By Manu Rao | Updated March 2026
The Scenario
A venture capital fund registered in Singapore as a Variable Capital Company (VCC) wants to lead a $2 million seed round in an Indian B2B SaaS company. The fund is managed by a team of three partners — two Singaporean nationals and one Indian-origin permanent resident of Singapore. They have already invested in startups across Southeast Asia but this is their first Indian deal. They need to understand how to structure the investment, what regulatory approvals are needed, and how their eventual exit will be taxed.
The Indian target company is a 2-year-old Private Limited registered in Bengaluru, building procurement software for mid-size manufacturers.
Why India?
India's startup ecosystem received $8-10 billion in venture funding in 2025, down from the 2021 peak but stabilizing at healthy levels. SaaS specifically is a bright spot — Indian SaaS companies generated over $14 billion in revenue in FY2025, with several reaching $100 million ARR. Singapore is the second-largest source of FDI into India after Mauritius, with $155 billion in cumulative FDI equity inflows since 2000.
The India-Singapore trade corridor is well-established. Many Indian founders incorporate holding entities in Singapore, and Singapore-based funds are familiar counterparts to Indian startups.
Entity Choice
The fund itself is already set up in Singapore. The question is the Indian investment vehicle. For a direct equity investment (buying shares in the Indian company), no separate Indian entity is needed. The Singapore VCC invests directly by subscribing to shares in the Indian Private Limited Company.
If the fund wanted to make multiple Indian investments and manage them through a local presence, it could set up an Indian Liaison Office for coordination — but this cannot carry out investment activities directly.
The Indian target company remains a Private Limited Company. At the seed stage, the investment is typically structured as a combination of equity shares and Compulsorily Convertible Preference Shares (CCPS) or Compulsorily Convertible Debentures (CCDs). These instruments are treated as equity under FEMA pricing guidelines.
FDI Route and Sector Rules
Software/SaaS falls under 100% automatic route. The critical regulatory piece for the fund is pricing. Under FEMA (Non-Debt Instruments) Rules, 2019, shares issued to a non-resident must be at a price not less than the fair market value determined by a SEBI-registered merchant banker using internationally accepted pricing methodologies (DCF being the most common).
Process for the investment:
- The Indian company gets a valuation report from a SEBI-registered merchant banker
- Shares are issued at or above fair market value
- The Indian company files Form FC-GPR with the RBI through its AD (Authorized Dealer) bank within 30 days of allotment
- The company files Form FCGPR-B (Annual Return on Foreign Liabilities and Assets) with RBI by July 15
For convertible instruments (CCPS/CCDs), the pricing floor applies at the time of issuance, not conversion. The conversion must happen within a specified period (typically 5-10 years), and the conversion formula is locked in at issuance.
Singapore is a Hague Apostille Convention member (since 2024), so documents can now be apostilled. Prior to 2024, Singapore required embassy attestation.
Registration Process
The investment does not require a new company registration. Instead, the process involves:
- Term Sheet and SHA — Shareholders' Agreement negotiated between the fund and the Indian founders
- Valuation — DCF valuation by a SEBI-registered merchant banker
- Board and Shareholder Resolutions — Indian company passes resolutions for share allotment
- KYC and AML — The Indian company's bank (AD bank) conducts KYC on the Singapore fund, including verification of the VCC structure, ultimate beneficial owners, and source of funds
- Inward Remittance — Funds transferred via SWIFT to the Indian company's designated bank account. The AD bank issues a FIRC (Foreign Inward Remittance Certificate)
- Share Allotment and FC-GPR — Shares allotted and Form FC-GPR filed within 30 days
Total timeline: 4-8 weeks from signed term sheet to money in the Indian company's account, depending on valuation, documentation, and bank processing.
Tax Structure
The India-Singapore DTAA (revised in 2005, amended in 2017) is one of the most used tax treaties for Indian investments. Key rates:
| Income Type | DTAA Rate | Domestic Rate |
|---|---|---|
| Dividends | 10% (15% if holding <25%) | 20% |
| Interest | 15% | 20% |
| Capital Gains (shares) | Taxable in India (see below) | Per domestic law |
The 2017 amendment to the India-Singapore DTAA removed the capital gains exemption that previously existed (similar to the India-Mauritius treaty change). Capital gains on sale of Indian shares by a Singapore entity are now fully taxable in India under domestic law:
- Short-term capital gains (held <24 months for unlisted shares): 25% corporate tax rate
- Long-term capital gains (held 24+ months for unlisted shares): 12.5% under Section 112 of the Income Tax Act
The fund should structure for a hold period exceeding 24 months to qualify for the lower long-term rate. Cost of acquisition can be indexed for inflation using the Cost Inflation Index (CII).
Anti-abuse provisions: The DTAA includes a Limitation of Benefits (LOB) clause. The Singapore fund must have substantial business activity in Singapore (not just a shell) to claim treaty benefits. Having a physical office, employees, and genuine fund management in Singapore satisfies this requirement.
Ongoing Compliance
- For the Indian company (post-investment) — Updated annual return reflecting new shareholding, disclosure of foreign ownership in board report, continued FC-GPR compliance
- RBI FLA Return — Filed annually by July 15 by the Indian company
- Transfer pricing — If there are management fees or advisory charges between the fund and the Indian company, these are related-party transactions requiring arm's-length documentation
- For the Singapore fund — Compliance with MAS regulations for VCC, annual reporting of Indian investments, withholding tax reclaim documentation
Common Pitfalls
- Getting the valuation wrong — If the valuation report uses unrealistic DCF assumptions, the RBI can reject the FC-GPR filing. Use conservative but defensible assumptions and engage a reputable merchant banker.
- Missing the 30-day FC-GPR deadline — Late filing attracts penalties and can delay subsequent funding rounds. Calendar this deadline the moment the board resolution is passed.
- Ignoring the LOB clause — Singapore shell entities with no substance will not get treaty benefits. The fund needs real operations in Singapore — employees, an office, and evidence of investment decisions being made there.
- Not structuring convertible instruments correctly — CCPS and CCDs must be compulsorily convertible within a fixed time frame. Optionally convertible instruments are treated as debt under FEMA, which has a completely different regulatory framework (ECB guidelines).
- Overlooking downstream investment rules — If the Indian company later wants to invest in another Indian entity, the downstream investment will be counted as indirect foreign investment. Section 2(r) of FEMA NDI Rules and Press Note 2 (2009) apply.
How Beacon Filing Helps
Beacon Filing assists Singapore-based funds with the regulatory side of Indian investments — coordinating valuation, managing FC-GPR filings, and ensuring FEMA compliance. We work with your legal counsel on documentation and handle the AD bank coordination that often causes delays.
For portfolio companies receiving foreign investment, we provide ongoing RBI reporting and annual compliance packages.
Full guide: Register a Company in India from Singapore
View our services | What are CCPS?