Regulations 1 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 Debt Instruments Regulations begin with two bars and a gateway. A person resident outside India may not invest in India unless the Act, Rules or Regulations allow it. An Indian entity may not receive such an investment unless they allow it. Regulation 5 and Schedule 1 are the gateway, and regulations 6 and 7 cover bonus debt on mergers, taxes and remittance of sale proceeds.
These are the Foreign Exchange Management (Debt Instruments) Regulations, 2019 (Notification No. FEMA 396/2019-RB, October 17, 2019), as per the text on the Reserve Bank's site, amended up to October 01, 2025. Regulation 3 bars any investment in India by a person resident outside India, save as the Act, Rules or Regulations provide; regulation 4 bars an Indian entity from receiving it. The Reserve Bank may permit either on application, for sufficient reasons. All transactions go through banking channels in India, and remittance of sale proceeds is only as the Regulations and the relevant Schedule allow.
Authority
The preamble reads: "In exercise of the powers conferred by clause (a) of sub-section (2) of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), and in supersession of the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2017". See the Act articles on section 6 and sections 47 and 48. For advice on a non-resident's debt investment or a company's borrowing from non-residents, see our FEMA advisory service.
Regulation 1 and regulation 2: title and definitions
Regulation 1 gives the title and brings the Regulations into force from the date of publication in the Official Gazette. Regulation 2 defines the terms used. Several are worth noting:
| Term | Meaning as printed |
|---|---|
| debt instruments | The instruments listed under Schedule 1 |
| FPI | A person registered under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 |
| Indian entity | An Indian company or a limited liability partnership |
| investment | To subscribe, acquire, hold or transfer any debt instrument or unit issued by a person resident in India |
| investment on repatriation basis | An investment whose sale or maturity proceeds, net of taxes, are eligible to be repatriated out of India; "non-repatriation basis" is construed accordingly |
| listed Indian company | An Indian company with any equity or debt instruments listed on a recognised stock exchange in India |
| NRI and OCI | An individual resident outside India who is a citizen of India; an individual resident outside India registered as an Overseas Citizen of India Cardholder under section 7(A) of the Citizenship Act, 1955 |
The clauses defining "InvIT" and "REIT" were inserted with effect from October 21, 2021 by Notification No. FEMA.396(1)/2021-RB dated October 13, 2021, as the footnotes record. Words not defined take the meanings in the Act, rules and regulations (regulation 2(2)).
Regulation 3: restriction on investment by a person resident outside India
Save as otherwise provided in the Act, or rules or regulations made under it, no person resident outside India shall make any investment in India. Two provisos follow. First, an investment made in accordance with the Act, rules or regulations and held on the date the Regulations commenced is deemed made under these Regulations and is governed by them. Second, the Reserve Bank may, on an application and for sufficient reasons, permit a person resident outside India to make any investment in India, on conditions it considers necessary.
Regulation 4: restriction on receiving investment
Save as otherwise provided, an Indian entity, a mutual fund, a venture capital fund, a firm, an association of persons or a proprietary concern shall not receive any investment in India from a person resident outside India or record such investment in its books. The Reserve Bank may, on an application and for sufficient reasons, permit such receipt or recording on conditions it considers necessary. For the receiving side, note the words "record such investment in its books": a bookkeeping entry is covered as well as receipt of money.
Regulation 5: the gateway
Unless otherwise specified in the Regulations or Schedules, any investment by a person resident outside India is subject to the entry routes, investment limits and attendant conditions laid down in the Regulations. Then three permissions:
- A person resident outside India, permitted for the purpose by the Reserve Bank in consultation with the Central Government, may purchase or sell debt instruments in the manner and on the terms in Schedule 1.
- A person resident outside India may trade in all exchange traded derivative contracts approved by the Securities and Exchange Board of India from time to time, subject to the limits SEBI prescribes and the conditions in Schedule 1.
- A person resident outside India may enter into a contract in any derivative transaction subject to conditions laid down by the Reserve Bank from time to time.
Who may buy what under Schedule 1 is covered in our two articles on FPIs and other foreign investors in debt and on NRI and OCI investment in bonds and government securities.
Regulation 6: bonus debt on a merger, demerger or amalgamation
Where a Scheme of Arrangement for an Indian company has been approved by the National Company Law Tribunal or a Competent Authority, the Indian company may issue non-convertible redeemable preference shares or non-convertible redeemable debentures out of its general reserves, by way of distribution as bonus, to shareholders resident outside India. Three conditions apply:
- the original investment by the non-resident was made in accordance with the Regulations and the relevant Schedule;
- the issue complies with the Companies Act, 2013 and the terms of the approved scheme; and
- the Indian company does not engage in any activity or sector in which investment by a person resident outside India is prohibited.
Regulation 7: taxes and remittance of sale proceeds
Regulation 7.1 says all transactions under the Regulations shall be undertaken through banking channels in India and are subject to payment of applicable taxes and other duties or levies in India. For the tax side, see our income-tax guides.
Regulation 7.2 has three sub-regulations. (1) No remittance of sale proceeds of a debt instrument held by a person resident outside India shall be made otherwise than in accordance with the Regulations and the relevant Schedule. (2) An authorised dealer may allow remittance of sale proceeds (net of applicable taxes) to the seller resident outside India, provided the instrument was held on repatriation basis, and the Reserve Bank's approval has been obtained in other cases. (3) An authorised dealer may allow remittances, inward and outward, related to permitted derivatives transactions.
Example
Crestline Infra Limited, an invented Indian company, demerges one division under an NCLT-approved scheme. A shareholder resident outside India, who invested in the company in accordance with the Regulations, receives non-convertible redeemable debentures as bonus out of general reserves. Regulation 6 allows this if the scheme terms and the Companies Act, 2013 are met and the company is not in a prohibited sector. Later, the shareholder sells the debentures. Because the debentures were held on repatriation basis, an authorised dealer may allow the net sale proceeds to be remitted under regulation 7.2(2). Were they held on non-repatriation basis, the Reserve Bank's approval would be needed.
Amendments and circulars after October 01, 2025 should be checked.
Need help with non-resident investment in debt?
Whether a debt instrument can be bought, issued or paid out to a non-resident turns on the Schedule and the status of the investor. Our FEMA advisory team can map the route and the remittance.
Key takeaways
- Regulation 3 bars non-resident investment, and regulation 4 bars receipt of it, unless the Act, Rules or Regulations allow it; the Reserve Bank may permit on application.
- Regulation 5 sends investors to Schedule 1 and allows exchange traded and other derivative contracts.
- Regulation 6 allows bonus non-convertible redeemable preference shares or debentures to non-resident shareholders under an NCLT-approved scheme.
- All transactions go through banking channels in India.
- Remittance of sale proceeds follows the Schedule; repatriation basis holdings may be remitted by an authorised dealer.
Read next
- FPIs and other foreign investors in debt: Schedule 1
- NRI and OCI investment in bonds and government securities: Schedule 1
- Master Direction on non-resident investment in debt instruments
- 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.