Selling your stake in a foreign company doesn’t always mean the buyer pays you in one shot. Here’s what Indian law actually allows — and how to structure it correctly.
More Indian resident individuals are investing abroad through the Overseas Direct Investment (ODI) route — and a growing number are now exiting those investments. A question we’re increasingly asked at Mistry & Shah: if you sell your overseas company shares to a foreign buyer who wants to pay in instalments over 12–18 months instead of upfront, is that even legal under Indian exchange control law?
The short answer: yes, it can be — but only if it is structured correctly. This guide breaks down exactly what FEMA permits, the specific regulations involved, and the compliance checklist your advisor should be running before you sign anything.
Table of Contents
- The Fact Pattern
- Quick Answer
- The Legal Framework Governing ODI Disinvestment
- Why Deferred/Tranche Payment Is Now Allowed
- Conditions You Must Satisfy
- The 90-Day Repatriation Rule — and Why It’s Not a Problem
- Reporting Obligations for Each Tranche
- The One Grey Area to Watch
- Practical Drafting Tips
- Frequently Asked Questions
The Fact Pattern
Consider a common scenario: a resident individual in India invests in the equity shares of a company incorporated in Dubai, completing all ODI formalities at the time of investment. After holding the investment for about 18 months, they agree to sell their entire shareholding to another Dubai-based buyer. The buyer, however, wants to pay the purchase price in five instalments spread over 1.5 years rather than as a lump sum at closing.
Is this payment structure valid under India’s foreign exchange law?
Quick Answer
Yes. Since the Foreign Exchange Management (Overseas Investment) Rules and Regulations, 2022 came into force, RBI has expressly permitted deferred and staggered payment of consideration on the transfer (sale) of ODI equity capital — not just on fresh acquisition. This reverses the pre-2022 regime, which generally required full sale proceeds to be received “immediately,” effectively within 90 days of the sale.
That said, “yes” comes with conditions. Get any one of them wrong, and what should be a routine exit turns into a reportable contravention under FEMA.
The Legal Framework Governing ODI Disinvestment
| Instrument | Issued By | What It Covers |
| Foreign Exchange Management Act, 1999 (FEMA) | Parliament | The parent statute |
| FEM (Overseas Investment) Rules, 2022 | Ministry of Finance | Rule 17 — conditions for transfer/disinvestment |
| FEM (Overseas Investment) Regulations, 2022 (FEMA 400/2022-RB) | RBI | Regulation 7 — deferred payment; Regulation 9 — repatriation; Regulation 10 — reporting |
| Master Direction – Overseas Investment (FED MD No. 15/2024-25) | RBI | Consolidated operational guidance |
Why Deferred/Tranche Payment Is Now Allowed
Under the old ODI regime, sale proceeds from disinvestment had to be repatriated to India almost immediately — there was no recognised mechanism for a “seller-financed” or earn-out style exit. The 2022 overhaul changed this materially.
Regulation 7 of the FEM (Overseas Investment) Regulations, 2022 now covers both:
- A resident acquiring equity capital in a foreign entity (fresh ODI), and
- A resident transferring/selling equity capital to a person resident outside India
For both scenarios, the regulation allows the consideration to be paid over “such definite period from the date of the agreement as provided in such agreement” — which is exactly what a 5-tranche, 18-month payment schedule looks like, provided it’s properly documented.
Notably, unlike India’s inbound (FDI) deferred-payment regime — which caps deferred consideration at 25% of the deal value for a maximum of 18 months — the ODI/outbound regime imposes no statutory percentage or time cap. The only requirement is that the deferral period be “definite” and spelt out in the transfer agreement.
