The transfer of unlisted shares from a resident to a non-resident—especially when the transfer happens as a gift rather than for monetary consideration—is a transaction that quietly blends personal intent with India’s strict foreign exchange governance. At first glance, a “gift” seems simple and private, but under the FEMA framework, every cross-border transfer of securities is treated as a transaction with regulatory consequences. This is where Form FC-TRS becomes relevant, even when no money changes hands.

While the market often treats sale-based FC-TRS filings as routine, gift-based transfers occupy a more nuanced space. They require a deeper understanding of valuation rules, reporting timelines, the role of AD banks, and the layers of due diligence that the RBI expects.

Why Gifts of Unlisted Shares Trigger FC-TRS Requirements

Under FEMA’s regulatory architecture, a transfer of capital instruments from a resident to a non-resident—whether through sale, gift, swap, or otherwise—requires reporting. A gift, though not a “transaction of value” in common language, still constitutes a change in ownership of a capital instrument.

This shift in ownership triggers regulatory oversight for three main reasons:

1. Cross-border movement of assets: Unlisted shares, even when gifted, represent a change in India’s asset holdings to a non-resident.

2. Fair value protection: FEMA does not allow indirect undervaluation or circumvention of pricing norms through gifting.

3. Beneficial ownership monitoring: Gift transfers often draw enhanced scrutiny because the transaction has no financial consideration.

Therefore, FC-TRS becomes the formal channel for documenting this cross-border movement.

Regulatory Foundation: What FEMA and RBI Expect

1. Prior Approval for Gift Transfers

A gift of shares from a resident to a non-resident is not an automatic-route transaction.
The resident transferor must obtain specific approval from the RBI, and the approval request must justify:

a. Relationship between donor and donee
b. Reason for gifting
c. Confirmations of non-money laundering intent
d. Compliance with sectoral caps and entry conditions
e. Adherence to pricing guidelines

The RBI’s approval acts as the green signal for initiating the FC-TRS filing after the transfer.

Pricing Guidelines in the Context of a Gift

When consideration is zero, the traditional valuation logic shifts. The regulator still expects the company or transferor to obtain:

a. A valuation certificate from a SEBI-registered merchant banker or CA
b. Fair value computed using internationally accepted valuation methods, typically DCF or NAV for unlisted shares

Why is valuation required if the gift price is zero?

Because the RBI must satisfy itself that:

a. The underlying fair value of the shares is not being shifted abroad in a manner that bypasses capital regulations
b. No funds are raised by the non-resident indirectly
c. The share transfer aligns with sectoral caps and ownership thresholds

Thus, the valuation forms the backbone of both the approval request and the FC-TRS filing.

Step-by-Step Compliance Workflow

1. Obtain RBI Approval for the Gift Transfer

The resident shareholder must apply through their designated AD bank with:

a. Gift deed
b. KYC & identification of donor and donee
c. Board resolution (if applicable)
d. Declaration of relationship
e. Valuation report
f. FEMA compliance note

Only after this approval can the transaction proceed.

2. Execution of Gift Deed

Once approval is granted:

a. The donor and donee execute a properly stamped gift deed
b. Share transfer forms or share certificates are endorsed
c. Company updates the Register of Members

This forms the “date of transfer” for FC-TRS purposes.

3. FC-TRS Reporting on FIRMS Portal

The reporting must be completed within 60 days of the date of transfer.

The form requires:

a. Transferor and transferee details
b. Company details
c. Fair valuation figures
d. RBI approval letter
e. Shareholding pre- and post-transaction
f. Declaration confirming compliance

Unlike sale-based FC-TRS filings, the consideration field is marked as “0”, but all other fields remain equally rigorous.

4. Verification by AD Bank

The AD bank plays a quasi-regulatory role:

a. It verifies the RBI approval
b. Cross-checks valuation compliance
c. Ensures the transfer is genuine
d. Uploads the KYC of the non-resident donee
e. Confirms filings under FIRMS remain consistent

Only after AD Bank approval does the FC-TRS get recorded as a completed filing.

Common Practical Challenges3

1. The “Zero Consideration” Problem

Many portals or bank officers initially assume FC-TRS requires a money trail. Gift transfers break this assumption. Proper documentation, clear communication, and attaching the RBI approval letter usually resolve this.

2. Timeline Confusion

The 60-day clock starts from the date of transfer, not the date of RBI approval. Missing this can create compliance history issues.

3. Adequate Proof of Relationship

RBI often scrutinizes whether the gift is genuine. Transfers to distant relatives, unrelated persons, or corporate bodies face higher scrutiny.

4. Valuation Justification

Even though the transfer value is zero, the valuation methodology must be robust and defensible. Weak valuation is one of the most common reasons that filings are delayed.

Why Gift Transfers Deserve Enhanced Attention

Gift-based transfers of unlisted shares are treated carefully because:

a. They can alter foreign ownership patterns without money changing hands
b. They may involve non-residents in sensitive sectors
c. They could be used to reorganize family-held business structures
d. They may serve as succession planning tools for NRIs

Therefore, the reporting regime ensures that every such transfer is fully transparent and traceable.

Conclusion: FC-TRS Filing for Gift of Shares Is More Than a Formality

A gift of unlisted shares may originate from goodwill, affection, or estate-planning objectives, but the regulatory view is far more structured. FC-TRS filing transforms the private act of gifting into a formally reported cross-border event.

When managed correctly—by securing prior RBI approval, obtaining a fair valuation, executing a compliant gift deed, and filing FC-TRS within the prescribed timeframe—the process becomes smooth and defensible.

For professionals, compliance officers, and promoters, this is not merely a reporting obligation. It is a statement of transparency, ensuring that even non-monetary capital movements respect India’s foreign exchange laws.

For any clarifications or queries, please feel free to reach out to us at admin@fintracadvisors.com

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