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.
Sub-paragraphs (c) and (d) of paragraph 1 of Schedule I to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 let an Indian company issue equity instruments to a foreign investor without cash coming in: against pre-incorporation or pre-operative expenses the investor has borne, and against capital goods, machinery or equipment the investor has supplied. The Rules are made 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. The allotment still has to be reported, and our FC-GPR reporting service handles that filing.
A wholly owned subsidiary in a sector open to hundred per cent foreign investment on the automatic route, with no FDI linked performance conditions, may issue equity instruments to its parent against pre-incorporation or pre-operative expenses up to five percent of its authorised capital or USD 500,000, whichever is less, and must report within thirty days of issue but not later than one year from incorporation (sub-paragraph (c)). Any Indian company may issue equity instruments against import of capital goods, machinery or equipment (excluding second hand machinery) or pre-operative or pre-incorporation expenses under sub-paragraph (d), as substituted in 2024. Government approval is needed wherever it is applicable.
Two routes for non-cash consideration
| Point | Sub-paragraph (c) | Sub-paragraph (d), items (ii) and (iii) |
|---|---|---|
| Who may issue | A wholly owned subsidiary set up in India by a non-resident entity | An Indian company |
| Sector condition | Sector where hundred per cent foreign investment is allowed in the automatic route and there are no FDI linked performance conditions | None printed in the sub-paragraph; the proviso requires Government approval "in all cases wherever Government approval is applicable" |
| Consideration | Pre-incorporation or pre-operative expenses incurred by the non-resident entity | Import of capital goods or machinery or equipment (excluding second hand machinery); pre-operative or pre-incorporation expenses (including payments of rent, etc.) |
| Ceiling | Five percent of authorised capital or USD 500,000, whichever is less | None printed |
| Time limit | Report within thirty days from issue but not later than one year from incorporation, or such time as the Reserve Bank permits | None printed; compliance with rules of the Central Government and regulations of the Reserve Bank |
| Text | As notified on 17 October 2019 | Substituted by S.O. 3492(E) dated 16 August 2024 |
Schedule I prints the percentage in the sector condition as a figure; it is written out in words here.
Sub-paragraph (c): the wholly owned subsidiary
Sub-paragraph (c) stands as notified on 17 October 2019; none of the 19 amending notifications up to 2 September 2026 changes it. Its elements are:
- The issuer: a wholly owned subsidiary set up in India by a non-resident entity.
- The sector: one where hundred per cent foreign investment is allowed in the automatic route and there are no FDI linked performance conditions.
- The allottee: "the said non-resident entity", that is, the parent which set it up.
- The consideration: pre-incorporation or pre-operative expenses incurred by that parent.
- The limit: five percent of the subsidiary's authorised capital or USD 500,000, whichever is less.
- The condition: within thirty days from the date of issue of equity instruments, but not later than one year from the date of incorporation or such time as the Reserve Bank permits, the Indian company shall report the transaction to the Reserve Bank as per the reporting requirements specified by the Reserve Bank.
The Reserve Bank's Master Direction - Foreign Investment in India, updated up to June 15, 2026, restates this in paragraph 1.3 of Annex 1. It adds that Form FC-GPR is the report, that a certificate of the statutory auditor that the amount was utilised for the purpose for which it was received goes with the form, and that such expenses include amounts remitted to the investee company's account, to the investor's account in India if it exists, or to any consultant, attorney or other material or service provider for expenditure relating to incorporation or necessary for commencement of operations. These are the Master Direction's statements. The form itself is covered in our article on Form FC-GPR under regulation 4 of the Mode of Payment and Reporting Regulations.
