Share Transfer Between Resident and Non-Resident: FC-TRS Filing Under FEMA and RBI Reporting

The Share transfers involving residents and non-residents in India are strictly governed by the Foreign Exchange Management Act, 1999 (FEMA) and the rules, regulations and directions issued by the Reserve Bank of India (RBI). Any transfer of shares or other securities of an Indian company between an Indian resident and a non-resident is treated as a foreign investment transaction and is subject to compliance with FEMA laws in India. Such transactions also require FC-TRS Filing Under FEMA as part of mandatory RBI reporting.

The reporting of share transfer in India shall be done in Form FC-TRS. It stands Foreign Currency Transfer of Shares. It is a mandatory reporting requirement under Foreign Exchange Management Act (FEMA) applicable when there is a transfer of equity shares or other capital instruments between an Indian resident and a nonresident, or vice versa. This form must be filed with the Reserve Bank of India (RBI) through the FIRMS (Foreign Investment Reporting and Management System) portal. The objective of FC-TRS is to ensure that crossborder share transfers are properly recorded, legally compliant, and in accordance with foreign exchange regulations. This highlights the importance of FC-TRS Filing Under FEMA in maintaining regulatory transparency.

When is FC-TRS Filing Under FEMA Required: 

The FC-TRS filing is required in the following situations: 

1. When a resident sells/transfers shares to a nonresident (including NRI/OCI) on a repatriable basis.  
2. When a nonresident sells/transfers shares to a resident.  

These include transfers by sale, gift, buyback, swap, or other transactions that      result in change of beneficial ownership.  

1. FC-TRS may also be needed in buyback transactions involving foreign investors and other capital restructuring events where foreign shareholding is altered.  

Exceptions to the reporting requirement – If shares are transferred between two nonresidents on a nonrepatriable basis, reporting may not be required under FC-TRS and where transfers purely between residents also do not trigger FC-TRS since it’s outside foreign exchange reporting requirement.  

Key Steps for FC-TRS Filing Under FEMA: 

1. Assess the nature of the transaction (sale, gift, buy-back, swap, etc.) to confirm whether FC-TRS Filing Under FEMA is required.  
2. Create an Entity User (EU) account and Business User (BU) account on the RBI FIRMS portal (firms.rbi.org.in) 
3. Prepare the required attachments which include: 

• Consent Letter from buyer and seller; 
• Share Transfer Agreement between buyer and seller; 
• Form SH-4 / Share Transfer Deed or equivalent transfer document; 
• Valuation Certificate as per FEMA pricing guidelines (from a CA, SEBIregistered merchant banker, or Cost Accountant); 
• Board Resolution approving the share transfer (if applicable); 
• Shareholding Patterns before and after the transfer; 
• Bank Statement showing receipt/payment; 
• Inward/ Outward Remittance Proof; 
• Debit Authority Letter for bank charges of FCTRS; 
• FIRC (Foreign Inward Remittance Certificate) – if funds are remitted in foreign currency; 
• Declaration by the Non-Resident Transferor / Transferee confirming status; 
• KYC documentation of the nonresident party as required by the AD bank; 
• Letter of Authorization to Register as Business User/Entity User for submission of returns in Foreign Investment Reporting and Management System (FIRMS); 
• Beneficial Ownership Declaration (if applicable); 
• KYC Documents of Non-Resident such as Passport, COI, TRC etc. 

1. Log in to the FIRMS portal, select FC-TRS in the Single Master Form (SMF) workspace, enter transaction and other details, and upload attachments.  
2. Once submitted, the AD bank reviews the form and forwards it to the RBI. On acceptance, a unique FC-TRS reference number is generated. 
3. Failure to file within the 60 day window may attract Late Submission Fees or other regulatory scrutiny, which could affect future crossborder fundraising or transfers.  

Important Note: The FC-TRS Filing Under FEMA must be done within 60 days from either the date of transfer of shares or the date of receipt/remittance of funds, whichever is earlier. 

