India: New exchange control rules for Share-Based Awards offered to Indian residents

In brief

On 22 August 2022, the Indian Government issued new exchange control rules affecting share-based awards offered to Indian residents by non-Indian issuers. In particular, the Indian Government issued the Foreign Exchange Management (Overseas Investment) Rules, 2022 ("OI Rules"), Foreign Exchange Management (Overseas Investment) Regulations, 2022 ("ODI Regulations") and Foreign Exchange Management (Overseas Investment) Directions, 2022 ("ODI Directions").

The new OI Rules replace all previously available exemptions to grant share-based awards to Indian residents with a single exemption (the new "general permission"), which requires, inter alia, that semi-annual reports be filed with the Reserve Bank of India (RBI). The reports will need to be submitted by an Authorized Dealer Bank in India (i.e., the bank in India involved with the remittance of funds under the plan) and include information on the number of shares issued to Indian residents, funds remitted from India to purchase shares (if any) and amounts remitted to India related to the shares (e.g., sale proceeds).

The first report under the new OI Rules is due by 29 November 2022.


To offer share-based awards in India under which individuals are able to acquire and hold shares issued under an Employee Stock Ownership Plan (ESOP) offered by a foreign company, it is necessary to obtain prior approval from the RBI unless an exemption applies.

Under the prior rules, broadly, three different exemptions could apply, depending on the type of award and the status of the participant.

Under the "general permission," an exemption applied, provided (i) the individual acquiring and holding the foreign securities was an employee or director of an Indian company in which the issuing company had a direct or indirect equity holding; (ii) the ESOP was offered by the issuing company globally on a uniform basis (e.g., on same general terms as applicable to other subsidiaries of the issuing company); (iii) an Authorized Dealer (i.e., bank authorized to deal in foreign currency) was used to convert and transmit the funds to purchase the shares (as applicable); and (iv) the Indian employing entity, through its Authorized Dealer Bank, submitted an annual report on Form ESOP to the RBI reporting the details of the outward remittances and participants in the share plans.

This exemption generally was available to all types of awards, but due to requirement (i), did not apply to awards granted to consultants or employees of a third-party Professional Employer Organization (PEO) / Employer of Record (EoR).

Separately, a "cashless exercise" exemption applied to awards that did not require the participant to remit any funds out of India to acquire the shares. This exemption was understood to apply to options restricted to a cashless exercise and arguably also restricted stock units (RSUs) or other types of awards that do not require any payment from participants (to acquire the award or the underlying shares).

Lastly, under the Liberalized Remittance Scheme (LRS), individuals were permitted to remit up to USD 250,000 out of India each financial year for certain permitted transactions (which was understood to cover the acquisition of foreign securities). That said, we generally advised against relying on this exemption as companies would not know if participants had already reached this limit with other remittances (not related to the share plan).

Separately, Indian residents were required to repatriate any proceeds related to shares acquired under an ESOP (e.g., sale proceeds and dividends) to India within a certain period of time.


Under the new OI Rules, ODI Regulations and ODI Directions introduced on 22 August 2022, employees and directors who receive shares under an ESOP offered by a foreign company are considered to have received an Overseas Portfolio Investment (OPI) and the local Indian entity must comply with the requirements under the new OI Regulations.

Under the new OI Rules, it appears the only exemption for foreign companies granting awards to employees and directors of their related Indian entities under an ESOP or similar plan is a new "general permission". The requirements of the new general permission generally remain the same as under the old rules, with the exception that the Indian entity must now submit semi-annual reports on Form OPI to the RBI through its Authorized Dealer Bank (instead of annual reports). The semi-annual reports are due for the periods ending 31 March and 30 September and must be submitted within 60 days of 31 March and 30 September, respectively. This means that for the period ending 30 September 2022, the Form OPI is due by 29 November 2022.

It appears there is no longer a separate exemption for cashless stock options or similar awards which do not require the remittance of funds from India.

Further, RBI also revised the Master Direction – Liberalized Remittance Scheme ("LRS Master Direction") in connection with its overhaul of the exchange control rules. The revised LRS Master Direction no longer applies to the acquisition and holding of shares in a foreign company by Indian residents, but requires that all such transactions be completed under the new OI Rules.

Consequently, it seems that companies offering any share-based awards to Indian residents will now need to do so in reliance on the new general permission if they want to avoid RBI approval (which would be difficult to obtain). It is not clear yet if awards granted to consultants and PEO / EoR employees could be made under the new general permission.

Further, the repatriation requirements were also modified such that, if an individual acquires securities that represent (in the aggregate) less than 10% of the company's share capital, the individual will be required to repatriate any proceeds related to the securities within 180 days of receipt (unless the amounts are reinvested by the individual in compliance with the ODI Regulations within the 180-day period). In the unlikely event that the individual acquires securities that represent (in the aggregate) 10% or more of the company's share capital, the individual will be required to repatriate the proceeds within 90 days of receipt. It is the individual's responsibility to comply with the repatriation requirements.

Next steps

Companies granting share-based awards to Indian residents will need to determine if they can rely on the new general permission. If so, they will need to be prepared to file the new Form OPI on a semi-annual basis, with the first report being due by 29 November 2022. (Note that only the highlighted portions of the Form OPI will need to be completed to report transactions for share-based awards, but because the form follows a prescribed format, the entire form will have to be submitted and the other portions may be left blank).

The following information has to be reported on the Form OPI for share-based awards:

  1. Net amount of ESOP investment held abroad (opening balance) at cost basis
  2. Investments made during the half year (ended March / September) (including reinvestment)
  3. Disinvestments made during the half year
  4. Net amount of investments held abroad (closing balance) (i + ii - iii)
  5. Remittance Amount
  6. Repatriation Amount
  7. The report also requires a declaration by the Indian entity which includes: (1) the name of the foreign entity issuing / repurchasing the shares; (2) percentage interest and the shares or percentage interest allotted/repurchased during the relevant six-month period; and (3) the number of employees/directors who acquired and sold shares during the six-month period

As some of these requirements are subject to interpretation and it is also unclear how companies can obtain some of this information without changing the administration of the plans (e.g., the repatriation amount), it is strongly recommended that companies discuss with their Authorized Dealer Bank how to complete the reports. Penalties apply for late filings and for failure to file a return. 

Please reach out to your Compensation attorney if you need assistance with preparing the new reports and determining whether the new general permission applies to your awards.

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