ACQUIREMANCan a foreign company buy an Indian business?
Yes. India permits foreign direct investment (FDI) in most sectors under the automatic route, which needs no prior approval — only compliance with the Foreign Exchange Management Act, 1999 (FEMA), the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) and post-transaction reporting.
Some sectors are under the government route (prior approval needed) or have caps and conditions — for example, parts of financial services, insurance, defence, broadcasting, multi-brand retail and e-commerce inventory models. A few sectors are prohibited. Always check the current consolidated FDI Policy for the target’s sector.
Press Note 3: buyers from neighbouring countries
Since April 2020, an entity of a country that shares a land border with India, or where the beneficial owner of an investment is situated in or is a citizen of such a country, can invest only under the government route. This includes changes in beneficial ownership of existing investments. Expect longer timelines for such deals and check fund structures carefully — limited partners can sometimes trigger the rule.
FEMA pricing guidelines
| Transaction | Price rule |
|---|---|
| Resident sells shares of an unlisted Indian company to a non-resident | At least fair value |
| Non-resident sells shares of an unlisted Indian company to a resident | Not more than fair value |
| Indian company issues new shares to a non-resident | At least fair value |
| Listed company shares | Based on SEBI guidelines |
Fair value must be determined on an arm’s-length basis using an internationally accepted pricing methodology, and certified by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant. In practice, banks expect a recent valuation report, so time the valuation close to signing.
Deferred consideration, escrow and earn-outs
In a transfer between a resident and a non-resident, up to 25% of the total consideration may be paid on a deferred basis, kept in escrow or held back for indemnity, for a period not exceeding 18 months from the date of the transfer agreement. The total consideration must still comply with the pricing guidelines. This shapes how earn-outs and escrows can be structured in inbound deals.
Share swaps
An Indian company’s shares can be exchanged for shares of a foreign company in permitted cases. Cross-border swaps require valuation by a SEBI-registered merchant banker or an investment banker outside India registered with the appropriate regulator, and the Indian side must also comply with India’s Overseas Investment rules. If the buyer is from a land-border country, government approval is needed.
Reporting and filings
- Form FC-TRS — for transfers of shares between residents and non-residents, filed on the RBI’s FIRMS portal within 60 days of the transfer or receipt of funds, whichever is earlier. The share transfer is recorded only after FC-TRS is filed.
- Form FC-GPR — when an Indian company issues shares to a foreign investor, within 30 days of issue.
- Annual Return on Foreign Liabilities and Assets (FLA) — every year by the Indian company with foreign investment.
- Downstream investment — if the Indian target itself has subsidiaries, indirect foreign investment rules and filings may apply.
Delays can be regularised through late-submission fees or compounding, but they can hold up closing — check the target’s past FEMA filings during due diligence.
Competition approval (CCI)
Large deals need clearance from the Competition Commission of India if they cross the asset or turnover thresholds — or if the deal value exceeds ₹2,000 crore and the target has substantial business operations in India, even if the target’s own assets and turnover are small. The deal-value test is especially relevant for acquisitions of Indian tech and digital businesses.
Tax points for foreign buyers
- Withholding tax: a buyer paying a non-resident seller generally has to deduct tax at source; payments to resident sellers of shares may also involve TDS obligations.
- Indirect transfers: selling shares of a foreign company that derives substantial value from Indian assets can be taxable in India.
- Tax treaties may reduce Indian tax for non-resident sellers, subject to anti-abuse rules and documentation.
- Fair value rules under the Income-tax Act sit alongside the FEMA pricing rules — the price must work for both.
Indian companies buying abroad
Outbound acquisitions by Indian companies are governed by the Foreign Exchange Management (Overseas Investment) Rules and Regulations, 2022, with limits based on the Indian company’s net worth and reporting through the authorised dealer bank.
“Reverse flips” — bringing holding companies back to India
Many Indian startups were originally structured with a holding company in Singapore, the US or elsewhere. Moving the holding company back to India (a “reverse flip”) has become common ahead of Indian IPOs. Since September 2025, a merger of a foreign holding company into its Indian wholly-owned subsidiary can use the faster fast-track merger route, subject to RBI and other approvals.
Practical checklist for cross-border deals
- Confirm the sector’s FDI route and caps.
- Check the buyer’s ownership chain for Press Note 3 issues.
- Commission a FEMA-compliant valuation close to signing.
- Structure deferred consideration and escrow within the 25% / 18-month limit.
- Plan FC-TRS filing and bank documentation (KYC, remittance) for closing day.
- Assess CCI thresholds, including the deal-value test.
- Model withholding tax and treaty positions for every seller.
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Frequently asked questions
Can a foreign company acquire 100% of an Indian company?
In most sectors, yes, under the automatic route. Some sectors have caps, conditions or require government approval, and buyers connected with countries sharing a land border with India always need prior government approval.
What are FEMA pricing guidelines?
Rules that set the minimum or maximum price for share transfers between residents and non-residents. A resident selling unlisted shares to a non-resident must receive at least fair value, certified by a chartered accountant, SEBI-registered merchant banker or practising cost accountant.
What is Form FC-TRS?
The form used to report a transfer of shares between a resident and a non-resident to the RBI through the FIRMS portal, generally within 60 days of the transfer or receipt of funds, whichever is earlier.
Can part of the price be paid later in a cross-border deal?
Yes. Up to 25% of the total consideration can be deferred, escrowed or held back for indemnity for up to 18 months, provided the total price meets the pricing guidelines.
Does a cross-border acquisition need CCI approval?
Only if it crosses the Competition Act thresholds — based on assets and turnover, or a deal value above ₹2,000 crore where the target has substantial business operations in India.
This article is general information for educational purposes, current as of 11 October 2026. It is not legal, tax, financial or investment advice. Laws, regulations and market conditions change — consult qualified professionals before acting. Acquireman is a marketplace and advisory platform; see our Terms of Use.