Rule 9 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.
Rule 9(4) to (7) of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 deals with four special features of share transfers where one party is a person resident outside India: a gift by a resident to a relative abroad (sub-rule (4)), exit under an optionality clause (sub-rule (5)), deferred payment, escrow and indemnity (sub-rule (6)) and the escrow account itself (sub-rule (7)). Sub-rules (1) to (3) and the pledge in sub-rule (8) are explained in separate articles.
This article is based on the Rules as notified on 17 October 2019 (S.O. 3732(E)) as amended by the notifications named in this article; the latest amendment consulted is S.O. 4870(E) dated 2 September 2026. Amendments made after that date should be checked in the Gazette. There is no official consolidated text; each sub-rule was read from the 2019 notification with the amendments applied. For the reporting of such transfers, see our FC-TRS reporting page.
Sub-rule (4) allows a person resident in India to gift equity instruments or units to a person resident outside India with the prior approval of the Reserve Bank, on six conditions, including a five per cent ceiling, a fifty-thousand US Dollar financial-year ceiling and a donor-donee relationship as "relatives". Sub-rule (5): an optionality exit may be taken without any assured return. Sub-rule (6): up to twenty five percent of the consideration may be deferred, escrowed or indemnified for not more than eighteen months. Sub-rule (7) permits an escrow account.
Rule 9(4): gift of shares by a resident to a person resident outside India
As notified, sub-rule (4) read: "A person resident in India holding equity instruments or units of an Indian company on a non-repatriation basis may transfer the same to a person resident outside India by way of gift with the prior approval of the Reserve Bank". S.O. 4355(E), the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2019 (5 December 2019) omitted the words "on a non-repatriation basis". As amended, the sub-rule applies to a person resident in India holding equity instruments or units of an Indian company, and the gift needs the prior approval of the Reserve Bank "in the manner prescribed", subject to these conditions, which stand as notified:
| Item | Condition |
|---|---|
| (i) | The donee is eligible to hold such a security under the Schedules of the Rules |
| (ii) | The gift does not exceed five percent of the paid up capital of the Indian company, or of each series of debentures, or of each mutual fund scheme |
| (iii) | The applicable sectoral cap in the Indian company is not breached |
| (iv) | The donor and the donee are "relatives" within the meaning of clause (77) of section 2 of the Companies Act, 2013 |
| (v) | The value of security transferred by the donor, together with any security transferred as gift to any person residing outside India during the financial year, does not exceed the rupee equivalent of fifty-thousand US Dollars |
| (vi) | Such other conditions as the Central Government considers necessary in public interest |
The Explanation to item (ii) says the five percent is on a cumulative basis by a single person to another single person.
Where the Master Direction reads differently
The Reserve Bank's Master Direction - Foreign Investment in India, updated up to June 15, 2026, restates the gift rule in paragraph 7.7.1 as applying to "an NRI or an OCI holding securities of an Indian company on a non-repatriation basis or a person resident in India". The Rule as amended in December 2019 has no reference to an NRI or OCI or to non-repatriation in sub-rule (4); the Master Direction keeps the earlier shape. This article states the sub-rule as the notifications give it; the reader should confirm the current text before relying on either wording. The Master Direction also says the application is made through an Authorised Dealer bank to the Regional Office of the Reserve Bank concerned and omits item (vi); both are its own statements and not in the Rule.
The "relatives" test borrows the Companies Act definition. Our article on section 56 of the Companies Act, 2013 covers the registration of a transfer.
Rule 9(5): exit under an optionality clause
Sub-rule (5): a person resident outside India holding equity instruments of an Indian company containing an optionality clause in accordance with the Rules and exercising the option or right may exit "without any assured return", subject to the pricing guidelines prescribed in the Rules and a minimum lock-in period of one year or the minimum lock-in period prescribed in the Rules, whichever is higher. It stands as notified. It reads with the definition of equity instruments in rule 2(k), which allows an optionality clause only without any option or right to exit at an assured price; see our article on equity instruments, convertible notes and units.
