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 1 of Schedule I to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 lists the ways in which a person resident outside India may come to hold equity instruments of an Indian company under the foreign direct investment route: a plain issue by the company, a purchase on a stock exchange by a holder who already has control, an issue against funds the company owes, and three special modes. The Rules are made by the Central Government under clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999.
This article states the position as per the Rules 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. Later amendments, press notes and sector regulators' conditions should be checked before acting. A foreign parent planning its first allotment can take our Indian subsidiary service for the structure and the paperwork.
An Indian company may issue equity instruments to a person resident outside India subject to the entry routes, sectoral caps and attendant conditionalities of Schedule I (sub-paragraph (a)). A non-resident may buy shares of a listed Indian company on a stock exchange only if it has already acquired control under the SEBI takeover regulations and continues to hold it (sub-paragraph (b)). Equity shares may be issued against funds payable by the company where the remittance is permitted (sub-paragraph (e)). Mode of payment is whatever the Reserve Bank specifies (sub-paragraph (f)). An issue outside these terms is not covered by Schedule I.
Where paragraph 1 sits
Schedule I is headed "(See rule 6(a))" and titled "Purchase or sale of equity instruments of an Indian company by a person resident outside India". Rule 6(a), as substituted in 2026, lets a person resident outside India subscribe, purchase or sell equity instruments of an Indian company in the manner and subject to the terms of Schedule I; see our article on who may invest and the land-border provisos. Paragraph 1 gives the modes, paragraph 2 the prohibited sectors and paragraph 3 the entry routes, caps and the sectoral Table.
The six sub-paragraphs at a glance
| Sub-paragraph | What it permits | Status of the text |
|---|---|---|
| (a) | Issue of equity instruments by an Indian company to a person resident outside India | As notified on 17 October 2019 |
| (b) | Purchase of equity instruments of a listed Indian company on a stock exchange in India, on two conditions | As notified on 17 October 2019 |
| (c) | Issue by a wholly owned subsidiary against pre-incorporation or pre-operative expenses | As notified on 17 October 2019 |
| (d) | Issue against swap, import of capital goods, pre-operative expenses and swap of equity capital of a foreign company | Substituted by S.O. 3492(E) dated 16 August 2024 |
| (e) | Issue of equity shares against funds payable by the company | As notified on 17 October 2019 |
| (f) | Mode of payment and remittance of sale or maturity proceeds | As notified on 17 October 2019 |
None of the 19 amending notifications up to 2 September 2026 changes sub-paragraphs (a), (b), (e) or (f). Sub-paragraphs (c) and (d) are explained in our article on shares against capital goods and pre-incorporation expenses.
Sub-paragraph (a): the plain issue
An Indian company may issue equity instruments to a person resident outside India subject to entry routes, sectoral caps and attendant conditionalities prescribed in Schedule I. Three things follow from those words:
- the issuer must be an "Indian company" as rule 2 defines it;
- what is issued must be "equity instruments": equity shares, convertible debentures, preference shares and share warrants as defined in rule 2(k);
- the sector decides the route (automatic or Government) and the ceiling, read from paragraph 3 and the Table.
The Reserve Bank's Master Direction - Foreign Investment in India, updated up to June 15, 2026, restates this in paragraph 1.1 of its Annex 1 in nearly the same words.
Sub-paragraph (b): purchase on a stock exchange
A person resident outside India may purchase equity instruments of a listed Indian company on a stock exchange in India, provided that:
(i) Control already acquired. The person making the investment has already acquired control of the company in accordance with the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 and continues to hold such control.
(ii) How the price is paid. The consideration may be paid as per the mode of payment specified by the Reserve Bank, or out of the dividend payable by the Indian investee company in which the person has acquired and continues to hold control under those SEBI regulations. The dividend route works only if the right to receive dividend is established and the dividend amount has been credited to a specially designated non-interest bearing rupee account for acquisition of shares on the recognised stock exchange.
