter end, to an authorised dealer bank, and late reporting attracts a Late Submission Fee of ₹7500 plus 0.025% x A x n.
The text and its authority
The Regulations are No. FEMA 8(R)/2026-RB, notified on 6 January 2026 by the Reserve Bank, under sub-section (2) of section 6 and sub-section (2) of section 47 of the Foreign Exchange Management Act, 1999, "in supersession of Notification No. FEMA 8/2000-RB dated May 3, 2000, except as respects things done or omitted to be done before such supersession". Regulation 1 brings them into force from the date of their publication in the Official Gazette. See our articles on section 6 and sections 47 and 48. The text is as notified on 6 January 2026. Later amendments and circulars should be checked on the Reserve Bank site. For the place of guarantees among capital account transactions, see our overview of the Permissible Capital Account Transactions Regulations.
Regulation 2: the terms used
| Term | Meaning as printed |
|---|---|
| Authorised dealer | A person authorised under sub-section (1) of section 10 of the Act |
| Creditor | A person to whom the guarantee is given |
| Guarantee (including counter-guarantee) | A contract, by whatever name called, to perform the promise, or discharge a debt, obligation or other liability (including a portfolio of debts, obligations or other liabilities), in case of default by the principal debtor |
| IFSC | As in clause (g) of Section 3 of the International Financial Services Centres Authority, 2019 (50 of 2019) |
| Principal debtor | A person in respect of whose default the guarantee is given |
| Surety | A person who gives a guarantee |
A printing slip: regulation 2(1)(e) prints "the International Financial Services Centres Authority, 2019" without the word "Act". Words not defined take their meaning from the Act or the rules or regulations made under it.
Regulation 3: the prohibition
Save as otherwise provided in the Act or rules or regulations or directions issued under it, or with the general or special permission of the Reserve Bank, no person resident in India shall, except in accordance with these regulations, be a party (principal debtor, surety or a creditor) to a guarantee where any of the other parties to the guarantee is a person resident outside India. The prohibition is therefore triggered by the residence of the parties, not by the currency or the amount.
Regulation 4: what is outside the Regulations
Nothing in the Regulations applies to:
- a guarantee undertaken by a branch of an authorised dealer bank outside India or in an IFSC, unless any of the other parties to the guarantee is a person resident in India;
- an Irrevocable Payment Commitment (IPC) issued by an authorised dealer in its capacity as a custodian bank, where the principal debtor is a registered Foreign Portfolio Investor and the creditor is an authorised central counterparty in India; and
- a guarantee given in accordance with the Foreign Exchange Management (Overseas Investment) Regulations, 2022. For that, see our article on guarantees for a foreign entity under regulation 5 of the Overseas Investment Regulations.
Regulation 5: a resident as surety or principal debtor
A person resident in India may act as a surety or a principal debtor for a guarantee, subject to two conditions:
- (a) the underlying transaction for which the guarantee is given or arranged is not prohibited under the Act or the rules, regulations or directions issued under it; and
- (b) the surety and the principal debtor are eligible to lend to and borrow from each other, respectively, under the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, as amended from time to time.
The proviso says condition (b) does not apply to a guarantee (i) given by an authorised dealer bank and covered by a counter-guarantee or issued against full collateral in the form of a deposit, from a person resident outside India; (ii) given by an agent in India of a shipping or airline company incorporated outside India on behalf of that company for its obligation or liability owed to a statutory or Government authority in India; or (iii) where both the surety and the principal debtor are persons resident in India.
Regulation 6: a resident as creditor
A person resident in India being a creditor may arrange or obtain a guarantee in its favour, on the condition that where the principal debtor and the surety are both persons resident outside India, the creditor shall ensure that the underlying transaction is not prohibited under the Act, or the rules, regulations or directions issued under it.
