Rule 21 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 21(2) of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 sets a price floor when a resident sells to a non-resident (clause (b)) and a price ceiling when a non-resident sells to a resident (clause (c)). It also says who must value a swap of equity instruments. The pricing of fresh issues is in a companion article.
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. Rule 21(2)(b) and (c) are as notified on 17 October 2019; none of the 19 amending notifications up to 2 September 2026 changes them. Amendments made after that date should be checked in the Gazette. There is no official consolidated text. Transfers are reported on the form the Reserve Bank specifies; see our FC-TRS reporting page.
When a resident transfers to a non-resident, the price shall not be less than the SEBI-guideline price (listed), the preferential allotment price (listed, or in delisting), or the certified arm's length valuation (unlisted). When a non-resident transfers to a resident, the price shall not exceed the same benchmarks. For a swap of equity instruments, valuation must be made by a SEBI-registered Merchant Banker or a registered investment banker outside India, irrespective of the amount. The guiding principle is that the investor is not assured of any exit price.
Clause (b): transfer from a resident to a non-resident, a floor
The price of equity instruments transferred from a person resident in India to a person resident outside India shall not be less than:
- the price worked out in accordance with the SEBI guidelines, in case of a listed Indian company;
- the price at which a preferential allotment of shares can be made under the SEBI guidelines, as applicable, in case of a listed Indian company or a company going through a delisting process as per the SEBI (Delisting of Equity Shares) Regulations, 2009;
- the valuation of equity instruments done as per any internationally accepted pricing methodology for valuation on an arm's length basis, duly certified by a Chartered Accountant or a Merchant Banker registered with SEBI or a practising Cost Accountant, in case of an unlisted Indian company.
Clause (c): transfer from a non-resident to a resident, a ceiling
The price of equity instruments transferred by a person resident outside India to a person resident in India shall not exceed:
- the price worked out in accordance with the relevant SEBI guidelines, in case of a listed Indian company;
- the price at which a preferential allotment of shares can be made under the SEBI guidelines, as applicable, in case of a listed Indian company or a company going through a delisting process under the 2009 Delisting Regulations. Proviso: the price is determined for such duration as specified in the SEBI guidelines, preceding the relevant date, which shall be the date of purchase or sale of shares;
- the valuation of equity instruments done as per any internationally accepted pricing methodology for valuation on an arm's length basis, duly certified by a Chartered Accountant or a Merchant Banker registered with SEBI or a practising Cost Accountant, in case of an unlisted Indian company.
| Direction | Clause | Limit | Listed company benchmark | Unlisted company benchmark |
|---|---|---|---|---|
| Resident to non-resident | 21(2)(b) | Not less than | SEBI guideline price; preferential allotment price | Certified arm's length valuation |
| Non-resident to resident | 21(2)(c) | Not more than | SEBI guideline price; preferential allotment price over the prescribed period | Certified arm's length valuation |
The SEBI guidelines, the preferential allotment formula and the 2009 Delisting Regulations are not in the texts consulted and are named only as the Rules print them; the reader should check the SEBI instruments now in force. The Rules do not name a valuation method beyond "any internationally accepted pricing methodology" and print no validity period for the certificate. The Reserve Bank's Master Direction - Foreign Investment in India, updated up to June 15, 2026, repeats clauses (b) and (c) in paragraphs 8.2 and 8.3, adds for a company that has completed delisting that the SEBI-determined price applies to shares not tendered, and says in paragraph 8.11 that a valuation certificate must not be more than ninety days old as on the date of the investment, except where the price is fixed under SEBI guidelines. These are the Master Direction's statements.
The guiding principle printed after clause (c)
After clause (c) the Rule carries an Explanation: the guiding principle shall be that the person resident outside India is not assured of any exit price at the time of making such investment or agreement, and shall exit at the price prevailing at the time of exit. The Master Direction places the same principle in paragraph 8.3.2, under the non-resident to resident transfer. It links with the optionality clause in rule 2(k) and rule 9(5): see our articles on equity instruments, convertible notes and units and on gift, optionality, deferred payment and escrow. For commentary on deferred consideration under FEMA, see our note on deferred consideration.
Swap of equity instruments
The item that follows the Explanation says: in case of swap of equity instruments, subject to the condition that, irrespective of the amount, valuation involved in the swap arrangement shall have to be made by a Merchant Banker registered with the Securities and Exchange Board of India or an investment banker outside India registered with the appropriate regulatory authority in the host country. The Master Direction repeats it at paragraph 8.4. Rule 9A, explained in our article on swap of equity instruments and equity capital, is the 2024 provision that permits the swap itself.
Where the guidelines do not apply
Rule 21(1) excludes transfers by sale done under SEBI regulations where SEBI specifies the pricing, and the proviso to rule 21(2) excludes investment on a non-repatriation basis. See our article on pricing of shares issued to non-residents. The company-law side of a transfer is in section 56 of the Companies Act, 2013. Rule 9(1) to (3), explained in our article on sale of shares between residents and non-residents, gives the transfer rights that rule 21 prices, and the older guides on transfer of shares from resident to non-resident and from non-resident to resident remain available.
A worked example
Mr. Rao, a resident, sells shares of Lakshya Components Private Limited, an unlisted company, to Nordvik Holdings, a non-resident. The agreed price cannot be below the certified arm's length valuation. Later Nordvik sells the same shares back to a resident buyer; the price cannot exceed that valuation. The agreement cannot promise Nordvik a fixed exit price. If instead Nordvik and a resident agree a share swap, a SEBI-registered Merchant Banker, or a registered investment banker abroad, must value the swap, however small it is.
Need help with the price and report for a share transfer?
A price outside the benchmarks can make a transfer non-compliant. Our FC-TRS reporting team can review the price and certificate before the transfer is reported.
Key takeaways
- Resident to non-resident: price not less than the SEBI-guideline or preferential allotment price (listed) or the certified valuation (unlisted).
- Non-resident to resident: price not more than the same benchmarks.
- The investor is not assured of any exit price; he exits at the price prevailing at exit.
- A swap of equity instruments needs a Merchant Banker or registered foreign investment banker valuation irrespective of the amount.
- The Rule prints no validity for the certificate; the Master Direction states ninety days.
Read next
- Rule 21 of the FEM (Non-debt Instruments) Rules, 2019: pricing of shares issued to non-residents
- Rule 9A of the FEM (Non-debt Instruments) Rules, 2019: swap of equity instruments and equity capital
- Rule 9(1) to (3) of the FEM (Non-debt Instruments) Rules, 2019: sale of shares between residents and non-residents
- Rules 20 and 22 of the FEM (Non-debt Instruments) Rules, 2019: reporting, taxes and remittance of sale proceeds
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.