Key takeaways
- Unlisted shares bought from a resident must be priced at or above fair value under FEMA.
- FC-TRS is due within 60 days of the transfer or receipt of funds, whichever is earlier.
- Buying from a non-resident seller means withholding tax under section 393(2) of the Income-tax Act, 2025.
1. Check the route
- Most sectors: automatic route — no prior approval.
- Capped or approval sectors: government approval before closing.
- Buyers with beneficial owners in a land-border country: under Press Note 2 (2026 Series), non-controlling beneficial ownership up to 10% can use the automatic route; more than that, or control, needs approval.
2. Price within the FEMA pricing guidelines
- Buying from a resident seller: price not less than fair value.
- A non-resident selling to a resident: price not more than fair value.
- Fair value of unlisted shares is set by an internationally accepted pricing method on an arm’s-length basis, certified by a CA, a SEBI-registered merchant banker or a practising cost accountant. Deferred or escrowed consideration is allowed within limits.
3. Report the transfer
FC-TRS on RBI’s FIRMS portal within 60 days of the transfer or receipt / remittance of funds, whichever is earlier — filed by the resident party. A fresh issue of shares instead needs FC-GPR within 30 days.
4. Tax on the deal
- The seller is taxed on capital gains. If you buy from a non-resident seller, you must withhold tax under section 393(2) of the Income-tax Act, 2025 — get a CA’s computation or a lower-withholding certificate.
- Buying from a resident below fair market value can create taxable income for the buyer; price support matters for tax as well as FEMA.
- Stamp duty on the share transfer and any carried-forward losses (which can lapse on a change in shareholding) also need checking.
5. Other approvals
- Competition Commission notification for larger deals, including the deal-value test.
- Listed targets: SEBI takeover rules — crossing 25% triggers an open offer.
- Sector regulators (banking, insurance, telecom) where relevant.
Before all of this: diligence
Most post-deal surprises in India are unreported FDI, GST mismatches and tax demands — see the due diligence checklist and our due diligence service.
Sources
Frequently asked questions
Can a foreign company buy an Indian company?
Yes. In most sectors a foreign company can acquire up to 100% under the automatic route, subject to FEMA pricing guidelines and reporting the transfer in Form FC-TRS. Some sectors and land-border-country investors need government approval.
What is FC-TRS and when is it filed?
FC-TRS reports a transfer of shares between a resident and a non-resident. It is filed on RBI's FIRMS portal within 60 days of the transfer or receipt/remittance of funds, whichever is earlier, by the resident party.
Does the buyer have to deduct tax when buying shares in India?
When the seller is a non-resident, yes — the buyer must withhold tax on the capital gains under section 393(2) of the Income-tax Act, 2025, unless a lower or nil withholding certificate applies.
Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.