Regulations 1 to 3 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 3 of these Regulations tells the investor and the Indian company how the money for equity must be paid, how long the company has to issue shares, and when it must refund. The first two rows of its table deal with the ordinary equity investor (Schedule I of the Rules) and the foreign portfolio investor (Schedule II).
These are the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (Notification No. FEMA. 395/2019-RB, October 17, 2019), as per the text on the Reserve Bank's site, amended up to June 13, 2026. Equity consideration comes as inward remittance through banking channels or from a repatriable foreign currency or rupee account. The company must issue the instruments within sixty days of receiving the money, and if it does not, it must refund within fifteen days after those sixty days. The Non-debt Instruments Rules, 2019, to which the table refers, are not in the sources consulted.
Authority and the missing Rules
The preamble says the Reserve Bank acts "in exercise of the powers conferred by section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999) and consequent to the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019". See the Act articles on sections 47 and 48 and section 6. The Rules are not in the sources consulted for this series, so what counts as foreign direct investment, the entry routes and the sectoral caps are not explained here; our guides to the FDI policy under FEMA and to issuing shares to a non-resident cover them. For the FC-GPR filing after an issue, see our FDI reporting service.
Regulation 1 gives the title and brings the Regulations into force from the date of publication in the Official Gazette. Regulation 2 says "Act" and "Rules" carry those meanings and that undefined words have the meanings in the Act or the Rules.
Regulation 3.1: the table, schedule by schedule
Regulation 3.1 is a table: the left column names a Schedule of the Rules, the right column gives the instructions on mode of payment and remittance of sale proceeds. This article takes the first two rows. The later rows are in the next article. One slip is flagged: the table's rows are numbered I to X but the ninth and tenth rows read "IX. Schedule X" and "X. Schedule XI", so the table has no row for Schedule IX of the Rules.
Row I: Schedule I (equity instruments of an Indian company)
| Point | What the Regulations print |
|---|---|
| Mode of payment | Inward remittance from abroad through banking channels, or out of funds held in any repatriable foreign currency or rupee account maintained under the Foreign Exchange Management (Deposit) Regulations, 2016 |
| What "consideration" includes | Issue of equity shares by an Indian company against any funds payable by it to the investor, and swap of equity instruments or equity capital |
| Time to issue | Equity instruments shall be issued within sixty days from the date of receipt of the consideration |
| Partly paid shares | The sixty days run from the date of receipt of each call payment |
| Refund | If not issued within sixty days, the amount is refunded by outward remittance through banking channels or credit to the person's repatriable foreign currency or rupee account, within fifteen days from the date of completion of sixty days |
| Foreign currency account | The Indian company may open a foreign currency account with an Authorised Dealer in India under the Foreign Currency Accounts Regulations, 2016 as named in the row |
| Sale proceeds | The sale proceeds, net of taxes, may be remitted outside India or credited to any repatriable foreign currency or rupee account of the person |
The words "any repatriable" and "swap of equity instruments" in this row were modified or inserted by the Third Amendment Regulations, 2025 (Notification No. FEMA 395(3)/2025-RB dated January 15, 2025), as the footnotes of the page record.
Row II: Schedule II (investments by Foreign Portfolio Investors)
- Mode of payment: inward remittance through banking channels, or out of funds held in a foreign currency account or a Special Non-Resident Rupee (SNRR) account maintained under the Deposit Regulations, 2016.
- Exclusive use: the page prints that, unless otherwise specified, the foreign currency account shall be used "only and exclusively" for transactions under the Schedule. A footnote shows that a word in the sentence was deleted by the Third Amendment of 2025.
- Sale proceeds: net of taxes, of equity instruments and of units of REITs, InViTs and domestic mutual funds may be remitted outside India or credited to the foreign currency account or SNRR account of the FPI.
The row was modified by the Gazette notification of June 18, 2020 (the Amendment Regulations, 2020, dated June 15, 2020), as footnote 5 records.
"Banking channels" and cross-check
A later explanation says "banking channels" includes any rupee vostro account, including Special Rupee Vostro Accounts, permitted to a person resident outside India under regulation 7(1) of the Deposit Regulations, 2016 (inserted by the 2025 Amendment). The Master Direction - Foreign Investment in India (updated up to June 15, 2026) restates the same instructions in its Annex 1, paragraphs 2.1 to 2.4 and 3.1 (equity), and Annex 2, paragraphs 2 and 3 (FPI). It adds, in Annex 1 paragraph 2.5, that an authorised dealer may permit a refund if satisfied of the applicant's bonafides, the mode of payment and that interest, if any, is payable under the Companies Act, 2013, and in paragraph 2.6, that non-compliance with the sixty-day instruction is a contravention of the Rules even where interest on delayed refund has been paid. The Regulations themselves print no such statement.
Example
Delta Tooling Private Limited, an invented Indian company, receives a foreign investor's remittance on 1 March for equity shares. Under row I, shares must be issued by day sixty, around 30 April. If the board has not allotted by then, the remittance must be refunded within fifteen days after that date. If the same investor pays by call on partly paid shares, the sixty days are counted from each call. If the investor were an FPI under row II, it would pay from its foreign currency or SNRR account, and any later sale proceeds could go back to the same accounts. Reporting on the issue is a separate obligation under regulation 4, covered in our FC-GPR article.
Amendments and circulars after June 13, 2026 should be checked. Rows for NRIs, LLPs, FVCIs and the other Schedules follow in our next article on regulation 3.
Need help with FDI payments and reporting?
A remittance that does not match the mode of payment, or shares issued after the sixty days, can turn a routine inflow into a compounding matter. Our FDI reporting team reviews the inflow and prepares the FC-GPR.
Key takeaways
- Equity consideration must arrive by inward remittance through banking channels or from a repatriable foreign currency or rupee account.
- Shares must be issued within sixty days; otherwise the money goes back within fifteen days after the sixty days.
- Partly paid shares: sixty days from each call payment.
- FPIs pay from a foreign currency or SNRR account, and sale proceeds go back to those accounts or abroad.
- The Rules that define the schedules are not in the sources; check them and later amendments.
Read next
- NRI, LLP, FVCI and convertible note payments: the rest of regulation 3
- Form FC-GPR, ESOP, DRR and LLP returns: regulation 4
- FDI reporting: FC-GPR, FC-TRS and Form APR
- FPI: foreign portfolio investment in India
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.