Bonus Shares FDI Clarification What Indian Companies Must Know
The Bonus Shares FDI Clarification by the Finance Ministry addresses a key compliance gap for companies operating in sectors where Foreign Direct Investment (FDI) is restricted or prohibited. Recently, the Department for Promotion of Industry and Internal Trade (DPIIT) issued a press note clarifying that bonus shares issued before March 21, 2024, will not violate FDI norms, providing much-needed retrospective relief.
Why This Clarification Was Needed
Many companies in FDI-prohibited sectors had issued bonus shares from their free reserves or securities premium without realising that FDI regulations also apply to such corporate actions. This created compliance risks under the FEMA (Non-Debt Instruments) Rules, 2019.
Key Highlights of the Clarification
- Who is covered: Companies operating in sectors where FDI is restricted or prohibited under Schedule I of the ND Rules.
- What is clarified: Issuance of bonus shares prior to March 21, 2024, will be deemed compliant if the original shareholding was as per FDI rules.
- Retrospective relief: Regularisation provided for past issuances; however, future issuances must strictly follow sectoral FDI policy.
- Relevant authority: DPIIT Press Note No. 3 (2024 Series).
Legal Reference
- FDI Rules: FEMA (Non-Debt Instruments) Rules, 2019
- Clarification: DPIIT Press Note No. 3 (2024 Series)
- Practical tip: Companies should review past bonus share issuances and update compliance records accordingly.
How Does This Impact Businesses?
- Removes uncertainty for companies who issued bonus shares in good faith.
- Avoids penalties and prosecution for past non-compliance.
- Reinforces the need for pre-approval for any future bonus issues in restricted sectors.
Expert View: Practical Next Steps
✅ Immediate action:
- Review Board Resolutions and ROC filings for past bonus issues.
- Consult with a FEMA/FDI specialist to confirm compliance.
- Regularise filings with RBI if needed.
FAQs
Q1: Does this apply to all sectors?
No, only to sectors under FDI prohibition as per Schedule I.
Q2: What about future bonus shares?
Future issuances must follow sectoral FDI conditions without exception.
Q3: Where can I read the official note?
Visit dpiit.gov.in for the full Press Note.
Summary
The Finance Ministry’s latest Bonus Shares FDI Clarification protects companies in FDI-prohibited sectors by regularising bonus shares issued before March 21, 2024. This retrospective relief shields businesses from penalties but requires strict compliance for future issuances.