Key takeaways
- Resident-to-non-resident transfer: price not less than fair value; FC-TRS within 60 days.
- Up to 25% of the price can be deferred within 18 months; stamp duty 0.015%.
- Check licences, related-party deals, guarantees and change-of-control clauses first.
Planning a buyout? We value the shares, run the diligence on the JV and file FC-TRS, from India.Free 15-min callDue diligence
The FEMA rules on the purchase
| Point | Rule |
|---|---|
| Is it allowed? | Yes, if the sector allows the higher foreign stake under the automatic route; otherwise government approval is needed. Buyers from countries sharing a land border with India need approval (Press Note 3) |
| Price | Not less than fair value for unlisted shares, under an internationally accepted pricing method, certified by a CA, a SEBI-registered merchant banker or a practising cost accountant |
| Deferred payment | Up to 25% of the price can be paid within 18 months; escrow and indemnity holdbacks on the same terms |
| Reporting | Form FC-TRS within 60 days of the payment or the transfer, whichever is earlier, through the AD bank on the FIRMS portal |
| Stamp duty | 0.015% of the consideration on the share transfer |
Tax on both sides
- The Indian partner pays capital gains tax on the sale.
- You, the buyer: if you buy below fair market value, the shortfall can be taxed in India as your income. The FEMA floor and the tax valuation should line up, so one valuation report should address both.
- Check whether any part of the price is really for a non-compete or brand: it may be taxed differently and needs separate drafting.
Diligence before you buy the rest
You may have sat on the board for years, but the Indian partner usually ran operations. Before paying for control, check:
- Licences and assets in the partner’s name: land, leases, trademarks, government licences, bank guarantees.
- Related-party dealings: supplies, rent, services or loans between the JV and the partner’s group, and whether they continue after exit.
- Guarantees the partner gave for JV loans, which lenders will want replaced.
- Change-of-control clauses in customer contracts, loans and leases.
- Employees and key managers who are loyal to the partner.
- Tax and FEMA history: pending notices, transfer pricing, and whether past foreign investment filings (FC-GPR, FC-TRS, annual FLA return) were made on time.
- Competition approval: large deals can need CCI clearance under the deal-value threshold.
Typical sequence
- Check the sector cap, route and any approvals.
- Run focused diligence and agree the price with an independent valuation.
- Sign the share purchase agreement, with escrow or deferred payment if needed.
- Pay through banking channels; the AD bank records it.
- Transfer the shares (demat), pay stamp duty and file FC-TRS within 60 days.
- Update the board, the registers and the MCA filings; replace the partner’s guarantees.
Related: setting up a joint venture in India, acquiring a company in India, FC-TRS filing guide and due diligence on Indian partners.
Sources
- RBI: Master Direction, Foreign Investment in India
- Aviva: agreement to purchase the remaining 26% stake in its India joint venture
Frequently asked questions
Can a foreign company buy out its Indian joint venture partner?
Yes, if the sector allows the higher foreign stake under the automatic route, or with government approval where needed. The purchase is a share transfer from a resident to a non-resident under FEMA.
What is the minimum price when a foreign partner buys shares from an Indian partner?
For unlisted shares, not less than fair value under an internationally accepted pricing method, certified by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant.
Which form is filed when a non-resident buys shares from a resident?
Form FC-TRS, filed through the AD bank on the RBI FIRMS portal within 60 days of the payment or the transfer, whichever is earlier.
Can part of the price be deferred in an Indian share purchase?
Yes. Up to 25% of the total consideration can be paid within 18 months, and escrow or indemnity holdbacks are allowed on the same terms.
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.