FEMA 2025 Update: Foreign Investors Can Now Receive Bonus Shares in Restricted Sectors

In a progressive move to streamline foreign investment norms and boost investor confidence, the Reserve Bank of India (RBI) has notified a key amendment under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. Effective 2025, foreign investors are now permitted to receive bonus shares in companies operating within restricted sectors—a domain that previously faced stringent compliance limitations under the FDI policy.

This blog by Infosential LLP explores the implications, benefits, and compliance outlook following this significant FEMA development.

What Has Changed?

Until now, issuance of bonus shares to foreign shareholders was tightly controlled in sectors where FDI is either prohibited or allowed only with prior government approval. This led to regulatory hurdles for companies with mixed ownership structures.

However, with the latest FEMA amendment, issuance of bonus shares has been liberalized, even in sectors like:

• Defense production

• Telecom

• Private security

• Broadcasting

• Satellites

• Gambling & Betting (still under prohibition for fresh FDI, but shares previously held can be impacted)

Key Clause: If foreign shareholding is already in compliance with the sectoral cap and entry route, bonus shares can now be issued without further government approval.

Implications for Indian Companies

1. Simplified Capital Restructuring : Companies can now reward foreign investors through bonus issues without triggering regulatory bottlenecks—especially useful in joint ventures or early-stage ventures with foreign capital.

2. Enhanced FDI Attractiveness : This amendment increases India's credibility as an investor-friendly jurisdiction, balancing national security concerns with ease of doing business.

3. No Dilution of Control or Fresh Capital Inflow : Since bonus shares are issued from free reserves and involve no foreign exchange inflow, the move doesn’t breach security protocols while benefiting existing investors.

Implications for Foreign Investors

• Clearer Exit and Reward Planning: Investors can now better structure their Indian holdings, especially in sectors where secondary issuance was unclear.

• Trust in Policy Consistency: The change reflects a stable and maturing regulatory environment.

Compliance Snapshot

Aspect	Before Amendment	After Amendment
Bonus shares in restricted sectors	Often required prior approval	Allowed if sectoral cap and route are met
Applicability	FDI under automatic & approval routes	Both, subject to FDI compliance
Reporting Requirements	FEMA & RBI compliance still required	Unchanged

Infosential LLP’s View

This reform is more than just a procedural relaxation—it reflects India’s nuanced approach to foreign capital, particularly in sectors where national interest intersects with global economic participation.

At Infosential LLP, we advise Indian and global clients on structuring FDI, compliance under FEMA, and cross-border investments. This development is a green signal for many businesses to revisit their shareholding strategies and capitalize on India’s evolving regulatory landscape.

Need Help?

If your business involves foreign shareholders or operates in a regulated sector, contact Infosential LLP to understand how this FEMA amendment affects your capital planning and compliance roadmap.

To download the official notification, click here:

FEMA39516012025F6708D35EF714F0494C879D64D6E7EE6.pdf

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