Convertible note compliance for foreign investors hinges on DPIIT recognition, FDI eligibility, pricing rules, and RBI reporting.
Convertible notes for foreign investors in Indian startups are debt instruments that later convert into equity, and their use requires compliance with the Companies Act, FEMA and tax rules. A startup must be DPIIT-recognised, the note must involve at least Rs. 25 lakh per investor per tranche, the instrument must convert or be repaid within 10 years, and the startup must operate in a sector eligible for 100% FDI under the automatic route. If these conditions are not met, the receipt may be treated as a deposit or a FEMA contravention. (AI Summary)