Schedule I 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.
Paragraph 3 of Schedule I to the Foreign Exchange Management (Overseas Investment) Rules, 2022 sets the ceiling on how much an Indian entity may commit overseas: the total financial commitment in all foreign entities taken together must not exceed a stated percentage of its net worth. The Rules print the figure in digits; this article writes it as four hundred per cent. The paragraph also says what is counted and not counted, and exempts certain public sector undertakings in strategic sectors.
The Rules are quoted as notified on 22 August 2022 (G.S.R. 646(E)); no amendment is in the texts consulted. Amendments after that date should be checked in the Gazette. They rest on section 46 of the Foreign Exchange Management Act, 1999; see our article on section 46 of the Act. To confirm how much headroom an Indian entity has, our overseas direct investment reporting service covers the filings that follow.
The total financial commitment made by an Indian entity in all foreign entities taken together at the time of undertaking the commitment must not exceed four hundred per cent of its net worth as on the date of the last audited balance sheet, or as directed by the Reserve Bank in consultation with the Central Government. Capitalisation of retained earnings is not counted; ADR or GDR proceeds and ECB proceeds (to the extent not already counted through a pledge or charge) are counted. Maharatna, Navratna and Miniratna public sector undertakings and their subsidiaries are outside the limit for investments in strategic sectors.
The limit: sub-paragraph (1)
Sub-paragraph (1) reads, in substance: the total financial commitment made by an Indian entity in all the foreign entities taken together at the time of undertaking such commitment shall not exceed four hundred per cent of its net worth as on the date of the last audited balance sheet, or as directed by the Reserve Bank, in consultation with the Central Government, from time to time.
Four terms are used, each defined in rule 2(1):
| Term | Clause | Meaning |
|---|---|---|
| Financial commitment | (f) | Aggregate amount of ODI, debt other than OPI in the foreign entity in which ODI is made, and non-fund-based facilities extended to or on behalf of that entity |
| Net worth | (p) | The Companies Act, 2013 meaning, with a special measure for registered partnership firms and LLPs |
| Last audited balance sheet | (l) | Audited balance sheet as on a date not exceeding eighteen months preceding the date of the transaction |
| Indian entity | (j) | Company, body corporate, LLP or registered partnership firm |
Definitions are explained in our articles on ODI, OPI, financial commitment and control and on Indian entity, net worth and strategic sector.
Two points follow from the wording. The test is applied "at the time of undertaking such commitment", so the limit is checked afresh when each new commitment is made. And the base is the net worth on the last audited balance sheet, which can be as old as eighteen months by rule 2(1)(l).
Directions of the Reserve Bank
The words "or as directed by the Reserve Bank, in consultation with Central Government from time to time" mean the percentage may be changed by direction. Rule 9(3) of the Rules separately lets the Reserve Bank, in consultation with the Central Government, stipulate the ceiling for aggregate outflows in a financial year for financial commitment or OPI, and the ceiling beyond which financial commitment in a financial year requires its prior approval. Rule 9(2)(i) allows the Central Government to permit financial commitment in strategic sectors or geographies above the limits in the Rules. See our article on rules 7 and 9. The Rules print no other figure for those ceilings.
What is counted: sub-paragraph (2)
The total financial commitment in sub-paragraph (1) "shall not include capitalisation of retained earnings for reckoning such limit but shall include":
- (i) utilisation of the amount raised by the issue of American Depository Receipts or Global Depositary Receipts and stock-swap of such receipts; and
- (ii) utilisation of the proceeds from External Commercial Borrowings to the extent the corresponding pledge or creation of charge on assets to raise such borrowings has not already been reckoned towards the limit.
| Item | Treatment |
|---|---|
| Capitalisation of retained earnings | Not included |
| ADR or GDR proceeds and stock-swap of such receipts | Included |
| ECB proceeds | Included, to the extent the corresponding pledge or charge was not already counted |
The Master Direction - Overseas Investment, updated as on April 01, 2026, restates the limit in paragraph 21(8) as the Reserve Bank's direction to banks. It adds that balances held in an EEFC account used for financial commitment are also counted, and that commitments made through such resources (EEFC balances, ADR/GDR proceeds and stock-swap) before the notification of the Rules are not counted towards the limit. The words about EEFC balances are not in the Rules. The Master Direction also says in paragraph 5, as its own direction, that a financial commitment exceeding USD 1 (one) billion (or equivalent) in a financial year requires prior approval of the Reserve Bank even when the total commitment is within the eligible limit.
The public sector proviso
The proviso says that the financial commitment made by "Maharatna or Navratna or Miniratna or subsidiaries of such public sector undertakings in foreign entities outside India engaged in strategic sectors shall not be subject to the limits laid down under this paragraph". "Strategic sector" is defined in rule 2(1)(z). The Rules do not list the Maharatna, Navratna or Miniratna undertakings, and none is named here.
The Explanation
The Explanation to the paragraph, the same one as at the end of Schedule I, says a foreign entity is considered to be in financial services if it undertakes an activity which, if carried out in India, requires registration with or is regulated by a financial sector regulator. It is covered in our article on ODI in financial services.
How this fits with the Regulations
The limit applies to total financial commitment, which includes debt and non-fund-based facilities as well as ODI equity. Financial commitment by way of debt, guarantees and pledge or charge is dealt with in the Overseas Investment Regulations, 2022. Our live articles on them, starting with regulations 1 to 4, guarantees under regulation 5, pledge and charge under regulation 6 and deferred payment and mode of payment under regulations 7 and 8, explain how each counts toward the limit. This article does not repeat them.
A worked example
Norwood Chemicals Private Limited has a net worth of 50 on its last audited balance sheet. Four hundred per cent of that is 200. It already has financial commitments of 120 across its foreign entities and proposes a new ODI of 100. The total would be 220, above 200, so the new commitment cannot be made in full unless the Reserve Bank's direction or an approval allows. If Norwood had raised 30 through an ECB whose corresponding pledge had not been counted, that 30 would also be counted when used. If 20 of Norwood's overseas holdings arose by capitalising retained earnings, they would not be counted. The figures are invented and carry no unit; the name is invented too.
Need help with the financial commitment limit?
Headroom is easy to misjudge when old balance sheets, ECB utilisation and ADR proceeds are in play. Our overseas direct investment reporting team can compute the limit and file the related forms with you.
Key takeaways
- The ceiling is four hundred per cent of net worth on the last audited balance sheet, or as the Reserve Bank directs in consultation with the Central Government.
- It applies to total financial commitment in all foreign entities taken together.
- Retained earnings capitalised are left out; ADR/GDR utilisation and ECB proceeds (net of pledge or charge already counted) are counted.
- Maharatna, Navratna and Miniratna undertakings and their subsidiaries are outside the limit for strategic sector investments.
- The Master Direction adds EEFC balances to what is counted and sets USD 1 billion as the point for prior Reserve Bank approval.
Read next
- ODI in financial services: Schedule I, paragraph 2
- Manner of making ODI by an Indian entity: Schedule I, paragraph 1
- Financial commitment by an Indian entity: paragraph 21 of the Master Direction
- ODI: financial commitment and reporting
Disclaimer: Based on the Gazette text of the instrument this article names, as notified and as amended by the notifications named in the article (for the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 the latest amendment consulted is S.O. 4870(E) dated 2 September 2026), as consulted on 2 October 2026. There is no official consolidated text; the provisions were read with each amendment applied. Sectoral caps, entry routes, conditions, forms and time limits change by notification, press note and circular; later changes should be checked on the Gazette, DPIIT and Reserve Bank sites. This article is general information, not legal advice; check the official text before acting.