FEMA Amendment 2025: Bonus Shares Permitted for Foreign Investors in Restricted Sectors

In a significant amendment to the Foreign Exchange Management (FEMA) regulations, the Reserve Bank of India has permitted the issuance of bonus shares to foreign investors even in sectors where Foreign Direct Investment (FDI) is otherwise restricted. The amendment, part of the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2025, removes a previous ambiguity. Now, an Indian company that is not permitted to receive FDI can still issue bonus shares to its existing non-resident shareholders, provided the original shares were acquired in compliance with the prevailing FEMA regulations at the time. This move rationalizes the regulatory framework, recognizing that the issuance of bonus shares does not involve any fresh inflow of foreign funds and is merely a capitalization of the company's existing profits. This provides clarity and operational flexibility for companies with legacy foreign shareholding in restricted sectors.