Conditions You Must Satisfy
| # | Condition | Legal Basis | Why It Matters |
| 1 | Minimum 1-year holding period from the date of making the ODI | Rule 17(4), OI Rules 2022 | An 18-month holding period comfortably clears this bar |
| 2 | No outstanding dues receivable from the foreign entity itself (as investor in equity/debt) at the time of full exit | Rule 17(4) | Distinct from the sale consideration — this is about dues from the company, not the buyer |
| 3 | The entire shareholding must transfer to the buyer upfront, even though payment is staggered | Regulation 7(1)(a) | Legal title passes at signing/closing; only the cash flow is deferred |
| 4 | The deferment period must be definite and specified in the Share Purchase Agreement (SPA) | Regulation 7(1) | Vague or open-ended payment terms won’t hold up |
| 5 | The final aggregate consideration must comply with applicable pricing/valuation guidelines | Regulation 7(1)(b) | An arm’s-length or fair-value certificate (CA/merchant banker/registered valuer) is essential for unlisted shares |
| 6 | Each tranche must be realised and repatriated to India within 90 days of its due date | Regulation 9(4) | Build this buffer into the SPA payment schedule |
| 7 | Each tranche received must be reported to RBI through the AD Bank | Regulation 10(2)(c) | Within 30 days of each receipt |
The 90-Day Repatriation Rule
This is where most people get confused. Regulation 9(4) requires sale proceeds to be repatriated “within ninety days from the date when such receivables fall due or the date of such transfer or disinvestment.” Read too literally, this could seem to demand the full amount within 90 days of the sale itself — which would contradict Regulation 7’s deferred-payment allowance entirely.
The correct, professionally accepted reading harmonises the two provisions:
- If no deferral is agreed, the full amount becomes “due” on the date of transfer, and the 90-day clock starts there.
- If a deferred/tranche schedule is agreed (as permitted under Regulation 7), each instalment has its own contractually fixed due date — and the 90-day repatriation clock runs separately from that date for that tranche.
There is no published RBI FAQ that spells this out word-for-word, which is why it’s treated as a compliance grey area rather than settled law (see below).
Reporting Obligations for Each Tranche
| Event | Form / Route | Deadline |
| Execution of the transfer / Share Purchase Agreement | Form FC via AD Bank (FIRMS portal) | As per transaction reporting norms |
| Receipt of each disinvestment tranche | Form FC — disinvestment reporting | Within 30 days of that receipt |
| Ongoing compliance | Annual Performance Report (APR) | Up to the year of full transfer |
The One Grey Area to Watch
Because Regulation 9(4)’s wording hasn’t been judicially or administratively clarified for staggered-payment structures, we recommend a belt-and-braces approach for resident individuals (who don’t have in-house compliance teams the way companies do):
- Get the AD Category-I bank’s written concurrence on the proposed tranche schedule before the SPA is signed.
- Ensure the SPA states fixed calendar dates or objectively determinable trigger dates for each tranche — not “on demand” or vague milestones.
- Keep the valuation certificate current and aligned to the total (not just the first tranche’s) consideration.
Practical Drafting Tips
- Transfer 100% of the legal shareholding at closing; treat the deferred amounts purely as a payment obligation, not a conditional transfer.
- Mirror each tranche’s due date with an internal repatriation reminder set 60–75 days out, leaving a buffer inside the 90-day window.
- File Form FC for each tranche separately rather than waiting to file once after the final tranche.
- If the buyer is a related party or group entity, get the arm’s-length pricing certificate scrutinised even more closely — the aggregate consideration, not just each instalment, must meet fair value.
- Retain APR filings up to date; a lapsed APR can complicate the AD Bank’s willingness to process the transfer.
Frequently Asked Questions
Is prior RBI approval needed to receive ODI sale proceeds in instalments? No prior RBI approval is required if the transaction meets the automatic-route conditions under Rule 17 and Regulation 7 — including the 1-year holding period, upfront transfer of shares, arm’s-length pricing, and proper reporting. AD Bank due diligence still applies.
Does receiving disinvestment proceeds in tranches use up my LRS limit? No. Disinvestment proceeds are an inward remittance into India and do not count against the Liberalised Remittance Scheme’s US$250,000 annual outward-remittance limit.
What happens if a tranche is repatriated after the 90-day window? A delay beyond 90 days from the due date is technically a contravention and may require compounding with RBI (a regularisation process involving a fee), so tranches should be tracked and repatriated proactively.
Is there a cap on how long the payment can be deferred? Unlike India’s inbound FDI regime (25% of consideration, capped at 18 months), the outbound ODI regime under Regulation 7 has no statutory percentage or time ceiling — only a requirement that the deferral period be “definite” and specified in the agreement.
Does this apply only to companies, or also to resident individuals? It applies to any “person resident in India” holding ODI, including resident individuals investing under Schedule III of the OI Rules, 2022 — subject to the same conditions.
This article is intended for general guidance only and does not constitute legal or tax advice. FEMA overseas investment rules involve interpretational nuances — particularly around deferred-payment repatriation timelines — that should be reviewed against your specific transfer agreement before execution. For a compliance review of your ODI disinvestment structure, contact Mistry & Shah at info@mistryandshah.com.