RESEARCH ON THE TRANSFER OF SHARES OF AN INDIAN COMPANY BY A PERSON NON-

RESIDENT OF INDIA TO A PERSON RESIDENT IN INDIA, BY WAY OF (A) GIFT AND (B) WILL.
PERMISSIBILITY, REQUIREMENTS AND PROCEDURE.
TRANSFER OF SHARES OF AN INDIAN COMPANY BY NON-RESIDENTS TO RESIDENTS
THROUGH GIFT:

FDI

PERSON
RESIDING
OUTSIDE OF
INDIA

AUTOMATIC APPROVAL ROUTE

ROUTE (GOVERNMENT
ROUTE)

FRESH TRANSFER
ISSUE OF OF SHARES
FRESH TRANSFER
COMPANY
ISSUE OF OF
COMPANY SHARES

Under Indian foreign exchange regulations, general permission is available for the transfer of
shares between non-residents (NR) and Indian residents (IR) by way of gift or sale under
private arrangement or agreement.

CONDITIONS FOR TRANSFER OF EQUITY SHARES FROM NR TO IR:

1. activities of the Indian company are under automatic route;

2. Sectoral limits which are defined under foreign direct investment policy are not
breached;
3. the total amount of sale consideration must be in compliance with the pricing
guidelines; and
4. any such transfer should not be subject to Indian Takeover Code;

In case a transfer does not meet any of the given above requirements, then prior approval of
RBI will be mandatorily required.
PROCEDURAL REQUIREMENTS UNDER FOREIGN EXCHANGE REGULATIONS AND THE
COMPANIES ACT, 2013 IN REGARD TO TRANSFER OF EQUITY SHARES.

1. The amount of sale consideration must be determined as per the following pricing
guidelines:

a) In case the company is a listed one: Sale consideration must not be more than the
minimum price at which preferential allotment of shares is made under Securities
Exchange Board of India (“SEBI”) Guidelines.
b) In case the company is unlisted: Sale consideration must not be more than the
fair value of shares determined as per the standard pricing methodology on arm’s
length basis. Also it must be duly certified by a Chartered Accountant or a SEBI
registered Merchant Banker.

2. Sale consideration must be remitted outside India through an authorized dealer (“AD”)
bank.

3. Transfer of shares must be reported in Form FC-TRS to RBI through an AD bank

within 60 days of receipt of sale consideration.

The onus of submission of the said Form FC-TRS is on the transferor or the transferee who is
a resident in India.

DOCUMENTS REQUIRED TO BE SUBMITTED TO THE AUTHORISED BANK ALONG WITH

FORM FC-TRS:

1. Consent letters signed by the transferor and the transferee which may include their duly
appointed agent and also the details of the transfer, i.e. a number of shares to be
transferred, the name of the investee company whose shares are being transferred with
the price at which shares are being transferred.

2. Power of attorney authorizing the agent to purchase and sell the shares by the transferor
or the transferee.

3. The shareholding pattern of the investee company before and after the transfer of
shares must show equity participation of residents and non-residents category-wise.

4. In case the transferor is an NRI or the OCB, all the copies of RBI approvals which
proves the shares held by them on repatriation/non-repatriation basis must be provided.
The amount of sale shall be credited to non-resident rupee account.

5. A Certificate from a Chartered Accountant must be provided which indicates the fair
value of shares.
 6. Undertaking from the transferee that all the pricing guidelines have been strictly
adhered to.

7. No objection/ tax clearance certificate from the Income Tax Authority/ Chartered
Accountant.

8. Settlement of all the transactions will attract payment of applicable taxes if any.

REQUIREMENTS UNDER COMPANIES ACT, 2013;

1. In order to transfer shares, an instrument of transfer called securities transfer form

(STF) must be executed. The form is SH-4 which needs to be executed by transferor
and transferee. The duly executed and signed SH-4 must be delivered to the company
within two months of its execution. Stamp duty on the value of the shares needs to be
paid in Indian rupees.
2. Once the STF is registered with the company, the latter will then hold a Board meeting.
After which they will transact the below-following business:
a) Approve and record the details of the transfer of shares, and
b) Endorse the transfer on share certificate in favor of the transferee.
3. The transferee or his agent must submit to the company a certificate in the Form FC-
TRS endorsed by the AD bank. It states that the payment has been made by the
transferee. As soon as the said certificate is received, the company may record the
transfer in its books.

TRANSFER OF SHARES OF AN INDIAN COMPANY BY NON-RESIDENTS TO RESIDENTS

THROUGH WILL:

Under FEMA regulations, the transfer of shares of an Indian company from a non-resident to
a resident through a will would typically involve certain compliance procedures. The FEMA
regulations are designed to regulate foreign exchange transactions and investments involving
non-residents in India.
1. Permission Requirement: Any transfer of shares from a non-resident to a resident in
India requires the prior approval of the Reserve Bank of India (RBI), which is the
regulatory authority for foreign exchange transactions in India. The transfer of shares
through inheritance falls under the purview of this requirement.
2. Reporting: Both the non-resident transferor and the resident transferee would need to
comply with reporting requirements as specified by the RBI. These reports are usually
submitted through authorized banks.
3. Valuation: The valuation of the shares being transferred should be done in accordance
with relevant guidelines issued by the RBI. This valuation would influence the
approval process and any potential taxes.
4. Tax Implications: The transfer of shares could have tax implications, including capital
gains tax. It's important to understand the tax implications of the transfer and the
applicable Double Taxation Avoidance Agreement (DTAA) between India and the non-
resident's home country.
5. Documentation: Proper documentation, including the will, proof of inheritance, and
any related agreements, would need to be submitted as part of the approval process.
6. RBI Approval: The RBI's permission for the share transfer would be required before
the actual transfer takes place.
7. Sectoral Caps and Conditions: Depending on the sector in which the Indian company
operates, there might be sector-specific foreign investment caps and conditions that
need to be considered.