GIFT City, India’s International Financial Services Centre (“IFSC”), has created a new pathway for outbound corporate investment. Under the Overseas Portfolio Investment (“OPI”) route, eligible Indian entities can invest in foreign securities up to 50% of their net worth, significantly exceeding the individual Liberalised Remittance Scheme (“LRS”) cap of USD 250,000 per year.

Introduction

Legal and Regulatory Framework

OPI is available to Indian corporates and Limited Liability Partnerships (“LLP”). Investments are limited to 50% of the entity’s net worth based on the most recent audited balance sheet. Unlike LRS, which allows individuals to invest for multiple purposes, including education, property, and travel, OPI funds must be invested through IFSC-registered funds or platforms in GIFT City.

The OPI route is governed by India’s Foreign Exchange Management Act, 1999 (“FEMA”), specifically the Overseas Investment Rules, 2022 and the Master Directions issued by the Reserve Bank of India (“RBI”). RBI defines OPI as any investment in foreign securities, other than direct investment. Eligible instruments include:

Equity shares
Mutual fund units
Alternative Investment Fund (“AIF”) units
Depository receipts
Other similar instruments issued by foreign entities

Investments in unlisted debt or unregulated foreign firms are not permitted under OPI. Unlisted Indian entities cannot buy shares overseas on open markets; they may invest only through

approved capital transactions such as rights issues, bonus shares, capitalization of dues, swaps, or

mergers/demergers. All OPI must satisfy FEMA’s bona fide business requirement.

Since GIFT IFSC is treated as a deemed foreign territory, investments routed through GIFT City fall under the International Financial Services Centres Authority (“IFSCA”) regime. Funds established in GIFT City, including IFSC mutual funds, AIFs, and Family Investment Funds, are regulated by IFSCA.

Investment Process and Compliance Channels

OPI investments must be made through IFSC-registered funds or platforms, with all transactions routed through RBI-authorized dealers (“AD banks”) under FEMA. It is important to note that if an Indian entity derives more than 50% of its income from such financial investments, it will be classified as a Non-Banking Financial Company (“NBFC”), triggering RBI registration and additional regulatory oversight.

Comparing LRS and OPI: Two Routes for Overseas Investment

Feature	LRS	OPI
Meaning	It is an RBI program allowing resident individuals to send up to USD 250,000 per financial year for various permissible current and capital account transactions overseas.	It refers to investing in foreign securities without acquiring control over a foreign company, typically as a passive investment in instruments such as listed shares, bonds, etc.
Who can use it	Individuals	Corporates & LLPs
Limit	USD 250,000 per PAN per year	Up to 50% of company’s net worth
Permissible uses	Education, property, travel, investment	Only via GIFT City funds

Redemption rules	Reinvest or repatriate within 6 months	Must return to India via GIFT City
Taxation (Short-term)	Individual’s slab rate (< 24 months)	25% (< 24 months)
Taxation (Long-term)	12.5% (> 24 months)	12.5% (> 24 months)

Documentation and Compliance

Corporates and LLPs investing under OPI must maintain thorough documentation and ongoing compliance in the following ways:

Reporting all overseas investments to RBI via Form FC-GPR for equity issues or Form FC-TRS for transfers.
Ensuring sectoral limits and the 50% net-worth cap are not exceeded.
Maintaining a compliance file with investment approvals, AD bank confirmations, and board resolutions.
Monitoring investment income

Risks, Taxation & Compliance Issues

Market and Currency Risk:

OPI exposes corporates to foreign market volatility and exchange rate fluctuations. Losses from overseas investments cannot be hedged by simply waiting; they will directly impact the company’s financial position.

· Regulatory Risk:

Changes in RBI/FEMA policy or in the law of the host country may impact OPI investments. For example, new restrictions by a foreign regulator or stricter FEMA amendments could complicate the repatriation of funds or alter investment eligibility.

· Taxation

Investing abroad through the OPI route carries distinct tax implications for corporates and LLPs. Short-term capital gains—from assets held for less than 24 months—are taxed at 25%, while long-term capital gains—from holdings exceeding 24 months—are taxed at 12.5%. Dividends and interest earned from overseas investments are also taxable in India, although credit can be claimed for any foreign withholding taxes under applicable Double Taxation Avoidance Agreements.

OPI investments require meticulous record-keeping. AD banks ensure arm’s length pricing on any rights issues or transfers. Failure to repatriate sale proceeds or report transactions can result in compounding penalties. Corporates relying excessively on investment income must also consider potential NBFC classification, which introduces additional regulatory and compliance obligations.

· Compliance Burden:

Conclusion

The OPI route via GIFT IFSC provides Indian corporates and LLPs with a significantly larger avenue to diversify overseas compared to the individual LRS cap. However, it entails strict compliance with FEMA, RBI, and IFSCA regulations, a detailed documentation process, and exposure to market, currency, and regulatory risks.

Key takeaway:

OPI is a powerful outbound investment route for corporates, but companies should engage professional legal and financial advisors to ensure compliance and effective risk management.