Rule 13 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 13 of the Foreign Exchange Management (Overseas Investment) Rules, 2022 lets a resident individual make overseas investment in the manner and on the terms of Schedule III. Paragraph 1 of that Schedule lists what a resident individual may make or hold: ODI in an operating foreign entity that is not in financial services and has no subsidiary, OPI including reinvestment, and a set of acquisitions by capitalisation, swap, rights or bonus, gift, inheritance, sweat equity, minimum qualification shares and employee plans. The whole is subject to the overall ceiling of the Liberalised Remittance Scheme, unless the Schedule says otherwise.
The Rules are quoted as notified on 22 August 2022 (G.S.R. 646(E)); no amendment is in the texts consulted. Amendments after that date should be checked in the Gazette. They rest on section 46 of the Foreign Exchange Management Act, 1999; see our article on section 46 of the Act. Reporting after an investment is covered by our overseas direct investment reporting service.
A resident individual may make ODI by equity investment or OPI under Schedule III, "unless otherwise provided", within the overall ceiling of the Liberalised Remittance Scheme. ODI is allowed in an operating foreign entity not engaged in financial services and with no subsidiary or step down subsidiary where the individual has control. OPI, including reinvestment, is allowed. Capitalisation, swap on merger, rights or bonus, gift, inheritance, sweat equity, minimum qualification shares and employee plan shares are allowed in listed cases, and acquisitions of less than ten per cent without control under sweat equity, qualification shares and employee plans are treated as OPI.
Rule 13
Rule 13 says: "A resident individual may make Overseas Investment in the manner and subject to the terms and conditions prescribed in Schedule III." "Resident individual" is defined in rule 2(1)(u) as a person resident in India who is a natural person. "Overseas Investment" is financial commitment and OPI by a person resident in India (rule 2(1)(r)).
Paragraph 1(1): ODI or OPI, within the LRS ceiling
"Any resident individual may make ODI by way of investment in equity capital or OPI in the manner provided in this Schedule and unless otherwise provided hereunder, shall be subject to the overall ceiling under the Liberalised Remittance Scheme of the Reserve Bank."
The Rules do not print the ceiling. For the Scheme see our article on the Liberalised Remittance Scheme; the amount should be read from the Reserve Bank's current instrument.
Paragraph 1(2): what may be made or held
| Clause | Way |
|---|---|
| (i) | ODI in an operating foreign entity not engaged in financial services activity and which does not have a subsidiary or step down subsidiary, where the resident individual has control in the foreign entity |
| (ii) | OPI, including by way of reinvestment |
| (iii)(a) | ODI or OPI, as the case may be, by capitalisation, within the time period, if any, specified for realisation under the Act, of any amount due from the foreign entity the remittance of which is permitted or needs no prior permission |
| (iii)(b) | Swap of securities on account of a merger, demerger, amalgamation or liquidation |
| (iii)(c) | Acquisition of equity capital through rights issue or allotment of bonus shares |
| (iii)(d) | Gift as per the conditions in the Schedule |
| (iii)(e) | Inheritance |
| (iii)(f) | Acquisition of sweat equity shares |
| (iii)(g) | Acquisition of minimum qualification shares issued for holding a management post in a foreign entity |
| (iii)(h) | Acquisition of shares or interest under an Employee Stock Ownership Plan or Employee Benefits Scheme |
The text of clause (iii)(g) is printed with a stray "a." before the words "foreign entity" ("a. foreign entity"); the meaning is clear and the text is quoted as printed.
The two provisos
- ODI in respect of clauses (e), (f), (g) and (h) (inheritance, sweat equity, minimum qualification shares and employee plans) may be made in a foreign entity "whether or not such foreign entity is engaged in financial services activity or has subsidiary or step down subsidiary where the resident individual has control".
- The acquisition of less than ten per cent. of the equity capital, whether listed or unlisted, of a foreign entity without control under clauses (f), (g) and (h) shall be treated as OPI.
