Indian businesses and founders are increasingly investing abroad, whether to set up a sales subsidiary in Dubai, acquire a small company in the UK or form a US entity to serve American clients. The ODI rules overseas investment framework under FEMA sets out who can invest, how much, in what and with what reporting. Getting the structure right at the start avoids approvals and compounding later.
The current framework came into force in August 2022 through the Foreign Exchange Management (Overseas Investment) Rules, 2022, the related Regulations and RBI’s Master Direction. This guide summarises the main rules for Indian companies and resident individuals.
Key takeaways
- ODI means investment in unlisted foreign equity, or 10% or more of a listed company’s equity, or investment with control; other investments are overseas portfolio investment (OPI).
- An Indian entity can make financial commitments up to 400% of its net worth; commitments above USD 1 billion in a financial year need RBI approval.
- Resident individuals invest within the LRS limit of USD 250,000 a year, only in operating entities outside financial services, and cannot control an entity with its own subsidiaries.
- Investments in real estate business, gambling and INR-linked financial products are prohibited.
- Reporting runs through the authorised dealer bank: Form ODI before or at the time of investment, and an Annual Performance Report by 31 December each year.
ODI or OPI: the first question
| Investment | Classification |
|---|---|
| Any equity in an unlisted foreign company | ODI |
| Less than 10% of a listed foreign company, without control | OPI |
| 10% or more of a listed foreign company, or any stake with control | ODI |
| Debt, guarantees or pledges for a foreign entity in which ODI is made | Part of financial commitment |
‘Control’ includes the right to appoint a majority of directors or to control management or policy decisions, including through shareholding of 10% or more of voting rights. Once an investment is classified as ODI, it remains so even if the stake later reduces, unless it is fully disinvested.
Rules for Indian companies and LLPs
Financial commitment limit
An Indian entity’s total financial commitment, covering equity, debt, guarantees and pledges, cannot exceed 400% of its net worth as per the last audited balance sheet. Some commitments are counted at a lower value, and some forms of guarantee are included only in part, so the calculation should be prepared carefully.
Where the investment can go
- A foreign entity engaged in a bona fide business activity, directly or through step-down subsidiaries.
- Investment in a foreign entity in the financial services sector is allowed subject to extra conditions, such as the Indian entity itself being in financial services and meeting profitability and regulatory tests.
- Investment in start-ups abroad is allowed only from the Indian entity’s internal accruals.
Round-tripping safeguards
An Indian entity cannot make ODI in a foreign entity that has invested, or invests, in India if the structure results in more than two layers of subsidiaries, subject to specified exceptions. Structures such as an Indian parent owning a foreign company that in turn owns an Indian company need careful review.
Worked example
A Pune software company has net worth of ₹12 crore as per its last audited balance sheet. Its ODI limit is 400% of that, or ₹48 crore. It plans to invest USD 2 million (roughly ₹17 to 18 crore) in equity of a new Singapore subsidiary and give a corporate guarantee of USD 1 million for the subsidiary’s bank line. Both count toward the limit, which is comfortably met, so the investment can proceed under the automatic route with Form ODI filed through its AD bank.
Rules for resident individuals
- Investment is made under the Liberalised Remittance Scheme, within USD 250,000 per financial year across all LRS remittances.
- ODI is permitted only in an operating foreign entity, not engaged in financial services.
- An individual cannot make ODI with control in a foreign entity that has a subsidiary or step-down subsidiary.
- Shares can also be acquired by gift, inheritance, ESOPs or sweat equity, subject to conditions.
- Remittances under LRS can attract TCS above the threshold at the time of remittance, which can be adjusted against income-tax.
If you are setting up a US entity as an individual, our guide to compliance for a US LLC owned by an Indian resident covers both sides of the border.
Prohibited investments
ODI is not allowed in a foreign entity engaged in:
- Real estate activity, meaning buying and selling of real estate or trading in transferable development rights (building townships or infrastructure is permitted).
- Gambling in any form.
- Dealing in financial products linked to the Indian rupee without RBI approval.
Investments in certain jurisdictions, such as Pakistan, need government approval, and investment in countries identified as non-cooperative by FATF is restricted.
Reporting and ongoing compliance
| Event | Report | Timeline |
|---|---|---|
| Financial commitment | Form ODI through the AD bank | Before or at the time of the investment |
| Evidence of investment | Share certificate or equivalent | Within six months |
| Annual performance | Annual Performance Report (APR) | By 31 December each year, based on the foreign entity’s accounts |
| Restructuring or disinvestment | Form ODI / FC as applicable | Within 30 days |
| Portfolio investments by listed Indian companies | Form OPI | Half-yearly |
| Foreign liabilities and assets | FLA return to RBI | By 15 July each year |
Delays can generally be regularised by paying a late submission fee, under a formula similar to the one we explain in our guide to FDI reporting through FC-GPR and FC-TRS. An Indian entity with reporting delays cannot make further financial commitments until the delay is regularised.
Practical checklist before you invest abroad
- Decide the investor: the Indian company, an LLP or the promoter individually.
- Confirm ODI vs OPI and check the sector and jurisdiction restrictions.
- Calculate the financial commitment limit from the latest audited net worth.
- Obtain a valuation where the rules require it for acquisitions or transfers.
- Pass board (and where needed, shareholder) resolutions.
- Share documents with the AD bank, obtain the UIN and remit.
- Calendar the share certificate, APR and FLA deadlines.
- Plan the tax side, including transfer pricing for intra-group transactions and disclosure of foreign assets.
Frequently asked questions
What is the limit for an Indian company to invest abroad?
Up to 400% of its net worth as per the last audited balance sheet, with commitments above USD 1 billion in a financial year needing RBI approval.
Can a resident individual set up a company abroad?
Yes, within the LRS limit and in an operating business outside financial services. The individual cannot control an entity that has its own subsidiaries.
What is the due date for the Annual Performance Report?
The APR is due by 31 December each year for every foreign entity in which ODI has been made, based on its latest accounts.
Is RBI approval needed for most ODI?
No. Most investments fall under the automatic route through the AD bank. Approval is needed only in specified cases, such as exceeding the limits or investing in restricted sectors or jurisdictions.
If you are planning an overseas investment from India, our team would be glad to help you structure it and manage the FEMA reporting.
This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.