Regulation 7: reporting
Who reports:
| Situation | Who reports |
|---|---|
| Surety is resident in India | The surety |
| Surety is resident outside India | The principal debtor who has arranged the guarantee |
| Surety and principal debtor both resident outside India, or the creditor has arranged the guarantee | The creditor |
What is reported (regulation 7(2)): issuance of the guarantee; any later change in terms, namely guarantee amount, extension of period or pre-closure; and invocation, if any. The report is in the format at the Annex to the Regulations; the Annex is not on the page consulted, so this article does not describe it.
When and to whom (regulation 7(3) and (4)): to an authorised dealer bank on a quarterly basis within fifteen calendar days from the end of the quarter, for onward submission to the Reserve Bank. The authorised dealer bank submits the returns to the Reserve Bank, in the manner and format advised, within thirty calendar days from the end of the quarter.
Regulation 8: the Late Submission Fee
A person resident in India who does not meet the reporting obligation under regulation 7(3) may report along with the Late Submission Fee, or pay the fee where the reporting has been done late. The fee under regulation 8(2) is ₹7500 + 0.025% x A x n, rounded upwards to the nearest hundred, where "n" is the number of years of delay in submission, rounded upwards to the nearest month and expressed up to 2 decimal points, and "A" is the amount involved in the delayed reporting in INR.
A worked illustration, using only the formula: take a guarantee of ₹2,00,00,000 reported nine months late. The delay "n" is 0.75 years. The variable part is 0.025% of ₹2,00,00,000, which is ₹5,000, multiplied by 0.75, giving ₹3,750. Adding ₹7500 gives ₹11,250, which rounds upwards to the nearest hundred as ₹11,300. The same method applies to any amount; the regulation does not say how n is counted from the due date other than the rounding words quoted above, so check the exact date arithmetic with the bank.
Example
Sunrise Components Pvt Ltd, an Indian company, wants to give a corporate guarantee to a foreign bank for a loan to a foreign company that is not its subsidiary. Sunrise Components is the surety, resident in India; the foreign company is the principal debtor; the foreign bank is the creditor. Regulation 5 asks two things: is the underlying loan prohibited, and are Sunrise Components and the foreign company eligible to lend to and borrow from each other under the Borrowing and Lending Regulations, 2018? If both answers allow it, Sunrise Components, as the resident surety, reports the guarantee to its authorised dealer bank within fifteen calendar days of the quarter-end. If it were instead an investment in a foreign subsidiary, regulation 4(c) would take it to the Overseas Investment Regulations.
Common mistakes
- Overlooking that the prohibition depends on residence of any party.
- Assuming the Borrowing and Lending test applies to every guarantee. The proviso removes it in three cases.
- Reporting annually. Regulation 7(3) is quarterly.
- Forgetting that a change in amount, an extension or a pre-closure also has to be reported.
Need help with a cross-border guarantee?
Before you sign, it pays to confirm which regulation governs the guarantee, who must report it and how to file. Our FEMA advisory team can review the guarantee, the parties and the reporting calendar.
Key takeaways
- Regulation 3 prohibits a resident from being a party to a guarantee with a non-resident party, except as the Regulations allow.
- Regulation 4 exempts three kinds of guarantee, including those given under the Overseas Investment Regulations, 2022.
- Regulations 5 and 6 set conditions for resident sureties, principal debtors and creditors.
- Reporting is quarterly within fifteen calendar days; authorised dealers file within thirty calendar days.
- The Late Submission Fee formula is ₹7500 + 0.025% x A x n, rounded upwards to the nearest hundred.
Read next
- Guarantees for a foreign entity: regulation 5 of the Overseas Investment Regulations, 2022
- Classes of capital account transactions: the Permissible Capital Account Transactions Regulations
- Capital account transactions under FEMA
- Late submission fee under the FEMA RBI framework
Disclaimer: Based on the rules, regulations and Reserve Bank Master Directions under the Foreign Exchange Management Act, 1999 that this article names, each in the version and up to the date stated in the article, as consulted on 2 October 2026. Some texts are third-party copies or older prints and are identified as such. Limits, forms and time limits change by amendment and circular; later changes should be checked on the Reserve Bank and Gazette sites. This article is general information, not legal advice; check the official text before acting.