Exit Routes 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.
Every route carries a period — one year to hold, ninety days to repatriate, thirty days to report, 180 days for a portfolio sale, six months to divest a non-conforming holding.
The seven outbound exit routes for an Indian investor
| # | Route | Conditions |
|---|---|---|
| 1 | Sale to a non-resident at arm's length under Rule 17(1) | One-year holding period; repatriation of proceeds within ninety days; reporting in Form FC within thirty days of disinvestment |
| 2 | Sale to another eligible Indian resident under Rule 17(2) | — |
| 3 | Liquidation of the foreign entity | All proceeds repatriated within ninety days; permitted notwithstanding the existence of outstanding receivables or other dues not arising from the equity capital or debt of the foreign entity, subject to conditions |
| 4 | Write-off of capital in a loss-making overseas entity | Losses for the preceding two financial years; automatic route up to 25 per cent of the equity investment, under Rule 18 |
| 5 | Swap-based exit | Both legs must independently comply with FEMA; non-conforming equity capital divested within six months |
| 6 | Exit of Overseas Portfolio Investment | Sale on the relevant foreign stock exchange, repatriation within 180 days |
| 7 | Restructuring of the overseas entity's balance sheet under Rule 18 | An intermediate step preceding a write-off or partial disinvestment |
The session singles one out: the one-year holding requirement in particular being an easy condition to overlook once a willing buyer has been found.
The reason it is missed is behavioural. A seller who has located a buyer is focused on price, documentation and closing. The holding period is a fact about the past that nobody re-examines — and it is absolute. A sale eleven months after acquisition is not a slightly non-compliant sale; it is outside Rule 17(1) altogether.
The other periods are consequences rather than conditions. Ninety days to repatriate, thirty days to file Form FC and 180 days for a portfolio sale all run after the transaction, and a breach is a reporting or repatriation default. The one-year period is a precondition, and failing it means the route was never available.
Route 6 deserves note for who it affects. Overseas Portfolio Investment, typically relevant to ESOP holders exiting at the IPO stage — Indian employees holding options over a foreign parent's shares, selling on that foreign exchange when it lists. It is an individual-level exit, and the 180-day repatriation applies to each of them.
Exit routes for a non-resident leaving an Indian investment
For a non-resident investor exiting an Indian investment, the routes include:
- Secondary sale to an Indian resident, where the price cannot exceed the pricing guidelines prescribed under the NDI Rules, 2019;
- Secondary sale to another non-resident, which is generally outside the FEMA pricing guidelines except where specifically provided, including sale through a recognized stock exchange;
- Share buyback;
- Exercise of a put option under an optionality clause;
- Exit through an inbound merger or scheme of arrangement;
- Liquidation of the Indian company;
- Deferred consideration or escrow arrangements under Rule 9(6).
Foreign Venture Capital Investors continue to enjoy the exemptions specifically provided under the applicable FEMA framework.
The buyback tax shift
The tax treatment of share buyback shifted materially from 1 October 2024, when buyback proceeds ceased to be taxable in the hands of the company and became taxable in the hands of the shareholder in accordance with the Income-tax Act, 1961, thereby subjecting payments to non-resident shareholders to the applicable withholding tax provisions, where applicable.
The change matters for exit planning because it moves the tax from a company-level charge that reduced the pool available to all shareholders, to a shareholder-level charge that depends on each holder's own position and treaty entitlement.
A further nuance arises where the buyback runs in the reverse direction, that is, a foreign company buying back shares held by its Indian promoter-shareholders. The session observed that, based on the present statutory language, the enhanced promoter-level tax implications applicable to promoters of Indian listed companies may not extend to buybacks undertaken by foreign companies, though the position remains open to legislative clarification.
Common mistakes
- Choosing among the exit routes before confirming the one-year holding period is satisfied.
- Treating the ninety-day repatriation as running from receipt rather than from the transaction.
- Writing off more than 25 per cent under the automatic route.
- Overlooking the 180-day repatriation obligation on individual ESOP exits.