The Master Direction (Annex 1, paragraph 1.2) describes that account as an SNRR account opened in terms of the Foreign Exchange Management (Deposit) Regulations, 2016. That is the Reserve Bank's direction to banks; Schedule I itself prints "a specially designated non-interest bearing rupee account".
A non-resident without control cannot use sub-paragraph (b). Portfolio purchases on the exchange belong to other Schedules of the Rules.
Sub-paragraph (e): shares against funds payable
An Indian company may issue equity shares (the sub-paragraph says equity shares, not equity instruments) against any funds payable by it to a person resident outside India, where the remittance of those funds:
- is permitted under the Act or the rules and regulations framed or directions issued under it; or
- does not require prior permission of the Central Government or the Reserve Bank under the Act, rules, regulations or directions; or
- has been permitted by the Reserve Bank under the Act, rules, regulations or directions.
Proviso. Where the Reserve Bank has granted permission for making the remittance, the company may issue equity shares against it only if all regulatory actions with respect to the delay or contravention under the Act, rules or regulations have been completed.
The Master Direction, updated up to June 15, 2026, adds in paragraph 1.4 of Annex 1 that such shares exclude partly paid shares, that issues needing Government approval, import dues deemed as external commercial borrowing or trade credit and payables against second hand machinery are dealt with under their own guidelines, and that the conversion should be net of applicable taxes. These are the Master Direction's statements, not words of Schedule I. For the tax side, see our income-tax guides.
Sub-paragraph (f): mode of payment
The mode of payment and other attendant conditions for remittance of sale or maturity proceeds "shall be specified by the Reserve Bank". The Reserve Bank has done so in Schedule I to the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, explained in our article on payment, issue of shares and refund under regulation 3.
Paragraph 2 of Annex 1 of the Master Direction states that consideration is to come as inward remittance through banking channels or out of funds in a repatriable foreign currency or rupee account kept under the Deposit Regulations, 2016; that equity instruments not issued within sixty days of receipt mean a refund within fifteen days after those sixty days; and that failure to do so is a contravention even if interest is paid.
A worked example
Nordvik Tools AS, a foreign company, holds a controlling stake in Saanvi Precision Limited, a listed Indian company, acquired under an open offer in line with the SEBI takeover regulations. Nordvik wants to add to its holding by buying on the exchange. Because it has acquired control under those regulations and still holds it, sub-paragraph (b)(i) is met. It may pay through the mode of payment the Reserve Bank specifies, or use its dividend from Saanvi once the right to that dividend is established and the amount sits in the specially designated non-interest bearing rupee account.
Separately, Saanvi owes Nordvik a royalty whose remittance does not need prior permission. Saanvi may issue equity shares against that payable under sub-paragraph (e), within the cap and route for its sector.
Need help with an allotment to a foreign shareholder?
Each mode in paragraph 1 has its own condition, and the sector's cap and route sit on top. Our Indian subsidiary team can map the mode, the sector entry and the reporting before the board passes the allotment resolution.
Key takeaways
- Sub-paragraph (a) ties every issue to the entry routes, sectoral caps and conditions of Schedule I.
- Sub-paragraph (b) allows exchange purchases only by a non-resident who has acquired, and still holds, control under the SEBI takeover regulations.
- Dividend may fund such purchases only through a specially designated non-interest bearing rupee account.
- Sub-paragraph (e) covers equity shares, not all equity instruments, against funds payable whose remittance is permitted.
- Where the Reserve Bank's permission was needed for the remittance, regulatory action on any delay or contravention must be complete first.
- Mode of payment is left to the Reserve Bank by sub-paragraph (f).
Read next
- Schedule I paragraph 1(c) and (d): shares against capital goods and pre-incorporation expenses
- Schedule I paragraph 3: automatic route and Government route
- Rule 21: pricing of shares issued to non-residents
- Section 6 of the Foreign Exchange Management Act, 1999: capital account transactions
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.