FEMA Terms Explained

Who is considered ‘a person’ under FEMA?

As per the Foreign Exchange Management Act (FEMA), the term ‘a person’ includes:

  • An individual
  • A Hindu Undivided Family (HUF)
  • A company
  • A partnership firm
  • An association of persons or body of individuals, whether incorporated or not
  • Any artificial juridical person not falling under the above categories
  • Any agency, office, or branch owned or controlled by such persons

Who is a person resident outside India?

For simplified understanding under FEMA:
A person resident outside India includes:
  • An individual residing in India for 182 days or less during the relevant financial year
  • A person who has left India for the purpose of employment, business, or any other purpose indicating an indefinite stay abroad
  • A person or body corporate registered or incorporated outside India
  • An individual who has come to India for reasons other than employment, business, or any purpose that indicates an indefinite stay

The original definition contained in FEMA as per section 2 is as follows:

Person resident outside India means a person who is not resident in India.
Person resident in India means a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include;

(A) a person who has gone out of India or who stays outside India, in either case

(B) for or on taking up employment outside India, or

(C) for carrying on outside India a business or vocation outside India, or

(D) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

A person who has come to or stays in India, in either case, otherwise other than–

(a) for or on taking up employment in India, or

(b) for carrying on in India a business or vocation in India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

(i) any person or body corporate registered or incorporated in India,

(ii) an office, branch or agency in India owned or controlled by a person resident outside India,

(iii) an office, branch or agency outside India owned or controlled by a person resident in India

FDI refers to investment by a person resident outside India:

  • In the equity instruments of an unlisted Indian company, or
  • In 10% or more of the post-issue paid-up equity capital (on a fully diluted basis) of a listed Indian company

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Foreign Investment is any investment made by a person resident outside India on a repatriable basis in:

  • Equity instruments of an Indian company
  • Capital of a Limited Liability Partnership (LLP)

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Overseas Investment refers to:

  • Financial commitment (including ODI, debt, and guarantees)

Overseas Portfolio Investment (OPI) made by persons resident in India

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ODI means investment by a person resident in India in:

  • Unlisted equity capital of a foreign entity
  • Subscription to the Memorandum of Association (MoA) of a foreign entity
  • 10% or more of the paid-up capital of a listed foreign entity
  • Less than 10% of capital but with control in a listed foreign entity

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OPI means investment by a resident Indian in foreign securities, other than ODI. It does not include:

  • Investment in unlisted debt instruments
  • Securities issued by a person resident in India who is not based in an International Financial Services Centre (IFSC)

 

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Financial Commitment includes the total investment by a resident Indian in:

  • ODI
  • Debt extended (excluding OPI) to a foreign entity
  • Non-fund-based facilities like corporate guarantees issued on behalf of the foreign entity

 

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An ESOP is a benefit plan under which a company grants equity participatory rights (such as shares) to its employees.

Foreign Portfolio Investment (FPI) allows overseas investors to invest in Indian securities like stocks and bonds without direct control. It promotes market liquidity while being regulated under FEMA for compliance and transparency.

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Definitions of Currency Terms:

  • Foreign Exchange includes:
    • Deposits, balances, credits in any foreign currency
    • Drafts, traveller’s cheques, letters of credit, or bills of exchange payable in foreign currency
    • Instruments drawn outside India but payable in Indian currency
  • Foreign Currency means any currency other than Indian Rupee (INR)