Seed funding received? Here is how to file FC-GPR and meet FEMA compliance (Part 2)

The final article in our seed funding series addresses the additional layer of compliance for international investors. Master the FEMA regulatory framework and FC-GPR filing process, essential for properly documenting foreign seed investments.

Introduction

“Singapore? Does that change things?” Rahul looked concerned when I mentioned we needed additional filings because Vikram’s investment entity was based in Singapore.

His question touched on a critical compliance area that many startup lawyers overlook until it is too late. 

When your client receives foreign investment—whether from Silicon Valley, Singapore, or any non-Indian source—an entirely new regulatory framework comes into play, which is the Foreign Exchange Management Act (FEMA).

For FoodSwift, the situation was common but complex. 

While Altitude Ventures had a significant Indian presence, their actual investment entity—Altitude Singapore Holdings—was incorporated in Singapore. This single detail triggered mandatory reporting to the Reserve Bank of India (RBI).

I explained to Rahul that “FEMA compliance is like telling the government not just who owns the shares, but where that money came from. The PAS-3 we just filed tells the MCA about the new shares. But for foreign investors, we also need to tell the RBI about the foreign money entering India.“

In my previous article (Essential MCA filings and board approvals after funding (Part 1)), I covered the essential domestic compliance requirements after securing seed funding: board resolutions, shareholder approvals, PAS-3 filings with the MCA, and share certificate issuance. These steps apply to all investment rounds regardless of investor origin.

But when your startup client receives foreign investment, as is increasingly common in India’s global startup ecosystem, an additional layer of compliance kicks in. Mastering these foreign investment regulations is what truly separates seasoned startup lawyers from novices.

Let us explore how to navigate these complex requirements while keeping your founder clients focused on what they do best—building their business.

Understanding the FEMA framework for startups

“So we need to report to the RBI because Altitude is from Singapore. But why? The money’s already in our account,” Priya said during our post-PAS-3 compliance meeting.

Her question reflected a common misconception: that receiving the funds is the end of the process. In reality, it is just the beginning of a critical reporting journey.

“India carefully monitors foreign investments to track capital flows into the economy,” I explained. “The RBI needs to know not just that money arrived, but specifically who sent it, why they sent it, and what rights they received in return.”

The Foreign Exchange Management Act (FEMA) creates a comprehensive regulatory framework governing all foreign investments into Indian companies. For startups, the most relevant regulations include:

1. Foreign Exchange Management (Non-debt Instruments) Rules, 2019 – Governs equity investments by foreign entities
2. Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 – Specifies reporting requirements
3. Master Direction on Reporting under FEMA – Provides detailed procedural guidance

“That sounds…complicated,” Rahul sighed.

“It is,” I acknowledged. “But breaking it down into concrete steps makes it manageable. Think of it as telling a story to the RBI about your new investor relationship.”

Automatic vs. approval routes

Before diving into specific filings, it is important to understand that foreign investments fall into two broad categories:

• Automatic route: No prior government approval required; simply report after receiving investment
• Approval route: Requires prior approval from relevant government departments

Many technology startups may qualify for the automatic route, allowing them to receive funds first and report afterwards. However, automatic route eligibility must be verified on a case-by-case basis, considering:

1. Industry sector – Some sectors have restrictions or investment caps.
2. Investor origin – Certain countries (particularly those sharing land borders with India) face additional scrutiny under Press Note 3 of 2020, requiring prior government approval.
3. Investment structure – Some instruments or rights require specific approvals.

It is essential to confirm automatic route eligibility based on your specific business model, investor origin, and the latest FDI Policy and Press Notes. What appears to be a standard technology business might have regulatory nuances that affect foreign investment routes.

For FoodSwift’s food delivery platform, I confirmed they qualified for the automatic route since:

• Food delivery falls under sectors with 100% FDI permitted
• Singapore has no country-specific restrictions
• The investment was structured as standard equity with typical rights

“Good news,” I told Rahul and Priya. “Your investment qualifies for the automatic route. That means we do not need prior government permission—we just need to report properly after the fact.”

