SCH-01 - Purchase or sale of equity instruments of an Indian company by a person resident outside India

Foreign investment regulations under FEMA allow non-resident entities to purchase equity through automatic or government approval routes with sectoral caps

This statutory provision establishes comprehensive foreign investment regulations for Indian companies under FEMA. Non-resident entities may purchase equity instruments through automatic or government approval routes, subject to sectoral caps and specific conditions. Key provisions include: wholly-owned subsidiaries may issue equity against pre-incorporation expenses up to 5% of authorized capital or USD 500,000; companies may issue equity against capital goods imports, pre-operative expenses, or equity swaps; and payment modes are specified by Reserve Bank.Prohibited sectors include lottery, gambling, chit funds, real estate business, and certain manufacturing activities. Permitted sectors have varying caps - agriculture, manufacturing, and construction allow 100% automatic route, while defense allows 74% automatic then government route beyond. Financial services have specific limits: banking (74%), insurance (74%), and telecom (100% automatic).Entry routes comprise automatic (no prior approval required) and government (requires approval with stipulated conditions). Foreign portfolio investment up to sectoral caps generally doesn't require government approval unless it transfers control to non-residents. Sectoral compliance, minimum capitalization requirements, and reporting obligations apply throughout. Special provisions govern specific sectors like civil aviation, broadcasting, pharmaceuticals, and space technology with tailored conditions and approval mechanisms.