Rule 9(6): deferred payment, escrow and indemnity
Sub-rule (6) applies to a transfer of equity instruments between a person resident in India and a person resident outside India. An amount not exceeding twenty five percent of the total consideration may be:
- paid by the buyer on a deferred basis within a period not exceeding eighteen months from the date of the transfer agreement; or
- settled through an escrow arrangement between buyer and seller for a period not exceeding eighteen months from the date of the transfer agreement; or
- indemnified by the seller for a period not exceeding eighteen months from the date of the payment of the full consideration, if the total consideration has been paid by the buyer to the seller.
The proviso: the total consideration finally paid for the shares shall be compliant with the applicable pricing guidelines. The sub-rule is as notified. The Master Direction (paragraph 7.9) adds, as its own statement, that the share purchase or transfer agreement must contain the clause and related conditions for the arrangement used. Our article on deferred consideration under FEMA discusses the arrangement in depth, and pricing is covered in the article on pricing of share transfers and swaps.
Rule 9(7): the escrow account
Sub-rule (7): in a transfer between a person resident in India and one resident outside India, the non-resident may open an escrow account in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. The account may be funded by inward remittance through banking channels and/or by a guarantee issued by an authorised dealer bank, subject to the terms and conditions specified in the "Foreign Exchange Management (Guarantees) Regulations, 2000".
That is a stale reference. The Rule quotes the 2000 Regulations as printed, and the Master Direction (paragraph 7.10.2) repeats the name. The Guarantees Regulations, 2026 are explained in our article on cross-border guarantees under the FEM (Guarantees) Regulations, 2026; the reader should check which instrument governs the guarantee before relying on the 2000 Regulations. The Master Direction adds that where a transaction is governed by SEBI guidelines or regulations, operation of escrow accounts for securities follows the relevant SEBI regulations.
A worked example
Mr. Rao, a resident in India, holds shares of Lakshya Components Private Limited and wants to gift some to his brother, who lives abroad. They are "relatives" under the Companies Act definition. The gift must stay within five percent of Lakshya's paid-up capital (cumulatively from Mr. Rao to his brother), keep Lakshya within its sectoral cap, and, together with other gifts by Mr. Rao to non-residents in the financial year, stay within the rupee equivalent of fifty-thousand US Dollars in value. Prior Reserve Bank approval is required. For a sale rather than a gift, if Mr. Rao agrees to sell other shares to Nordvik Holdings for a price of 100 units, up to twenty-five units may be deferred, escrowed or indemnified for up to eighteen months, as long as the final price still meets the pricing guidelines.
Need help with a gift or deferred-payment share transfer?
Gifts and deferred-consideration deals need the approval, the limits and the reporting lined up. Our FC-TRS reporting team can help with the filing once the Reserve Bank approval is in place.
Key takeaways
- Rule 9(4) gift: prior Reserve Bank approval; six conditions, including five percent, fifty-thousand US Dollars and "relatives".
- "On a non-repatriation basis" was omitted from sub-rule (4) on 5 December 2019; the Master Direction's wording still includes it.
- Rule 9(5): optionality exit without any assured return, with a lock-in of one year or the prescribed period, whichever is higher.
- Rule 9(6): up to twenty five percent deferred, escrowed or indemnified for not more than eighteen months; final price must meet pricing guidelines.
- Rule 9(7) cites the Guarantees Regulations, 2000 as printed.
Read next
- Rule 9(1) to (3) of the FEM (Non-debt Instruments) Rules, 2019: sale of shares between residents and non-residents
- Rule 9(8) of the FEM (Non-debt Instruments) Rules, 2019: pledge of shares held by non-residents
- Rule 21(2)(b) and (c) of the FEM (Non-debt Instruments) Rules, 2019: pricing of share transfers and swaps
- Transfer of shares from resident to non-resident: FEMA
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.