Can an NRI Buy a Business in India? FEMA Rules for Acquiring an Existing Company

Search "NRI buying a business in India" and almost everything you find is about property. Buying a flat in Mumbai, buying a villa in Goa, repatriating rental income. If you're actually trying to acquire an operating business (a manufacturing unit, a services company, a family firm looking for a buyer), that content doesn't answer your question, because it's answering a different one.

This guide is specifically about that different question: can an NRI acquire an existing Indian business, and what FEMA route actually applies. Short answer: yes, and in most sectors it's more straightforward than the property rules that dominate the search results. But "straightforward" doesn't mean "do it without a lawyer and a CA": a few of the mechanics here are genuinely more involved than a resident buyer faces, and getting them wrong has real consequences.

A note before we go further: FEMA and the tax rules around it change, and India's regulatory framework for foreign individual investors was itself amended in 2026. Nothing here substitutes for a chartered accountant and a lawyer who specialize in NRI transactions reviewing your specific deal before you sign anything.

The Core Answer: Yes, With Conditions

An NRI can acquire an existing Indian business. In most sectors, this happens under India's automatic FDI route, meaning no prior government approval is required. You're subject to compliance, not permission-seeking, for the majority of industries. A small number of sectors (agriculture, plantation, real estate trading among them, plus a defined list of others requiring government approval or carrying sectoral caps) fall outside this default, so the first real question in any deal is simply: which sector is this business in, and what route does that sector actually require.

Assuming the sector is unrestricted, the acquisition is legally and procedurally possible without RBI's prior sign-off. What it is not, is casual. Pricing has to follow RBI-mandated valuation methodology, payment has to move through specific banking channels, and the transaction has to be reported to RBI within prescribed timelines after it closes.

Why Property-Focused FEMA Content Doesn't Answer This

Worth being explicit about this, because it's the reason so much NRI-FEMA content is a dead end for this specific question. The overwhelming majority of NRI-FEMA guidance online covers two things: buying immovable property (residential or commercial real estate) and investing in listed shares through the Portfolio Investment Scheme (PIS).

Both are governed by rules that simply don't apply to buying an operating business:

• Property rules cover land, flats, and commercial premises, not the operating company that might occupy that premises.
• The PIS 5%/10% individual and aggregate NRI shareholding caps that show up constantly in NRI content apply specifically to shares of listed companies traded on a stock exchange. If you're acquiring a private, unlisted SME (which is almost every business you'd find through a broker, a marketplace listing, or a direct approach to a founder), those caps do not apply to you at all.

That distinction alone explains why so much generic NRI content, read literally, would make you think you're capped at owning 5–10% of a business you're trying to acquire outright. You're not. You're in a different regulatory lane entirely.

The Route That Applies: FDI, Not the Portfolio Investment Scheme

Investment by an NRI in the shares of an unlisted Indian private limited company or limited company is treated as Foreign Direct Investment (FDI), not portfolio investment. Under the automatic route, this doesn't carry the PIS percentage caps, though it is subject to the general FDI sectoral caps that apply to any foreign investor in that industry (most sectors permit 100% FDI under the automatic route; a defined set of sectors have specific caps or require government approval, and a short list is prohibited to foreign investment altogether, including agriculture, atomic energy, and a few others).

Practically, this means: for a services business, a manufacturing SME, or most operating companies outside the restricted list, an NRI can in principle acquire 100% of an unlisted Indian company's shares under the automatic route, subject to the pricing and payment rules covered below: a materially different (and better) position than the 5%/10% figures that dominate generic NRI-FEMA search results.

Buying a Company vs. a Proprietorship or Partnership

Many Indian SMEs aren't structured as private limited companies at all; they're sole proprietorships or partnerships, which is common for smaller, owner-run businesses. This matters because the FEMA route differs by entity type:

• Private limited or limited company: the FDI route above applies, share pricing and payment rules apply, and there's a filing requirement to RBI (via the FC-GPR form/FIRMS portal) after the shares are allotted or transferred.
• Sole proprietorship or partnership firm: an NRI can invest on a non-repatriation basis, again excluding agricultural, plantation, real estate, and print media businesses. This route exists but is more restrictive on getting money back out: non-repatriation basis means the investment and its proceeds are meant to stay within India unless a separate RBI approval is obtained for repatriation.

