Exchange Control Regulations

Pillar of economic and financial development and stability of a country

Foreign Exchange Control Regulations (“ECR”) are crucial for economic and financial stability of a country. They play crucial role in managing balance of payments, maintaining foreign exchange reserves, stabilizing the exchange rate and foster growth by controlling foreign investment and combating illegal financial activities such as money laundering and terrorist financing.

Sources of Foreign Currency

Trade

Export of Goods

Services

Export of Services

Investment

Foreign Investment in Indian shares and securities

Charities and grants

Donations / Grants from received from abroad

Loans

Borrowings from outside India from shareholder, financial institutions, foreign banks etc.

Remittances

Transfer of funds by Non-Resident Indians living abroad towards payments in India or as a gift to friends, family and relatives in India for personal use.

The approach and prudence of the Government of India and the Reserve Bank of India on Capital Account Convertibility (CAC) is main feature of Indian ECR. India has allowed only partial Capital Account Convertibility. A CAC means the freedom to conduct investment transactions without any constraints i.e. no restrictions on the amount of rupees an Indian resident can convert into foreign currency to enable to acquire any foreign asset and vice-versa i.e. there should not be any restraints on the persons resident outside India bringing in any amount of foreign currency to acquire an asset in India.

Our Approach

ECR regulates the foreign exchange inflow and outflow, which involves cross-border complexities. We provide advisory and assistance in documentation, compliances and professional certifications, wherever necessary, on the critical areas as under:

Foreign Direct Investments in India

Advisory on Automatic and Government Approval Route

Submission of Application with Government for its approval

Compliances and reporting of the FDI

Compliances of sector specific conditionalities, if any

Compliances and reporting of transfer / exit of the investment

Compliances pertaining to the repatriations on and, of investments

Providing professional certifications, wherever necessary

Providing expert opinions on FDI related matters

Overseas Direct Investment

Advisory on routes of ODI

Submission of application with AD Bank / RBI for approval

Compliances and reporting of ODI and generation of UIN

Compliances and reporting of transfer of the ODI

Providing professional certifications, wherever necessary

Providing expert opinions

External Commercial Borrowing

Advisory on the terms of the loan agreement

Drafting of loan agreement

Submission of application with AD Bank / RBI for approval

Generation of LRN and availing ECB

Submission of monthly ECB-2

Advisory on the modifications in the ECB Agreements

Providing professional certifications

Providing expert opinions

Exports, Imports and Trade related advisory

Generation of Importer Export Code

Advising on IDPMS and EDPMS systems

Advising on payment or receivables beyond due dates

Advising on delayed / outstanding payments / write-offs etc.

Donations and charities

Advising on application to the Ministry of Home Affairs for license under Foreign Contribution and Regulation Act (FCRA)

Advisory on the compliances under FCRA

Non-compliances, Fines and Penalties

As per ECR, any non-compliance or offence may attract penalty up-to three times of the amount involved under such non-compliance or offence. Further, delayed realisations of export proceeds or payment of imports may highlight the name of such entity as a non-compliant in the RBI’s centralised system. As per a rough analysis, we found that approximately 1% to 2% of the foreign exchange funds under the forex transactions goes into payment of fines or Late Submission Fees levied by the RBI for various offences and non-compliances under ECR Regulations.

Frequently Asked Questions

Exchange Control Regulations

What types of entities can a foreign company set up in India?

You can establish a Private Limited Company, Public Limited Company, Wholly Owned Subsidiary, Joint Venture, Limited Liability Partnership (LLP), or even Companies for Charitable Purposes, depending on your business objectives and compliance requirements.

How do I decide the right structure for my business in India?

The choice depends on your industry, ownership preferences, taxation, compliance costs, and long-term goals. We spend significant time understanding your plans and advise the most suitable structure to optimize governance, cost, and operational efficiency.

What are the compliances required for starting a business in India?

Post incorporation, a company must comply with regulatory filings, taxation requirements, accounting standards, and corporate governance norms. This includes statutory registrations, maintenance of records, periodic returns, and other sector-specific approvals.

Can foreign investors freely invest in all Indian sectors?

Most sectors are open under the automatic FDI route, but certain industries require prior government approval. We help you assess whether your business falls under automatic or approval routes and guide you through approvals if required.

What are the key factors considered before entity formation?

We analyze promoter plans, industry nature, taxation aspects, compliance costs, and regulatory environment before advising on the form of entity to ensure long-term feasibility.

How does India support start-ups and entrepreneurs?

India has a vibrant start-up ecosystem with government support under the Start-up India Scheme. Entrepreneurs benefit from easier compliance, tax incentives, access to funding, incubators, accelerators, and strong investor interest.

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