top of page

Transfer of Shares between Resident and Non-Resident Shareholders: A Comprehensive Guide || The Legal Time


In the contemporary investment landscape, individuals and institutions often seek to diversify their investment portfolios by venturing into markets beyond their national borders. This has facilitated the ease with which non-residents can invest in the stocks of foreign countries, leveraging the market opportunities for wealth creation. To facilitate such cross-border investments, governments have instituted norms and pathways, the elucidation of which forms the crux of this article.

Understanding Transfer of Shares:

- Resident: A resident, as per tax laws, is an individual or entity that ordinarily resides in a particular country and has their center of economic interest in the same. This term encompasses both individuals and institutions, as defined in the Income Tax Act, 1961.

- Non-Resident: Conversely, a non-resident individual is someone who, for tax purposes, is not considered a resident of India. Determining an individual's non-resident status entails a scrutiny of their residential status under Section 6 of the Income Tax Act, 1961.

- Transfer of Shares: Any transfer of shares of a domestic company, as defined under the Companies Act, 2013, between residents and non-residents necessitates adherence to specific procedures, as detailed below.

Applicable Acts and Regulations:

To effectuate the transfer of shares between resident and non-resident shareholders, several fundamental acts and regulations come into play, including:

  • Foreign Exchange Management Act, 1999 (FEMA)

  • Section 56 of Companies Act, 2013 and Rule 11 of Companies (Share Capital & Debentures) Rules, 2014

  • Master Circular on Foreign Investment in India

  • FDI Policy, 2016

  • Stamp Act,1899

  • Income Tax Act 1961.

  • Valuation Rules.

Procedure Overview:

1. Pre-Transaction Agreement: Prior to initiating the transaction, the transferor and transferee can enter into a pre-transfer agreement, also known as a Letter of Intent, outlining the terms of the transfer.

2. Guidelines Adherence: It is imperative to adhere to the guidelines outlined in the Master Circular on Foreign Investment in India. Additionally, one must ascertain the entry routes and eligibility criteria for making investments.

Entry Routes for investment in India

Automatic Route: Under the Automatic Route, the foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the investment.

Government Route: Under the Government Route, the foreign investor or the Indian company should obtain prior approval of the Government of India (Foreign Investment Promotion Board (FIPB), Department of Economic Affairs (DEA), Ministry of Finance or Department of Industrial Policy & Promotion, as the case may be) for the investment.

List of prohibited sectors:

  • Lottery Business including Government/ Private lottery, online lotteries etc.

  • Chit Funds

  • Trading in Transferable Development Rights (TDR)

  • Manufacturing of Cigars, cheroots, cigarillos, and cigarettes (tobacco or tobacco substitutes)

  • Gambling and betting including casinos*

  • Nidhi Company

  • Real Estate Business or Construction of Farm Houses

  • Sectors not open to private sector investments – atomic energy, railway operations (other than permitted activities mentioned under the consolidated FDI Policy)

  • Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities

  • Real estate business shall not include the development of town shops, construction of residential/ commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations, 2014

3. RBI Approval: In certain cases, prior approval from the Reserve Bank of India (RBI) is necessary for the transaction. Once approval is granted, the same should be reported to the AD Category – I bank within 60 days from the date of receipt of the full and final amount of consideration.

4. Registration on RBI-FIRMS Portal: The applicant reporting the transaction should get Entity user registration by visiting Foreign Currency – transfer of shares (FC-TRS) Form shall be filed by the transferor/transferee whosoever is resident.

5. Valuation of Shares: The valuation of shares to be transferred must comply with FDI norms. The transfer should be made at or above the fair value determined on an arm's length basis. If the fair value is lower than the face value of the securities, the transfer should be done at or above the face value per security.

6. Share Transfer Deed: A share transfer deed, along with share certificates, must be deposited with the company by or on behalf of the transferor and transferee within sixty (60) days of the date of execution, and in or on behalf of the customer.

Documents Required for Transfer by Sale (FC-TRS Form on RBI FIRMS PORTAL):

  1. Consent letter for transfer/receipt of consideration duly signed by the buyer and the seller.

  2. Board resolution approving the purchase and sale of securities (for companies)

  3. Self-certified copy of passport of the non-resident investor

  4. Shareholding pattern of the investee company before and after the acquisition of securities by a person resident outside India

  5. Valuation report/certificate indicating fair value of securities from a SEBI registered merchant banker or chartered accountant

  6. Declaration from the buyer confirming eligibility to acquire capital instruments under FDI policy

  7. Declaration from the non-resident transferee as per the format provided by RBI in their SMF user manual

  8. Request letter to the investee company from the transferee/transferor to register the transfer of securities

  9. Board resolution of investee company to approve and acknowledge the securities transfer

  10. Securities transfer deed in Form SH 4

  11. Security purchase agreement, if any

  12. FIRC/KYC received from the AD Bank in case of transfer from Resident to Non-Resident

  13. Remittance certificate from the AD Bank in case of transfer from Non-Resident to Resident

  14. Press Note-3 declaration as per Consolidated FDI Policy

  15. Fit and proper due diligence certificate of the non-resident investor in case the investee company is in the financial sector

  16. Registration certificate in case the investee company is regulated by a specific regulator

Stamp Duty on Transfer of Shares:

Transfers of shares (on delivery basis) are subject to stamp duty at the rate of 0.015 percent of the market value of the shares transferred.

Opening of NRO/NRI Account with AD – Category Bank:

A request for opening an NRO or NRI current account for investment held on a repatriation basis should be forwarded by the AD bank to the Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai.

Execution and Delivery of Instrument of Transferee:

Both the transferor and transferee, or anyone on their behalf, shall execute the instrument of transfer of securities in Form SH-4. The instrument should have an appropriate stamp value affixed on it and be delivered to the company.


The transfer of shares between residents and non-residents involves navigating through a complex web of regulations and acts. By understanding and adhering to these procedures, individuals and institutions can ensure seamless share transfer for investment purposes.

CS Amisha Singh

44 views0 comments

Recent Posts

See All


bottom of page