Regulations 7 and 8 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.
Regulation 7 allows the consideration for equity capital that is reckoned as ODI to be paid later than the date of the agreement, on two conditions: the securities move upfront and the final price meets the pricing guidelines. Regulation 8 lists the ways a person resident in India may pay for overseas investment. Paragraphs 10 and 11 of the Reserve Bank's Master Direction add what banks check and a few things that are not permitted.
As per the copy of the notification consulted (No. FEMA 400/2022-RB, as notified on 22 August 2022), consideration for equity capital reckoned as ODI may be deferred for a definite period fixed in the agreement if the foreign securities for the total consideration are transferred or issued upfront and the full consideration finally paid complies with the pricing guidelines. The deferred part is treated as non-fund based commitment when a resident acquires foreign equity. Payment may be by banking-channel remittance, from permitted accounts, swap of securities or specified ADR/GDR and ECB proceeds. The Master Direction adds that cash is not permitted.
The text and its footing
The Regulations are made by the Reserve Bank under sub-section (1) and clause (a) of sub-section (2) of section 47 of the Foreign Exchange Management Act, 1999; see sections 47 and 48 and section 6. The text is from a third-party copy of the notification as notified on 22 August 2022; later amendments are not shown. The Master Direction - Overseas Investment (FED Master Direction No.15/2024-25, July 24, 2024, "Updated as on April 01, 2026") is read beside it. Later amendments and circulars should be checked on the Reserve Bank and Gazette sites. The Overseas Investment Rules, 2022, which define ODI and set pricing rules (rule 16), are not in the sources consulted. If your deal involves deferred consideration, our ODI reporting team can structure the reporting with you.
Regulation 7(1): deferred payment
Regulation 7(1) applies where:
- a person resident in India acquires equity capital by subscription to an issue or by purchase from a person resident outside India; or
- a person resident outside India acquires equity capital by purchase from a person resident in India,
and where the equity capital is reckoned as ODI. The consideration "may be deferred for such definite period from the date of the agreement as provided in such agreement", subject to these terms:
- the foreign securities equivalent to the amount of total consideration shall be transferred or issued, as the case may be, upfront by the seller to the buyer; and
- the full consideration finally paid shall be compliant with the applicable pricing guidelines.
The proviso says that the deferred part of the consideration in acquisition of equity capital of a foreign entity by a person resident in India shall be treated as non-fund based commitment.
Regulation 7(2): indemnity
The buyer may be indemnified by the seller up to such amount and subject to such terms and conditions as may be mutually agreed and laid down in the agreement, provided the agreement complies with the Act and the rules and regulations under it.
Regulation 8: mode of payment
A person resident in India making overseas investment may make payment:
| Clause | Mode |
|---|---|
| (i) | By remittance made through banking channels |
| (ii) | From funds held in an account maintained in accordance with the provisions of the Act |
| (iii) | By swap of securities |
| (iv) | By using the proceeds of American Depository Receipts or Global Depositary Receipts, or stock-swap of such receipts, or external commercial borrowings raised in accordance with the Act and the rules and regulations under it, for making ODI or financial commitment by way of debt by an Indian entity |
What the Master Direction adds
Paragraph 10: deferred payment
- 10(1). The authorised dealer verifies the bona fides of the transaction from the underlying agreement or documents in a deferment under regulation 7. The period of deferment shall be defined upfront. If remittance for equity capital is to be made after subscription to the Memorandum of Association, the period within which it is to be made shall be defined in the underlying agreement, documents or applicable laws, failing which the remittance shall be made on or before acquisition or setting up of the foreign entity.
- 10(2). The deferred part of the payment is treated as a non-fund based financial commitment by the person resident in India and is reported accordingly. Subsequent payments towards deferred consideration are reported in Form FC as conversion of non-fund based financial commitment to equity. The valuation under pricing guidelines, wherever applicable, is done upfront.
Paragraph 11: mode of payment
The mode of payment is in accordance with regulation 8, and it is further provided that:
- (i) overseas investment by way of cash is not permitted;
- (ii) under regulation 5(B) of Notification No. FEMA 10(R)/2015-RB (the Foreign Currency Accounts by a resident in India Regulations, 2015), an Indian entity can remit to its office or branch outside India only for normal business operations of that branch or office, so no remittance shall be made by an Indian entity to its branch or office outside India for making any overseas investment;
- (iii) a person resident in India shall not make any payment on behalf of any foreign entity other than by way of financial commitment permitted under the OI Rules and Regulations; and
- (iv) any investment or financial commitment in Nepal and Bhutan is made in the manner in Notification No. FEMA 14(R)/2016-RB, the Manner of Receipt and Payment Regulations, 2016, with dues receivable on investments made in convertible currencies, and their sale or winding up proceeds, repatriated to India in convertible currencies only. That notification is not in the sources consulted.
Paragraph 21(1) of the Master Direction adds that in a swap of securities both legs of the transaction comply with FEMA provisions, as applicable. Paragraph 15 of the Master Direction adds that an Indian entity may open, hold and maintain a foreign currency account abroad for making ODI, in accordance with regulation 5(D) of Notification No. FEMA.10(R)/2015-RB.
Example
Himalayan Software Ltd agrees to buy equity of a foreign entity from a non-resident seller. The agreement fixes a total price, pays a portion now and the rest in eighteen months, and says so in terms. Under regulation 7(1) the seller transfers securities equal to the total consideration upfront, and the total price finally paid must comply with the pricing guidelines. Under paragraph 10(2) of the Master Direction, the deferred portion is reported as a non-fund based commitment; when it is paid later, it is reported in Form FC as conversion of non-fund based commitment to equity. The bank looks at the agreement under paragraph 10(1) to see that the period is defined upfront. If Himalayan Software tried to pay the first instalment in cash, paragraph 11(i) would bar it; it must pay through banking channels or another mode in regulation 8.
Common mistakes
- Not defining the period of deferment in the agreement.
- Transferring the securities in tranches instead of upfront; regulation 7(1)(i) says upfront for the total consideration.
- Forgetting that the deferred part is a non-fund based commitment and counts against the limit.
- Paying cash, or routing payment through the Indian entity's overseas branch; paragraph 11 bars both.
Need help with deferred consideration or payment mode?
Deferred payment ties the agreement, the pricing and the reporting together. Our ODI reporting team can read the agreement against regulation 7 and prepare the filings.
Key takeaways
- Deferral must be for a definite period fixed in the agreement.
- Securities for the total consideration pass upfront, and the final price must meet the pricing guidelines.
- The deferred part is non-fund based commitment and is converted to equity on payment.
- Regulation 8 lists four modes; the Master Direction bars cash and remittance to an overseas branch for investment.
- Pricing rules sit in the OI Rules, which are not in the sources consulted.
Read next
- Pledge and charge for a foreign entity: regulation 6
- Share certificate, UIN and repatriation duties: regulation 9
- Overseas direct investment under the 2022 Rules
- How to file Form ODI
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.