If the business you're targeting is a proprietorship or partnership rather than a company, the acquisition will likely need to be restructured into or acquired as a company for a cleaner path to standard FDI treatment and eventual repatriation. That's a structuring decision your lawyer and CA need to make jointly with you, not something to default into without discussion.

Asset Purchase vs. Share Purchase as an NRI

The general asset-purchase-vs-share-purchase tradeoffs that apply to any Indian SME acquisition (asset deals give cleaner liability protection but require re-registering licenses and contracts; share deals are administratively simpler but inherit all liabilities) still apply here. But the FEMA overlay adds NRI-specific texture:

• Share purchase puts you squarely in the FDI share-transfer regime described above: pricing guidelines, specific payment channels, RBI reporting.
• Asset purchase by an NRI, structured through an Indian entity you set up or already control, involves a different set of considerations around how that entity is capitalized and how the acquisition itself is funded and reported, and the public guidance on this specific configuration is genuinely thinner than the share-purchase route. This is not a gap we're papering over with inference: primary RBI guidance on asset-purchase structures for NRI operating-business acquirers is less explicit than share-transfer guidance, and you should not assume the share-transfer mechanics above apply identically. Get deal-specific advice on structuring an asset purchase as an NRI before assuming either structure by default.

Pricing Rules You Cannot Negotiate Around

This is the part of the process that differs most from a domestic buyer's experience, and it's non-negotiable rather than a norm you can structure around.

For unlisted shares, RBI pricing guidelines require the transaction price to be determined by a fair market valuation performed by a SEBI-registered merchant banker or a registered valuer, generally using an internationally accepted methodology such as discounted cash flow. You and the seller cannot simply agree a number over negotiation and treat that as the compliant transaction price. The valuation has to be independently certified, and the transaction has to be priced at or consistent with that certified value (the exact directional constraint, whether that means not below X for a purchase or not above X for a sale, depends on which side of the transaction you're on and current RBI guidance at the time of the deal).

The core pricing requirement (independent valuation by a SEBI-registered merchant banker or registered valuer) is well-established in RBI FDI guidelines for share transfers. The exact application of pricing floors and ceilings to a specific SME acquisition structure, particularly if it involves conditions, deferred consideration, or unusual deal terms, is where your authorized dealer bank and CA need to confirm current applicability. This is a framework that has primarily been tested in larger, better-documented transactions; its mechanics at SME scale are the same in principle but less frequently documented in public guidance.

This adds a real step and a real cost to the deal timeline beyond what a domestic buyer negotiating with a domestic seller would face, and it needs to be planned into your deal timetable from the LOI stage, not discovered during closing documentation.

How You're Actually Allowed to Pay

Payment for shares acquired under the FDI route has to move through one of a defined set of channels: you cannot simply wire money informally or pay in cash.

• Inward remittance in foreign currency through normal banking channels
• Debit to an NRE or FCNR account held by the NRI buyer
• A non-interest-bearing escrow account in Indian rupees maintained with an authorized dealer bank, used to hold the consideration pending completion of conditions

Which of these is right for a given deal depends on deal structure, timing, and whether conditions need to be satisfied before funds are released to the seller. An escrow arrangement is common precisely because it lets the buyer's funds sit safely while due diligence conditions or regulatory filings are finalized. Cash payment is not a permitted channel under any of these routes.

Repatriation: Getting Money Back Out Later

Whether you can eventually take money out of India (sale proceeds if you later exit the business, or dividends along the way) depends heavily on how the original investment was structured:

• Investment on a repatriation basis (typically funded from an NRE or FCNR account, or via qualifying inward remittance) generally allows the net-of-tax proceeds to be remitted abroad, subject to current FEMA and RBI conditions at the time of repatriation.
• Investment on a non-repatriation basis (typically funded through an NRO account, common for the proprietorship/partnership route) restricts the ability to send the original capital and proceeds abroad, though NRIs can generally repatriate up to USD 1 million per financial year out of NRO account balances, subject to documentation and tax compliance, which offers a partial path even for non-repatriation-basis holdings.