Vikram nodded in agreement. “We have made several investments in Indian startups through our Singapore entity. The automatic route is standard for most tech investments.”

While most tech startups qualify for the automatic route, always verify this assumption by checking:

• The latest FDI Policy (updated periodically)
• Press Notes issued by the Department for Promotion of Industry and Internal Trade (DPIIT)
• Sector-specific regulations that might apply to your client’s business model

Industry-specific considerations

Even within the automatic route, different sectors face different FDI caps and conditions. Here is a quick reference for common startup sectors:

Sector	FDI Cap	Route	Special Conditions
E-commerce (Marketplace)	100%	Automatic	No inventory-based model permitted
E-commerce (Inventory)	0%	N/A	Prohibited for foreign investment
Fintech (Payments)	100%	Automatic	Subject to additional RBI approvals
Food Delivery	100%	Automatic	None
Health Tech	100%	Automatic	None for technology; medical facilities have conditions
Media/Content (Digital)	100%	Automatic	The news media have restrictions (Subject to Press Note 4 of 2019 and subsequent amendments)
SaaS/Enterprise Tech	100%	Automatic	None

“Your food delivery model has no sector-specific restrictions,” I confirmed for FoodSwift. “But if you expanded into, say, holding food inventory or selling your own branded products, we would need to review the compliance requirements again.”

This highlights an important point for startup lawyers: advise your clients to consult you before pivoting their business model, as this may trigger new foreign investment requirements.

The critical FC-GPR filing

With the FEMA framework understood, it was time to focus on the most important filing: the Foreign Collaboration-General Permission Route (FC-GPR) form. This is the primary mechanism for reporting foreign equity investments to the RBI.

“The FC-GPR is to the RBI what the PAS-3 is to the MCA,” I explained to FoodSwift’s founders. “It formally documents Altitude Singapore’s investment and ownership in your company.”

The 30-day countdown

Unlike many compliance deadlines that are loosely enforced, the FC-GPR timeline is taken very seriously by the RBI. The regulation requires filing within 30 days of share issuance, not 30 days from receiving the money, but from the actual share allotment date documented in your board resolution. It is important to note that this allotment date may differ from the date of the board resolution approving the allotment, especially if there are procedural delays.

“We issued shares on May 15th, so our FC-GPR deadline is…?” Rahul asked, checking his calendar.

“June 14th,” I confirmed. “And unlike some other deadlines where late penalties are minor, missing the FC-GPR deadline can trigger Late Submission Fee (LSF) under FEMA that increases with both the duration of delay and the investment amount.”

According to the RBI Circular dated September 30, 2022 (RBI/2022-23/122), the Late Submission Fee for FC-GPR is calculated using a specific formula: [₹7,500 + (0.025% × A × n)], where ‘A’ is the amount involved in the delayed reporting, and ‘n’ is the number of years of delay in submission rounded upwards to the nearest month. The maximum LSF is limited to 100% of the amount involved and rounded upwards to the nearest hundred.

It’s important to note that this LSF option is only available for delays up to three years from the due date. Beyond this period, or if the LSF is not paid, the entity becomes liable for more severe penal action under FEMA.

The single master form system

In 2018, the RBI introduced the Single Master Form (SMF) system, streamlining foreign investment reporting through an online portal called the Foreign Investment Reporting and Management System (FIRMS).

Before filing FC-GPR, you need to ensure your client is registered in the FIRMS portal. This involves:

1. Entity Master creation – One-time registration of the company in the FIRMS system
2. Bank assignment – Linking the company to its Authorised Dealer (AD) bank
3. User access setup – Creating credentials for authorised company representatives

For FoodSwift, we discovered they were not yet registered in FIRMS, requiring us to complete this prerequisite setup first.

“Is this something we can do ourselves, or do we need the bank’s help?” Priya asked.

“The process requires coordination with your bank,” I explained. “You initiate the Entity Master creation, then your AD bank verifies and approves it.”

