DPIIT’S Clarification on Issuance of Bonus Shares to Non-Resident Shareholders in Prohibited Sectors

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Dated: 29.04.2025

DPIIT’S Clarification on Issuance of Bonus Shares to Non-Resident Shareholders in Prohibited Sectors

The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, Government of India, has issued Press Note No. 2 (2025 Series) dated April 7, 2025, bringing a critical clarification under India’s Foreign Direct Investment (FDI) framework.

Key Highlights:

1. Clarification Issued:

Indian companies engaged in sectors where FDI is otherwise prohibited are now permitted to issue bonus shares to their pre-existing non-resident shareholders.
This is allowed provided that the shareholding pattern does not change post-issuance of bonus shares.

2. Context and Background:

As per the Consolidated FDI Policy Circular of 2020, Indian companies could issue bonus shares to existing non-resident shareholders, subject to adherence to sectoral caps.
However, ambiguity existed regarding companies operating in prohibited sectors.
This Press Note resolves the uncertainty by allowing bonus issuances without altering the shareholding pattern.

3. Compliance Requirements:

Issuance of bonus shares must comply with all applicable laws, regulations, rules, and guidelines.
The change will be effective from the date the corresponding FEMA notifications are issued.

4. Impact on Stakeholders:

Companies in prohibited sectors now have clarity and flexibility regarding corporate actions like bonus issuances.
Non-resident investors maintain their original shareholding rights without violation of FDI norms.

Implementation Steps:

Amendments will be incorporated into the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
Relevant updates are to be made by the Department of Economic Affairs and the Reserve Bank of India.

Conclusion:

This policy clarification brings welcome relief to Indian companies with non-resident shareholders in sectors where fresh FDI is restricted. It preserves shareholder value and corporate flexibility while maintaining the integrity of India’s FDI regulatory framework.

In case you face any issues related to Indirect Tax-Customs, GST, Foreign Trade Policy (FTP), Arbitration matters and Central Licensing and related advisory matters in India then please feel free to get in touch with SJ EXIM Services.

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Source: DPIIT

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