Sub-paragraph (d): as substituted in 2024
The Foreign Exchange Management (Non-debt Instruments) (Fourth Amendment) Rules, 2024, S.O. 3492(E) dated 16 August 2024, substituted sub-paragraph (d) as a whole. It now reads that an Indian company may issue, subject to compliance with the rules prescribed by the Central Government and the regulations specified by the Reserve Bank from time to time, equity instruments to a person resident outside India against:
- (i) swap of equity instruments; or
- (ii) import of capital goods or machinery or equipment (excluding second hand machinery); or
- (iii) pre-operative or pre-incorporation expenses (including payments of rent, etc.);
- (iv) swap of equity capital of a foreign company, in compliance with the rules prescribed by the Central Government including the Foreign Exchange Management (Overseas Investment) Rules, 2022 and the regulations specified by the Reserve Bank.
Proviso. Government approval shall be obtained in all cases wherever Government approval is applicable, and the applications for approval shall be made in the manner prescribed by the Central Government from time to time.
Items (i) and (iv) are share swaps; see our article on swap of equity instruments and equity capital under rule 9A.
What changed from the 2019 text
As notified in 2019, sub-paragraph (d) applied "if the Indian investee company is engaged in an automatic route sector" and its proviso required Government approval if the company was in a sector under Government route. The 2024 text drops the automatic route words from the opening, adds item (iv), and words the proviso generally. In the Gazette print the Explanation on "equity capital" stands after item (iv) and ends with a colon before the proviso; item (iii) ends with a semicolon without the word "or".
What the Master Direction adds
Paragraph 1.4.4 of Annex 1 of the Master Direction, updated up to June 15, 2026, attaches conditions that Schedule I does not print:
- Capital goods: the import is in accordance with the Foreign Trade Policy and the import regulations under the Act; there is an independent valuation by another entity, preferably an independent valuer from the country of import, with copies of customs assessment documents; and, where Government approval is sought, the application carries those documents and a special resolution, shows beneficial ownership and identity of the importer and the overseas entity, and is submitted within 180 days from the date of shipment.
- Pre-operative or pre-incorporation expenses: verification and certification by the statutory auditor; the inward remittance certificate for funds remitted by the overseas promoters; payment by the foreign investor to the company directly or through a bank account opened as the Act and regulations provide; and, for Government approval cases, an application with those documents and a special resolution, made within 180 days from the date of incorporation.
These are the Reserve Bank's directions to authorised dealers, covered by sections 11 and 12 of the Act, and are not part of the Rules.
A worked example
Halvorsen Pumps GmbH sets up Halvorsen Pumps India Private Limited as a wholly owned subsidiary in a sector open to hundred per cent foreign investment on the automatic route with no performance conditions. Before incorporation the parent paid consultants and a landlord. Under sub-paragraph (c) the subsidiary may issue equity instruments to the parent against those expenses up to five percent of its authorised capital or USD 500,000, whichever is less, and must report within thirty days of issue and not later than one year from incorporation.
The parent later ships new machinery to the subsidiary. The subsidiary may issue equity instruments against that import under sub-paragraph (d)(ii). Second hand machinery is excluded by the words of the item.
Need help reporting shares issued for goods or expenses?
Allotments against machinery or early expenses need the valuation, the auditor's certificate and the report to line up. Our FC-GPR reporting team prepares the documents and files within the time Schedule I prints.
Key takeaways
- Sub-paragraph (c) is limited to wholly owned subsidiaries in fully open automatic route sectors without FDI linked performance conditions.
- Its ceiling is five percent of authorised capital or USD 500,000, whichever is less.
- Reporting under (c) is within thirty days of issue and not later than one year from incorporation, or such time as the Reserve Bank permits.
- Sub-paragraph (d) was substituted by S.O. 3492(E) dated 16 August 2024 and now has four items.
- Second hand machinery is excluded from item (ii).
- Government approval is required wherever it is applicable.
Read next
- Schedule I paragraph 1: issue of equity instruments to a person resident outside India
- Rule 9A: swap of equity instruments and equity capital
- Schedule I paragraph 3: automatic route and Government route
- Regulations 1 to 3 of the Mode of Payment and Reporting Regulations, 2019: payment, issue and refund
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.