Coordinating with your AD Bank

One of the most challenging aspects of FEMA compliance is that it requires coordination with your client’s bank, an entity outside your direct control and often unfamiliar with startup investment structures.

“Which bank received the investment funds from Altitude?” I asked.

“HDFC Bank,” Rahul replied. “That is our main corporate account.”

“Then HDFC will serve as your Authorised Dealer (AD) bank for FEMA compliance,” I explained. “They are essentially the intermediary between you and the RBI.”

The AD bank’s role

AD banks play a crucial role in foreign investment reporting:

1. They verify the authenticity of the investment transaction
2. They certify key documents before submission to the RBI
3. They serve as the reporting channel for FC-GPR filings
4. They issue important documents like the Foreign Inward Remittance Certificate (FIRC)

“Your relationship manager at HDFC is now your new best friend,” I told FoodSwift’s founders with a smile. “Their cooperation is essential for smooth FEMA compliance.”

Practical bank coordination tips

Working with dozens of startups on foreign investment compliance, I have developed these practical strategies for effective bank coordination:

1. Identify the right contact – Skip the branch relationship manager and find the foreign exchange department specialist
2. Create a compliance package – Prepare all documents in advance, rather than responding to piecemeal requests
3. Set clear timelines – Communicate the regulatory deadlines to create appropriate urgency
4. Escalate properly – If you encounter delays, know how to escalate within the bank hierarchy
5. Document all communications – Maintain an email trail of all submissions and follow-ups

For FoodSwift, I recommended scheduling an in-person meeting with HDFC’s forex department representative to explain the investment structure and establish a direct communication channel.

“Banks deal with thousands of regular transactions but relatively few foreign investments into startups,” I noted. “Personal meetings help ensure your filing gets appropriate attention.”

FIRC: The critical first document

The Foreign Inward Remittance Certificate (FIRC) is the foundational document for FC-GPR filing. It is issued by the AD bank when it receives foreign funds and serves as official proof of the investment inflow.

“Did HDFC provide an FIRC when Altitude’s investment arrived?” I asked.

Rahul shuffled through some papers. “They gave us this receipt… is that the same thing?”

Upon examination, it was only a standard transaction acknowledgement, not an FIRC. This is a common oversight that can delay compliance.

“We need to specifically request the FIRC from HDFC”‘ I explained. “While AD banks are required to issue an FIRC for foreign inward remittances under FEMA regulations, particularly for equity investments, they do not always provide it automatically with every transaction. We need to formally request it, and some banks may charge a nominal fee for issuance.”

The FIRC (or its digital equivalent, e-FIRC) should contain:

• The remitter’s name and address (Altitude Singapore)
• The purpose of remittance (equity investment)
• The amount received
• The date of receipt
• A unique reference number

For FoodSwift, we submitted a formal FIRC request to HDFC, specifying it was needed for FC-GPR filing. This simple step saved valuable time in our compliance timeline.

Preparing the FC-GPR submission

With bank coordination underway, we turned to preparing the actual FC-GPR submission. This requires gathering several documents that many founders do not realise they need.

“Your FC-GPR filing will include much more than just the form itself,” I explained to Rahul and Priya. “We need to assemble a comprehensive document that tells the complete story of this investment.”

Essential FC-GPR documentation

A complete FC-GPR document submission includes:

1. Completed FC-GPR form – With detailed investment information
2. KYC documents for the foreign investor – Including:

• Certificate of incorporation
• Board resolution approving the investment
• Passport copies of the signing authorities
• Address proof

3. FIRC (Foreign Inward Remittance Certificate) – Issued by the AD bank.
4. Valuation certificate – The same CA valuation used for PAS-3.
5. Board and shareholder resolutions – Approving the share issuance.
6. CS certificate – A certificate from a practising Company Secretary confirming FEMA compliance.
7. Copies of investment agreements – Often the SHA or SSA (with pricing details)

“That is a lot more documentation than I expected,” Priya noted, looking slightly overwhelmed.

“The good news is we already have most of these from our domestic compliance process,” I reassured her. “The main new items are the KYC documents from Altitude and the CS certificate.”

