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The investment climate in India has improved considerably in the last five years. This is mainly attributed to ease in F.D.I. norms across sectors of the economy. India, today is a part of the top 100 club on Ease of Doing Business (E.O.D.B.). India received the record F.D.I. of $ 61.96 Billion in 2017-18 which rose to to $64.375 Billion in 2018-19, a 6% healthy growth.

Despite the global slowdown being experienced by various factors such as economy slowdown, outbreaks of COVID-19 etc., India still remains a attractive option for foreign investors due to its tremendous growth and demand prospects.

In such environment, a lot of foreign entities want to enter India. And all such international investors thinking of having their own set up in India have a lot of questions regarding the investment climate in India, regulatory approvals, ways or entry strategies into India, legal entity or ownership structure , tax rates etc.

This article attempts to answer all preliminary questions in the minds of investors planning Foreign Direct Investment into India and helps a foreign investor how to s.This article contains :

1. What are the various Entry routes for F.D.I. investment in India?
2. What are the permissible modes/instruments of Investment?
3. What is the difference between the Automatic and Government route (Approval route)?
4. What are the different legal forms in which a foreign entity can establish its presence in India?
5. What is a Liaison Office, Branch office, Project Office?
6. What is a F.D.I. Company?

Question 1 : What are the entry routes for investment through F.D.I.?

Investments can be made by non-residents in Indian economy depending on the sector / area of investment through

FDI Entry : How Non Resident investors can enter India
  • Automatic Route (where prior regulatory approval is not required)
  • Approval Route or Government Route (where prior regulatory approval is required)

Question 2: What is the difference between the Automatic Route and the Government Route?

Automatic Route

Under Automatic route, the non resident investor does not require any approval from Government of India for the investment. The government of India is eager to attract foreign investments and with focus on ease of doing business in India have allowed non resident investors to invest 100% F.D.I. in most of the business sectors under automatic route.

However, certain sectors such as Defense, Banking , Media & broadcasting etc. considered integral to national interests are subject to approval and sectoral cap limits. An Indian company may, subject to the prescribed F.D.I caps, sectoral regulations and licensing requirements applicable for various sectors/activities (if any), issue capital instruments to persons resident outside India without any prior approval from the Government of India for the investment.

Government Approval Route


Under the Government Route, prior to investment, approval from the Government of India is required. Proposals for foreign investment under Government route, are considered by respective Administrative Ministry/ Department. The company in which such foreign investment is sought to be made would have to make an application on the Foreign Investment Facilitation Portal (FIFP) for approval. The approval is granted on a case to case basis at the discretion of the concerned ministry/department, and in approving an investment proposal, the concerned department/ministry ordinarily considers factors such as inflow and outflow of foreign exchange, general benefit to the Indian economy, induction of technology, export potential, potential for large-scale employment, etc. We have a experienced team for guiding you for the applicable route for your proposed business activity to be undertaken in India.

Question 3: What are the permissible modes of Investment or permissible instruments for investing in India through the Automatic or Approval route?

  1. Equity shares of an Indian company
  2. fully, compulsorily and mandatory convertible debentures of an Indian company
  3. fully, compulsorily and mandatory convertible preference shares of an Indian company

Question 4: What are the different legal forms in which a foreign entity can establish its presence in India?

Depending on the proposed activities of such foreign entity, a foreign entity can establish its presence in India, either through

a) Operating as a foreign entity :

(i) Liaison office
(ii) Project office
(iii) Branch office

b) Operating as an Indian entity

(i) By incorporating an Indian company (F.D.I Company / Wholly owned subsidiary)
(ii) Setting up a Limited Liability Partnership

Question 5: What is a liaison office, branch office and project office?



Liaison office is a place of business which acts as a channel of communication between the head office in your country and entities in India but which does not undertake any commercial/ trading/ industrial activity, directly or indirectly, and maintains itself out of inward remittances received from head office.

The most important thing to consider is that Liaison Office is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of a Liaison Office must be met entirely through the remittances from your Head Office outside India. Therefore, for all intent and purposes ,the role of a Liaison Office is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers.

Branch office means any establishment described as such by the company. to carry out its branch activities. Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India with specific approval of the Reserve Bank. Normally, the Branch Office should be engaged in the activity in which the parent company is engaged like Export / Import of goods, Carrying out research work, in areas in which the parent company is engaged, Rendering technical support to the products supplied by parent/group companies. Etc

Project office means a place of business in India, which represents the interests of the foreign company executing a project in India but excludes a liaison office. Reserve Bank has granted general permission to foreign companies to establish Project Offices in India, provided they have secured a contract from an Indian company to execute a project in India and the project is funded by directly by inward remittance from abroad or company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project.

Question 6: What is F.D.I. Company / Wholly owned subsidiary of a foreign company / or F.D.I. in a Private Limited company?


Incorporating an Indian Company: One of the most common and preferred method for foreign investors to enter in Indian markets is to set up a Limit Liability Company in India ,either as a wholly owned subsidiary of your holding company or as a standalone company with individual non resident investors.

Setting up a L.L.P.: Not a popular method because of inflexibility and high taxation as compared to W.O.S., foreign investors can also set up a Limited Liability Partnership in India.

Question 7: How much tax is payable by foreign companies in India?

Tax rate on foreign companies: The foreign companies in India are taxed at a flat rate of 40% of their total income received or accrued or arise or deemed to accrue, arise or received in India. India do not tax global income of the non resident individuals and corporate operating in India.

Besides the tax, foreign companies are liable for a surcharge of 2% if total income do not exceed 100 million INR and surcharge of 5% if total income exceeds 100 million INR during the financial year and a health and education cess of 4%.

Tax rate on Wholly owned subsidiaries(W.O.S.) or Indian companies with F.D.I. investment: W.O.S. or Indian companies with Foreign investment are taxed between 15% to 25% depending upon certain conditions along with surcharge of 7% for total income upto INR 100 million and 12% for income exceeding INR 100 million along with additional health and education cess of 4%.

In this article, the author has tried to give an overview of various routes and ways to enter India. The author can also be reached at or


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