Rules 7 and 7A 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 7 of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 lets a person resident outside India who already holds shares in an Indian company take up a rights issue or a bonus issue, on eight conditions. Rule 7A, added in 2020, covers a non-resident who acquires a right renounced by a resident. Since 11 June 2025, a new sub-rule (2) also lets a company in a prohibited sector issue bonus shares to its existing non-resident shareholders.
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 provision was read from the 2019 notification with the amendments applied. Reporting of such issues is explained in our FC-GPR reporting page.
A person resident outside India with an existing investment may take up equity instruments (other than share warrants) in a rights issue or bonus issue if the offer complies with the Companies Act, 2013, the issue does not breach the sectoral cap, the underlying holding was acquired and held as per the Rules, and the pricing and payment conditions are met. Rule 7A (S.O. 1374(E), 27 April 2020) lets a non-resident who acquires a renounced right from a resident take up shares at the rule 21 pricing. Rule 7(2) (S.O. 2549(E), 11 June 2025) permits bonus shares in a prohibited sector only to pre-existing non-resident shareholders with an unchanged shareholding pattern.
Rule 7(1): the eight conditions
As notified, rule 7 was headed "Acquisition through rights issue or bonus issue". It says a person resident outside India and having investment in an Indian company may make investment in equity instruments (other than share warrants) issued by that company as a rights issue or a bonus issue, provided that:
| Clause | Condition |
|---|---|
| (a) | The offer made by the Indian company complies with the Companies Act, 2013 |
| (b) | The issue does not result in a breach of the sectoral cap applicable to the company |
| (c) | The shareholding on which the rights or bonus issue is made must have been acquired and held as per the Rules |
| (d) | For a listed Indian company, the rights issue to persons resident outside India is at a price determined by the company |
| (e) | For an unlisted Indian company, the rights issue to persons resident outside India is not at a price less than the price offered to persons resident in India |
| (f) | The investment through rights or bonus issue is subject to the conditions applicable at the time of the issue |
| (g) | The mode of payment and attendant conditions are as specified by the Reserve Bank |
| (h) | An individual who is a person resident outside India exercising a right issued when he or she was resident in India holds the equity instruments (other than share warrants) so acquired on a non-repatriation basis |
Three notifications changed the layout. As notified, rule 7 ended with an Explanation extending the conditions to a person resident outside India who invests in equity instruments (other than share warrants) issued as a rights issue that are renounced by the person to whom they were offered. S.O. 1374(E), the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2020 (27 April 2020) omitted that Explanation and replaced it with the new rule 7A. S.O. 2549(E), the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2025 (11 June 2025) renumbered rule 7 as rule 7(1) and inserted sub-rule (2) after clause (h). Clauses (a) to (h) otherwise stand as notified.
The rights issue itself is a Companies Act event; see our articles on section 62 of the Companies Act, 2013 and, for bonus shares, section 63 of the Companies Act, 2013. Clause (g) points to the Mode of Payment and Reporting Regulations, explained in our articles on payment and issue of shares and on Form FC-GPR and related returns.
Reading clauses (d) and (e)
The two pricing rules differ by listing status. A listed company sets the rights price itself. An unlisted company must not price the non-resident's rights below what resident shareholders pay. The pricing floor for other issues to non-residents is in our article on pricing under rule 21. Whether a company counts as "listed" follows rule 2(ag); see our article on FDI, foreign portfolio investment and the sectoral cap.
What the Master Direction adds
The Reserve Bank's Master Direction - Foreign Investment in India, updated up to June 15, 2026, repeats the eight conditions in paragraph 6.12.1 and adds, as its own directions to banks and not as part of the Rules: the shares so acquired carry the same conditions, including repatriability, as the original holding, and the nature of the investment (FDI or FPI) remains that of the original investment; consideration may be paid as inward remittance through banking channels or out of funds in a repatriable foreign currency or Rupee account under the Foreign Exchange Management (Deposit) Regulations, 2016, and, if the original investment was on a non-repatriation basis, by debit to an NRO account. Paragraph 6.12.3 adds that a company may issue under section 62(1)(a)(iii) of the Companies Act to a person resident outside India other than an OCB, subject to the entry routes, caps, pricing and conditions.
Rule 7A: acquisition after renunciation of rights
Rule 7A, inserted by S.O. 1374(E), reads: a person resident outside India who has acquired a right from a person resident in India who has renounced it may acquire equity instruments (other than share warrants) against the said rights as per pricing guidelines specified under rule 21. The rule is short and has no provisos.
The Master Direction, in paragraph 6.12.4, goes further than the Rule's text. It says a resident and a non-resident may both subscribe to additional shares beyond the rights offered and renounce in favour of a named person; that this facility is not available to investors allotted shares as Overseas Corporate Bodies; and that a non-resident who acquires a right from a resident or non-resident holding on a non-repatriation basis may acquire the shares on a repatriable basis subject to entry routes, caps and pricing, but if the funds are non-repatriable the shares are held on a non-repatriation basis. Those are the Master Direction's statements; rule 7A prints none of them.
Rule 7(2): bonus shares in a prohibited sector
Rule 7(2), inserted on 11 June 2025, says an Indian company engaged in a sector or activity prohibited for foreign direct investment may issue bonus shares to its pre-existing shareholders who are persons resident outside India, provided that the shareholding pattern of such shareholders is not changed pursuant to the issuance of bonus shares. Bonus shares issued to such shareholders before the sub-rule began are deemed to have been issued in accordance with the Rules, or the Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000, or those Regulations of 2017, as the case may be. The two earlier regulations are quoted as printed; the 2017 Regulations were superseded by the Rules, as the preamble says, and the reader should check the current instrument for anything done under the 2000 Regulations. The prohibited sectors are listed in Schedule I paragraph 2.
A worked example
Lakshya Components Limited is an unlisted company outside any prohibited sector. Nordvik Holdings, a non-resident shareholder since a compliant investment, is offered rights shares at the price offered to resident shareholders. The issue keeps Lakshya within its sectoral cap, so clauses (a) to (c) and (e) are met. A resident shareholder, Mr. Rao, renounces his rights in Nordvik's favour; rule 7A lets Nordvik acquire those shares, priced under rule 21. Separately, if Lakshya were in a prohibited sector, it could issue bonus shares to Nordvik only if Nordvik's percentage holding relative to the other shareholders does not change.
Need help with a rights or bonus issue to a foreign shareholder?
Before a rights or bonus issue reaches a non-resident shareholder, the cap, price and underlying holding all need checking, and the report must follow. Our FC-GPR reporting team can handle the filing after the issue.
Key takeaways
- Rule 7(1) allows rights and bonus issues (not share warrants) to a non-resident with an existing, compliant investment, subject to eight conditions.
- Listed company: price set by the company; unlisted company: not below the price offered to residents.
- Rule 7A (27 April 2020) allows a non-resident to take up a right renounced by a resident, at rule 21 pricing.
- Rule 7(2) (11 June 2025) allows bonus shares in a prohibited sector to pre-existing non-resident shareholders if the shareholding pattern stays unchanged.
- Payment and reporting are as specified by the Reserve Bank.
Read next
- Rule 21 of the FEM (Non-debt Instruments) Rules, 2019: pricing of shares issued to non-residents
- Schedule I paragraph 2 of the FEM (Non-debt Instruments) Rules, 2019: sectors prohibited for foreign investment
- Rule 8 of the FEM (Non-debt Instruments) Rules, 2019: ESOPs, sweat equity and Share Based Employee Benefits
- Rights issue under section 62: complete procedure guide
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.