Foreign investor KYC: A common challenge

Obtaining proper KYC documents from foreign investors can be particularly challenging. Many overseas entities are not familiar with Indian requirements, and time zone differences can cause delays.

For Altitude Singapore, we needed specific documents that were not part of their standard investment package. I prepared a detailed request list for Vikram, emphasising the urgency of these items for meeting our 30-day deadline.

“We invest in many Indian startups,” Vikram assured us. “We have a standard KYC packet we provide for FEMA compliance.”

His familiarity with the process was reassuring, but not all foreign investors are so prepared. Always build extra time into your compliance timeline when dealing with overseas entities.

Common FC-GPR errors to avoid

Through dozens of FC-GPR filings, I have identified these recurring issues that create preventable delays:

1. Mismatched investment amounts – Discrepancies between the FIRC, board resolutions, and FC-GPR form
2. Incomplete investor details – Missing registration numbers or addresses for foreign entities
3. Inconsistent dates – Different dates across documents for the same transaction
4. Improper sector classification – Incorrect NIC codes for the company’s business activities
5. Missing signatures or certifications – Overlooking bank attestations or CS certificates

For FoodSwift, we carefully cross-checked all amounts, dates, and details across the entire documentation package to ensure consistency. This attention to detail prevented potential rejections or clarification requests.

The CS certificate requirement

One document that often confuses is the CS certificate—a confirmation from a practising Company Secretary that the foreign investment complies with FEMA regulations.

‘Can we not just sign the form ourselves?’ Rahul asked. ‘Why do we need another certificate?’

‘The CS certificate serves as an independent verification that all FEMA requirements have been met,‘ I explained. ‘While not explicitly mandated in all cases by FEMA regulations, it is often requested by AD banks and the RBI to verify compliance, particularly for significant or complex investments. It is a practical requirement that helps ensure smooth processing of your filing.’

The certificate typically confirms:

• The investment falls under the automatic route
• All pricing guidelines have been followed
• The company has complied with all applicable FEMA regulations
• All necessary approvals have been obtained

For FoodSwift, we engaged a practising CS with experience in startup foreign investments. Their familiarity with standard venture capital terms helped streamline the certification process.

The FC-GPR filing timeline

To manage Altitude Singapore’s investment reporting effectively, I created this timeline for FoodSwift:

Timeline	Action Item	Dependencies
Day 1-3	Request FIRC from AD Bank	Investment receipt
Day 1-5	Create Entity Master in FIRMS	Company registration details
Day 5-10	Obtain KYC from the foreign investor	Investor cooperation
Day 10-15	Prepare draft FC-GPR form	All transaction details
Day 15-20	Obtain a CS certificate	Draft FC-GPR and supporting docs
Day 20-25	AD Bank review and feedback	Complete documentation package
Day 25-29	Submit the final filing through the bank	Bank approval
Day 30	Confirm submission and obtain UIN	Successful filing

“This timeline feels tight,” Priya observed.

“It is,” I agreed. 

“FEMA compliance has strict deadlines that require careful management. That is why we need to start the process immediately after receiving funds.”

Critical path items

In any FC-GPR timeline, two items typically determine whether you will meet the 30-day deadline:

1. Entity Master creation – Without this, you cannot proceed with FC-GPR
2. Investor KYC collection – Often delayed due to time zones and communication gaps

For FoodSwift, we prioritised these items in our first week post-funding, creating buffer time for potential delays. This proactive approach proved valuable when the FIRMS portal experienced technical issues that delayed our Entity Master approval by three days.

Unique situations: structured investments and complex rounds

While FoodSwift’s situation—a straightforward equity investment from a Singapore entity—was relatively standard, foreign investment reporting can become significantly more complex in certain scenarios.

“What if we had multiple foreign investors in the same round?” Rahul asked, thinking ahead to future fundraising.

“Each foreign investor requires separate FEMA reporting,” I explained. “But they can be batched in a single filing if the shares are allotted on the same date.”