Consequences of Non-Compliance under FEMA: 

The failure to comply with reporting requirements related to share transfer may result in several regulatory and practical difficulties, including: 

• Liability to pay Late Submission Fee (LSF); 
• Restrictions imposed by AD Banks on future foreign remittances; 
• FEMA penalty proceedings, which may lead to compounding; 
• Issues during due diligence, statutory audits, investor rounds, or corporate restructuring 
• In extreme cases, RBI may direct reversal of the transaction if found to be non-compliant. 

Compliance under Income Tax Act, 1961: 

The taxation applicability on share transfer between non-resident to resident and vice versa in India is governed by the Income-tax Act, 1961, and depends upon the nature of income and the residential status of the transferor. 

A. Resident to Non-Resident (Sale to Foreign Investor) 

In this case the Capital Gain Tax on sale of shares applies in the hands of the resident transferor. The non-resident buyer of shares does not pay any tax. The taxation rate depends on the holding period (short-term vs. long-term) and the nature of shares (listed/ unlisted). 

B. Non-Resident to Resident (Purchase by Indian Resident) 

For a non-resident selling shares of an Indian company to an Indian resident, the gains are taxable in India. The resident buyer is required to deduct Tax Deducted at Source (withholding tax) at applicable rate before making the payment under Section 195 of the Income-tax Act, 1961. The Non-residents may claim benefits under the Double Tax Avoidance Agreement (DTAA), provided they furnish the necessary documentation, such as a Tax Residency Certificate (TRC). The non-resident individual/ entity shall report the said transaction in the appropriate Income Tax Return (ITR) form (ITR-3/ ITR-6). 

Conclusion: 

The Share transfers between residents and non-residents in India are governed by a highly structured regulatory framework under FEMA, the Non-Debt Instruments Rules, and the RBI’s reporting system. These regulations ensure that all cross-border share transactions in India align with India’s foreign investment policy, sectoral caps, pricing norms, and transparency standards. 

The reporting of share transfer in Form FCTRS is a mandatory RBI reporting requirement for crossborder share transfers involving residents and nonresidents. It ensures transparent foreign investment reporting, proper FC-TRS Filing Under FEMA compliance with regulations, and proper RBI tracking of capital flows in India. The filing of form through the FIRMS portal, with accurate documentation including valuation, agreements, FIRC and KYC is essential to avoid penalties and maintain seamless regulatory compliance. 

For shareholders and companies involved in cross-border transactions, complying with FEMA laws and the necessary reporting requirements provides regulatory certainty and protects both the transferor and transferee, making it an essential step in any foreign share transfer or investment transaction in India. 

FAQ

1. What is FC-TRS Filing Under FEMA?

FC-TRS Filing Under FEMA refers to the mandatory reporting of share transfers between a resident and a non-resident in India through Form FC-TRS on the RBI FIRMS portal.

2. When is FC-TRS Filing Under FEMA required?

FC-TRS Filing Under FEMA is required when shares or capital instruments are transferred between a resident and a non-resident, including sales, gifts, buybacks, or swaps.

3. What is the time limit for FC-TRS Filing Under FEMA?

FC-TRS Filing Under FEMA must be completed within 60 days from the date of transfer of shares or receipt/remittance of funds, whichever is earlier.

4. Who is responsible for FC-TRS Filing Under FEMA?

The responsibility for FC-TRS Filing Under FEMA typically lies with the resident party involved in the transaction, with assistance from the Authorized Dealer (AD) bank.

5. What documents are required for FC-TRS Filing Under FEMA?

Documents include the share transfer agreement, valuation certificate, FIRC, KYC documents, board resolution, and bank statements for FC-TRS Filing Under FEMA.

6. What happens if FC-TRS Filing Under FEMA is delayed?

Delay in FC-TRS Filing Under FEMA may lead to Late Submission Fees (LSF), penalties, and regulatory scrutiny by RBI.

7. Is FC-TRS Filing Under FEMA required for all share transfers?

No, FC-TRS Filing Under FEMA is not required for transfers between two residents or certain non-repatriable transfers between non-residents.

8. Where is FC-TRS Filing Under FEMA done?

FC-TRS Filing Under FEMA is completed online through the RBI’s FIRMS portal under the Single Master Form (SMF).