Overseas Direct Investment (ODI) Explained
How Indian companies and individuals take stakes in foreign businesses: the limits, the prohibitions and the forms.
Overseas Direct Investment (ODI) is a resident's strategic stake in a foreign business: setting up or buying into a foreign company, typically a joint venture (JV) or wholly owned subsidiary (WOS). Since August 2022 it has been governed by the Overseas Investment Rules, Regulations and Directions, which replaced the older FEMA 120 framework that CCFE courseware often still quotes.
Every ODI runs through one designated AD bank, which checks eligibility, files the forms and obtains a Unique Identification Number (UIN) for the foreign entity before any money leaves.
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What Counts as ODI
Under rule 2 of the OI Rules, ODI is any of: buying unlisted equity capital of a foreign entity; subscribing to its memorandum of association; buying 10% or more of the paid-up equity of a listed foreign entity; or investing with control in a listed foreign entity even below 10%. Control means the right to appoint a majority of directors or to control management or policy decisions, including through 10% or more of voting rights.
Once an investment is classified as ODI, it stays ODI even if the stake later falls below 10% or control is lost.
Limits That Apply
| Investor | Limit |
|---|---|
| Indian entity: total financial commitment in all foreign entities | 400% of net worth as per the last audited balance sheet |
| Indian entity: commitment above USD 1 billion in a financial year | Prior RBI approval, even if within the 400% limit |
| Resident individual | Within the overall Liberalised Remittance Scheme ceiling |
| Investor in a foreign financial services entity | Net profits in each of the preceding three financial years (plus regulatory approvals where the investor is itself in financial services) |
What ODI Cannot Go Into
- check_circleReal estate activity (buying and selling real estate, or trading in transferable development rights; developing townships or building premises, roads or bridges is allowed).
- check_circleGambling in any form.
- check_circleFinancial products linked to the Indian rupee, without specific RBI approval.
- check_circleA structure with more than two layers of subsidiaries where the foreign entity has invested or invests back into India (banks, systemically important NBFCs, insurers and government companies are exempt).
- check_circleFor resident individuals: only an operating foreign entity not in financial services, and without its own subsidiaries where the individual has control (with exceptions for inheritance, ESOPs, sweat equity and qualification shares).
Limits, forms and deadlines in the exam format. No signup.
Reporting Through the Designated AD Bank
- 1
Form FC
Before the first investment, to obtain the UIN; thereafter at the time of each remittance or financial commitment, whichever is earlier.
- 2
Disinvestment and restructuring
Reported within 30 days of receiving disinvestment proceeds, or of the restructuring.
- 3
Annual Performance Report (APR)
For each foreign entity, by 31 December every year (by 31 December of the next year if the entity's year ends on 31 December). Not needed below 10% without control and with no other commitment, or if the entity is in liquidation.
- 4
Repatriation of dues
Dividends, disinvestment proceeds and liquidation proceeds must be realised and repatriated within 90 days of falling due.
- 5
Late filing
A late submission fee applies: a flat ₹7,500 for returns like the APR, and ₹7,500 plus 0.025% of the amount per year of delay for flow returns like Form FC.
How CCFE Tests This
Questions lean on numbers and forms: the 400% limit, the APR due date, the 10% line between ODI and portfolio investment, and which form reports what. Older practice material refers to Form ODI, the automatic route under FEMA 120/2004 and 30-day reporting, which belong to the pre-2022 regime. The common trap is treating a resident individual like a company: individuals invest within LRS and cannot hold ODI in a foreign financial services entity except through routes like ESOPs or inheritance.
FAQs
What is the ODI limit for Indian companies?expand_more
Total financial commitment in all foreign entities up to 400% of net worth as per the last audited balance sheet. Commitments above USD 1 billion in a financial year need prior RBI approval.
Can a resident individual make overseas direct investment?expand_more
Yes, within the LRS ceiling, in an operating foreign entity that is not in financial services and has no subsidiary or step-down subsidiary where the individual has control.
When is the APR for ODI due?expand_more
By 31 December each year for every foreign entity in which ODI is held, based on its audited financial statements.
Is ODI allowed in real estate abroad?expand_more
Not in real estate activity, meaning buying and selling property or trading development rights. Developing townships or building residential or commercial premises, roads or bridges is allowed.
Next steps
- ODI vs OPIarrow_forward
- Overseas Portfolio Investmentarrow_forward
- LRSarrow_forward
- FDI Routesarrow_forward
Test ODI alongside the rest of FEMA for entities.