The Explanation
For this Schedule, a foreign entity is considered to be engaged in the business of financial services activity if it undertakes an activity which, if carried out by an entity in India, requires registration with or is regulated by a financial sector regulator in India. The same test applies to Indian entities in Schedule I; see our article on ODI in financial services.
The Master Direction's directions to banks
The Master Direction - Overseas Investment, updated as on April 01, 2026, restates paragraph 1 in its paragraph 22. These are the Reserve Bank's directions, not text of the Rules:
- Resident individuals (single or in association with another resident individual or with an Indian entity) were permitted to make ODI with effect from August 05, 2013. Where a resident individual has made ODI without control in a foreign entity that subsequently acquires or sets up a subsidiary or step down subsidiary, the individual shall not acquire control in that foreign entity.
- Overseas investment by capitalisation, swap of securities, rights or bonus, gift and inheritance is categorised as ODI or OPI based on the nature of the investment. Investment by way of sweat equity, minimum qualification shares and employee plan shares that does not exceed 10 per cent of the paid-up capital or stock of the foreign entity and does not lead to control is categorised as OPI.
- In a swap of securities both legs must comply with FEMA. Where the swap results in equity capital not in conformity with the Rules or Regulations, for example ODI in a foreign entity in financial services or a foreign entity with a subsidiary, the equity capital must be disinvested within six months from the date of acquisition.
The Master Direction says the investment "does not exceed 10 per cent" of the paid-up capital or stock, while the proviso to the Rules says "less than ten per cent." of the equity capital. The Rules' text is followed here; the reader should confirm the threshold against the official text. Paragraphs 2 and 3 of Schedule III, on gift, inheritance and employee plans, are in our article on gift, inheritance and employee shares. The Master Direction's own article on the subject is overseas investment by resident individuals under paragraph 22.
A worked example
Anika Rao, a resident individual, forms a foreign company that runs a small design studio. It is an operating entity, not in financial services, and has no subsidiary, and Anika has control. That is ODI under clause (i), within the Liberalised Remittance Scheme ceiling. If the studio later sets up a subsidiary, the Master Direction says an individual who holds ODI without control may not acquire control, and the Schedule's clause (i) assumes no subsidiary; a structure with a subsidiary needs the structure re-examined. Separately, Anika receives shares of a foreign employer under an employee plan equal to less than ten per cent of its equity capital and without control; the second proviso treats them as OPI. The names are invented.
Need help with an overseas investment by an individual?
Operating-entity tests, the no-subsidiary condition and the Scheme ceiling interact, and the form changes between ODI and OPI. Our overseas direct investment reporting team can classify the investment and file with you.
Key takeaways
- Rule 13 and Schedule III govern overseas investment by resident individuals, subject to the Liberalised Remittance Scheme ceiling.
- ODI by equity needs an operating foreign entity, not in financial services, with no subsidiary or step down subsidiary, and control by the individual.
- OPI including reinvestment is allowed.
- Inheritance, sweat equity, minimum qualification shares and employee plan shares may be taken even where the entity has financial services or subsidiaries.
- Sweat equity, qualification and employee plan acquisitions below ten per cent without control are OPI.
Read next
- Gift, inheritance and employee shares of foreign companies: Schedule III
- Overseas portfolio investment by an Indian entity: Schedule II
- Immovable property outside India: rule 21
- ODI for individuals: limits and conditions
Disclaimer: Based on the Gazette text of the instrument this article names, as notified and as amended by the notifications named in the article (for the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 the latest amendment consulted is S.O. 4870(E) dated 2 September 2026), as consulted on 2 October 2026. There is no official consolidated text; the provisions were read with each amendment applied. Sectoral caps, entry routes, conditions, forms and time limits change by notification, press note and circular; later changes should be checked on the Gazette, DPIIT and Reserve Bank sites. This article is general information, not legal advice; check the official text before acting.