Common complexities in foreign investments

Here are some complex situations that require special handling in FEMA compliance:

1. Convertible instruments – SAFEs or convertible notes require different reporting approaches.
2. Multi-stage investments – Tranched investments with conditions require careful documentation.
3. Secondary transactions – When foreign investors purchase shares from existing shareholders rather than from the company.
4. Mixed funding rounds – Rounds combining Indian and foreign investors create reporting asymmetries.
5. Delayed premium payments – When share application money arrives in instalments.
6. Investments through Indian entities with foreign ownership – May trigger indirect foreign investment reporting.

For each of these scenarios, the reporting approach varies significantly. When advising startups, always map the specific transaction structure to the appropriate reporting requirements.

Lawyer’s corner: handling structured investment vehicles

Many foreign VCs invest through complex structures involving multiple entities across jurisdictions. For example, a “US fund” might actually invest through a Mauritius or Singapore vehicle, which itself might be part of a larger structure.

In such cases, determining the ultimate beneficial owner (UBO) becomes crucial for proper reporting. I advise founders to request a clear investment structure diagram from investors during the term sheet stage, rather than discovering complications during compliance.

For one client (not FoodSwift), we discovered after closing that their “Singapore investor” was actually a pass-through entity for a Chinese fund, triggering Press Note 3 of 2020 requirements that mandated prior government approval. This required restructuring the entire investment, causing significant delays and legal costs.

“Always ask about the complete ownership chain of your foreign investor,” I cautioned FoodSwift’s founders. “It is not just about where they are incorporated, but who ultimately owns and controls them.”

Annual compliance: It does not end with FC-GPR

Successfully filing the FC-GPR is a major milestone, but it is not the end of FEMA compliance. Foreign investments trigger ongoing reporting obligations that many startups overlook.

“Once we file the FC-GPR, are we done with all the foreign investment requirements?” Rahul asked hopefully.

“Not quite,” I replied. “There are annual reporting requirements you will need to maintain as long as you have foreign investment.”

The annual return on foreign liabilities and assets (FLA)

All Indian companies with foreign investment must file an Annual Return on Foreign Liabilities and Assets (FLA) by July 15th each year. This comprehensive report details:

• All foreign investment positions
• Changes in foreign investments during the year
• Overseas investments made by the company
• Foreign currency borrowings

While most startups with foreign investors will need to file this return, companies with no outstanding foreign investments as of the financial year end may be exempt. 

“Mark July 15th in your calendar as a permanent annual deadline,” I advised FoodSwift. “Missing the FLA filing can result in penalties under FEMA.”

Unlike the FC-GPR, which is filed through your AD bank, the FLA is submitted directly through the RBI’s website. The first filing can be particularly challenging as it requires collating historical foreign investment data.

CS annual certification

In addition to the FLA, companies with foreign investment must obtain an annual certificate from a practising Company Secretary confirming their compliance with FEMA regulations. This certificate typically confirms:

• The company has complied with all FEMA regulations during the financial year.
• All foreign investment transactions have been properly reported.
• The company has maintained proper documentation of all foreign exchange transactions.

This certification is often submitted alongside the FLA return.

Tracking foreign investment changes

Any changes to foreign investment during the year trigger additional reporting requirements:

1. Transfer of shares between residents and non-residents – Requires FC-TRS filing
2. Additional investment from existing foreign investors – Requires new FC-GPR
3. Foreign investor exit – Requires specific reporting on repatriation

“Essentially, any change in your cap table involving foreign investors needs to be reported,” I explained to Rahul and Priya. “This is why maintaining a compliance calendar becomes increasingly important as your investor base grows.”

What if you have missed deadlines?

What happens if you are brought in after deadlines have been missed? 

This is, unfortunately, common when startups handle early compliance themselves or work with inexperienced advisors.

“What if a company did not know about these requirements and had already missed the FC-GPR deadline?” Priya asked, thinking of fellow founders in her network.

“There is a remedy, but it comes with costs,” I explained. “The RBI has established a Compounding of Contraventions mechanism under FEMA that allows for remediation of delayed filings through payment of penalties.”

