Master Direction 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 22 of the Reserve Bank's Master Direction on overseas investment gathers the directions to banks on resident individuals who invest abroad. It says what a resident individual may not do with control, how capitalisation, swaps, rights, gifts and inheritance are classified, when employee shares count as portfolio investment, how ESOP shares are remitted and bought back, and how all this ties in with the Liberalised Remittance Scheme.
As per the Master Direction, updated as on April 01, 2026, a resident individual may make overseas investment in accordance with Schedule III of the OI Rules. A resident individual with ODI without control shall not acquire control if the foreign entity later sets up a subsidiary. Shares by sweat equity, minimum qualification shares or ESOP up to 10 per cent of paid-up capital without control are OPI. There is no limit on remittance for ESOP or sweat equity shares, but it is reckoned towards the LRS limit.
The text and its footing
The Master Direction - Overseas Investment is FED Master Direction No.15/2024-25, July 24, 2024, "Updated as on April 01, 2026", issued to Authorised Dealer Category - I banks under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999; see our articles on section 10 and section 11. It is a direction to banks, not a rule. Schedule III of the Overseas Investment Rules, 2022, which the paragraph refers to, is not in the sources consulted, so the individual's eligibility and limits are not stated here beyond what the Master Direction prints. Later amendments and circulars should be checked on the Reserve Bank site. If you are a resident individual planning an overseas holding, our ODI reporting team can help you classify it.
The opening
Paragraph 22 begins: "With effect from August 05, 2013, resident individuals (single or in association with another resident individual or with an Indian entity) were permitted to make ODI. A resident individual may make overseas investment in accordance with schedule III of OI Rules." Our article on the Liberalised Remittance Scheme Master Direction explains the LRS limit on which individual overseas investment draws (paragraph 6 of that Master Direction lists ODI and OPI among permitted capital account transactions).
The seven sub-paragraphs
| Sub-para | What it says |
|---|---|
| (1) | Where a resident individual has made ODI without control in a foreign entity that later acquires or sets up a subsidiary or step down subsidiary, the individual shall not acquire control in that foreign entity |
| (2) | Overseas investment by capitalisation, swap of securities, rights or bonus, gift and inheritance is categorised as ODI or OPI based on the nature of the investment. But investment, whether listed or unlisted, by sweat equity shares, minimum qualification shares and shares or interest under ESOP or Employee Benefits Scheme, not exceeding 10 per cent of the paid-up capital or stock of the foreign entity and not leading to control, is categorised as OPI |
| (3) | In a swap of securities, both legs comply with FEMA. Where a swap results in acquiring equity capital that does not conform to the OI Rules and Regulations (for example ODI in a foreign entity engaged in financial services activity, or one having a subsidiary or step down subsidiary), that equity capital must be disinvested within six months from the date of acquisition |
| (4) | Resident individuals are not permitted to transfer any overseas investment by way of gift to a person resident outside India |
| (5) | ESOP and Employee Benefits Scheme shares: AD banks may allow remittances for acquiring shares or interest under the scheme offered directly by the issuing entity or indirectly through an SPV or step down subsidiary. Where it qualifies as OPI, reporting in Form OPI is done by the employer under regulation 10(3) of the OI Regulations. Where it qualifies as ODI, the resident individual reports in Form FC |
| (6) | Foreign entities may repurchase shares issued to residents in India under an ESOP scheme if (i) issued in accordance with FEMA rules and regulations, (ii) repurchased in terms of the initial offer document, and (iii) necessary reporting is done through the AD bank |
| (7) | There is no limit on the amount of remittance for ESOP or Employee Benefits Scheme shares or for sweat equity shares, but the remittances shall be reckoned towards the LRS limit of the person concerned |
Reading the pieces together
Control and subsidiaries. Sub-paragraph (1) closes a route. An individual who holds ODI without control cannot later acquire control if the foreign entity sets up or buys a subsidiary. Control is defined in paragraph 1(iii) of the Master Direction (the right to appoint a majority of directors or control management or policy decisions, including voting rights of ten percent or more); see the article on paragraphs 1 to 6.
ODI or OPI. Sub-paragraph (2) is the classification rule. A routine rights issue or a gift is classified by its nature. Employee-linked shares are the exception: they are OPI up to 10 per cent of paid-up capital without control, and this shields employees from the stricter ODI regime. The report differs accordingly: Form OPI by the employer, or Form FC by the individual.
Disinvestment after a swap. Sub-paragraph (3) gives a six-month period to disinvest equity capital acquired through a swap that does not conform.
Reporting. Paragraph 17(4) of the Master Direction says a resident individual making overseas investment must comply with reporting in the OI Regulations and also reports under the LRS where the investment is reckoned towards the LRS limit; acquisition of foreign securities by inheritance or gift in accordance with paragraph 2 of Schedule III of the OI Rules is not reckoned towards the LRS limit and needs no LRS reporting. Paragraph 17(3) adds that the APR is certified by a chartered accountant where statutory audit is not applicable, including for resident individuals; see the article on the APR. Paragraph 21(3) says a resident individual shall not make financial commitment by way of debt.
Example
Rahul, a resident individual, works for the Indian subsidiary of a foreign parent and receives ESOP shares of the parent amounting to 2 per cent of its paid-up capital, without control. Under sub-paragraph (2) they are OPI. The employer files Form OPI under regulation 10(3), and the remittance to buy them counts towards Rahul's LRS limit, though sub-paragraph (7) puts no limit on the amount of the remittance itself. Separately, Rahul holds a minority stake without control in a startup abroad as ODI; if the startup acquires a subsidiary, sub-paragraph (1) bars him from taking control. Finally, if he wanted to gift his overseas shares to a cousin who lives abroad, sub-paragraph (4) does not allow it.
Common mistakes
- Treating all employee shares as ODI. Up to 10 per cent without control, they are OPI.
- Forgetting that ESOP remittances count towards the LRS limit even without a monetary cap.
- Gifting overseas investment to a non-resident; sub-paragraph (4) bars it.
- Missing the six-month disinvestment for a non-conforming swap acquisition.
- Reporting ESOP OPI as an individual when the employer reports in Form OPI.
Need help classifying an overseas holding?
Whether a holding is ODI or OPI changes the form, the reporting and who files. Our ODI reporting team can classify the holding and handle the filings, including those under the LRS.
Key takeaways
- Resident individuals invest under Schedule III of the OI Rules.
- ODI without control cannot later become ODI with control after a subsidiary is set up.
- Employee and sweat equity shares up to 10 per cent without control are OPI.
- No monetary limit on ESOP remittance, but it counts towards LRS.
- No gift of overseas investment to a non-resident; swap-acquired non-conforming equity is disinvested within six months.
Read next
- Liberalised Remittance Scheme: Master Direction
- Financial commitment by an Indian entity: paragraph 21
- ODI for individuals: limits and conditions
- Financial commitment by equity, debt, guarantee and pledge, and OPI
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.