Decide which basis you want at the point of structuring the deal, not after you've closed it. Retrofitting repatriation rights onto a non-repatriation-basis investment is a materially harder problem than planning for it upfront.

What Changed in 2026

Two regulatory shifts from 2026 are directly relevant and worth flagging so you're working from current rules, not last year's:

FEMA (Non-Debt Instruments) Third Amendment Rules, 2026. The RBI broadened Schedule III access (previously focused mainly on NRIs and OCIs) to a wider category of "individual person resident outside India, including an NRI or an OCI." In practical terms, this widens the pool of foreign individual investors who can access certain investment routes previously NRI/OCI-specific, and it comes with a new reporting classification (Individual Foreign Investor, or IFI) that authorized dealer banks now use to report these transactions. If your specific situation involves a non-NRI foreign individual investor alongside NRI investors in the same deal, this amendment is directly relevant to how the deal gets structured and reported.

Income Tax Act 2025, in force from 1 April 2026. This changed residency classification tests, TDS rates, and ITR forms relevant to NRIs. FEMA governs the foreign-exchange mechanics of your acquisition; the Income Tax Act governs how you're taxed on it. Both frameworks apply simultaneously and your CA needs to confirm your residency status and tax treatment under the current Act specifically, not under rules that predate April 2026.

A Realistic Process, Step by Step

1. Confirm the sector isn't restricted or prohibited for foreign investment, and identify whether the target is a company, proprietorship, or partnership.
2. Engage a CA and lawyer who specifically handle NRI/FEMA transactions. Not general M&A counsel unfamiliar with the FDI-in-unlisted-shares regime, and not a generalist NRI tax advisor unfamiliar with operating-business acquisition specifically.
3. Commission the mandatory fair market valuation from a SEBI-registered merchant banker or registered valuer early, since this drives your negotiation ceiling/floor and needs lead time.
4. Decide repatriation basis upfront and structure the funding account (NRE/FCNR vs. NRO) accordingly, before any consideration moves.
5. Structure payment through inward remittance, NRE/FCNR debit, or escrow. Agree this with the seller and their bank as part of deal documentation, not as an afterthought at closing.
6. Run the same operational, financial, and legal due diligence any acquirer needs. FEMA compliance is a layer on top of standard Indian SME due diligence, not a replacement for it.
7. File the required RBI reporting (FC-GPR or equivalent, via the FIRMS portal) within the prescribed window after the transaction completes.

The Bottom Line

The regulatory story here is better news than most NRI-FEMA content suggests, and also more procedurally demanding than a domestic buyer's experience. Better news because the restrictive percentage caps that dominate NRI-FEMA search results simply don't apply to acquiring an unlisted operating business: that's a portfolio-investment rule, not an acquisition rule. More demanding because mandatory third-party valuation, specific payment channels, and RBI reporting requirements add real steps to your deal timeline that a domestic buyer never encounters.

Get this wrong and the consequences aren't hypothetical: FEMA contraventions carry real monetary penalties, and unwinding a non-compliant structure after the fact is far more expensive than structuring it correctly from the LOI stage. This is a case where the cost of proper legal and CA advice is genuinely trivial next to the cost of a structuring mistake discovered after money has moved.

If you're an NRI evaluating an acquisition in India, forensic due diligence and clean deal structuring matter even more than usual, since you're managing FEMA compliance on top of everything a domestic buyer already has to get right. Talk to Kautilya PE about structuring an acquisition from outside India properly, from the first LOI.

Disclaimer: This article explains the general FEMA framework as understood at the time of writing and is not a substitute for advice from a qualified chartered accountant and lawyer familiar with your specific transaction, residency status, and current RBI regulations. FEMA rules and their interpretation change; confirm current requirements before acting.