The late submission fee (LSF) process

For late FC-GPR filings, the RBI has established a Late Submission Fee (LSF) mechanism that allows for remediation of delayed filings without going through the more severe compounding proceedings. The process involves:

1. Assessment – Calculate the days of delay from the required filing date (30 days from the date of actual allotment of shares)
2. LSF Calculation – Compute the Late Submission Fee according to the RBI’s formula: [₹7,500 + (0.025% × A × n)], where:
   • ‘A’ is the amount involved in the delayed reporting (the investment amount)
   • ‘n’ is the number of years of delay, rounded upwards to the nearest month and expressed up to 2 decimal points
   • The maximum LSF is capped at 100% of the investment amount and rounded upwards to the nearest hundred
3. Application – Prepare an LSF application with an explanation for the delay, along with the delayed FC-GPR filing and supporting documents
4. Payment – Pay the computed LSF amount through your AD bank
5. Regularisation – Complete the FC-GPR filing through the FIRMS portal with appropriate documentation

It is important to note several key limitations of the LSF mechanism:

• The LSF option is available only for delays up to three years from the due date of reporting
• If an LSF payment advice is issued and not paid within 30 days, the advice becomes null and void
• If neither the filing is completed within the specified time nor the LSF option is utilised, the entity becomes liable for more severe penal action under FEMA through compounding proceedings

For example, a six-month delay in reporting a ₹1 crore investment would result in an LSF of approximately ₹10,000 (₹7,500 + 0.025% × ₹1,00,00,000 × 0.5), while a two-year delay on the same amount would cost about ₹12,500 (₹7,500 + 0.025% × ₹1,00,00,000 × 2).

The LSF mechanism represents a more straightforward and typically less costly alternative to the formal compounding process. However, for delays beyond three years or for more serious contraventions, the traditional compounding route becomes mandatory, which involves appearing before the RBI’s compounding authority and potentially higher penalties.

“The best approach is prevention,” I emphasised to FoodSwift’s founders. “Building FEMA compliance into your post-funding process from day one avoids costly remediation and potential regulatory complications later.“

FEMA compliance checklist for startups

As we approached the submission of FoodSwift’s FC-GPR filing, I provided them with a comprehensive FEMA compliance checklist to guide them through this round and future foreign investments:

Annual compliance

• File Annual Return on Foreign Liabilities and Assets (FLA) by July 15th
• Obtain an annual CS certificate on FEMA compliance
• Report any changes in foreign investment structure
• Maintain updated records of all foreign investment documentation

“This checklist seems comprehensive,” Rahul noted, reviewing the document.

“It is built from years of experience with foreign investment reporting,” I replied. “Following it systematically removes the stress from what can otherwise be a complex process.”

Key regulations:

• Foreign Exchange Management (Non-debt Instruments) Rules, 2019
• Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (Notification No. FEMA 395/2019-RB)
• Master Direction on Reporting under FEMA, 2018 
• Master Direction on Compounding of Contraventions under FEMA, 1999
• Press Note 3 of 2020 (Restrictions on investment from border-sharing countries)
• Press Note 4 of 2019 (FDI in Digital Media)

Conclusion

After weeks of methodical work, FoodSwift’s FC-GPR was successfully filed through HDFC Bank. The RBI system generated a Unique Identification Number (UIN) confirming the registration of Altitude Singapore’s investment—the final piece in our comprehensive post-funding compliance puzzle.

Looking back at FoodSwift’s journey, we navigated both domestic and foreign compliance requirements diligently. From the initial term sheet negotiations to board resolutions, shareholder approvals, PAS-3 filings with the MCA, and share certificate issuance for domestic compliance. Then we tackled the complex FEMA regulatory framework: securing the FIRC, coordinating with the AD bank, preparing extensive documentation, and submitting the FC-GPR within the critical 30-day deadline.

With ₹1 crore securely in their bank account and all regulatory requirements fulfilled, FoodSwift could now focus fully on expansion, building their business with confidence on a solid legal foundation.