Understanding the Form 29B of the Income Tax Act in India
09 Feb, 2026
By Online Legal India
Published On 09 Feb 2026
Category Company Registration
Foreign Direct Investment means a long-term investment made by an individual or company. It allows them to invest in a business in another country for a long time. However, FDI gives significant control over daily operations. It brings money and skills. This also focuses on skills and management knowledge. This gives various opportunities for business operations. It is considered an economic factor for economic growth. This brings advanced technology, creating jobs and boosting local production. In this blog, you will get guidance on FDI.
Foreign direct investment is meant by a long-term investment. In short, it is known as FDI. A company or individual made this investment from one country. Then, it went into business interests located in another country. This means buying a large part of a company or starting new operations. FDI focuses on long-term management control, but not just passive financial returns. It is not the same as Foreign Portfolio Investment (FPI). This brings:
a) Capital
b) Technology
c) Skills
d) Job creation
e) Other benefits
Thus, it helps to make economic development.
However, FDI has become important in the Indian economy. This became important since it opened up in the year 1991. India is the top country for new investors. It has a simple process for investors. The country has rules to keep things clear and fair under FEMA.
Listed below are the four key types:
a) Horizontal FDI
A company creates the same type of business operation in a foreign country. This business operates at home.
b) Vertical FDI
A company invests in a foreign company by adopting different activities. This supports smooth business operations for an existing business.
c) Conglomerate FDI
In this type of FDI, a company made an investment in a foreign business. This foreign business is unrelated to its existing business.
d) Platform FDI
A company puts money into a foreign country to make goods. The company then sells those goods to another country.
The Indian government has created different policies and programs.
Here are the FDI policies in India:
The Make in India Initiative supports the growth of the manufacturing sector. It has grown by 57% in foreign investment from 2014 to 2022. This compares to the years 2006 to 2014.
The Union Cabinet agreed to a Bilateral Investment Treaty with the United Arab Emirates. This mainly supports the Atmanirbhar Bharat vision to increase local manufacturing. It also eliminates the import dependency.
India has changed its Space Sector Liberalization policy. Typically, it permits up to 100 percent FDI across specific sectors. The areas can include:
a) Satellite manufacturing
b) Components
c) Spaceports
Thus, it helps foreign companies to make an investment in space industry in India. This focuses on improving technology, create jobs, etc.
The government has approved a plan for White Goods such as air conditioners and LED lights. The plan has a budget of USD 752 million from FY 2021-22 to FY 2028-29. This focuses on improving air-conditioner manufacturing with $816 million in investments from 64 companies.
There are two FDI routes in India:
In this route, the foreign investors can invest in different sectors in India. There is no requirement of the approval from the authorities. The investors must inform the Reserve Bank of India (RBI) within a proper time.
If a foreign investor wants to invest in crucial sectors, they must firstly need an approval from the government. They can also take the approval from the relevant ministry. The significant sectors can include:
a) National Security
b) Strategic Interest
c) Specific regulatory concerns
Below are the FDI-allowed sectors in India:
a) Agriculture and animal husbandry
b) Both Public and Private Banking Sector
c) Construction Development Sector
d) Telecommunications
e) Biotechnology
f) Civil aviation
g) Pharmaceuticals
However, these are the sectors that take on foreign direct investment (FDI). This helps to improve the economy and introduce technology.
The following sectors are not allowed for Foreign Direct Investment (FDI) in India:
a) Government and private lotteries
b) Gambling activities
d) Real-Estate Business
e) Transferable Development Rights business
f) Chit Funds
g) Atomic energy and core railway operations
h) Tobacco manufacturing
Here are some key benefits of Foreign Direct Investors (FDI):
It has strongly supporting areas. The areas can include electronics, chips, and electric cars. The Production Linked Incentive (PLI) programs have brought in over Rs. 2.0 lakh crore in investment. This allows FDI to make India a significant place for manufacturing.
FDI helps create jobs, with 12.6 lakh jobs made through PLI schemes by September 2025. Foreign companies also bring better training. Local workers will be able to improve their skills
FDI supports bringing advanced technologies in AI, cybersecurity, and 5G infrastructure. This improves the quality of products and services. This can lead to the increase of the global competitiveness of domestic industries.
Many foreign investors typically establish wholly-owned export-oriented enterprises in their host countries. This improves the earnings of foreign exchange. Indian businesses can deal with global supply chains. This also helps to increase the export of goods and services.
When foreign companies come in, they challenge local monopolies. This makes the market more competitive. It can lead to bringing new ideas and give consumers more choices about products.
FDI is considered a good long-term investment. This gives a steady flow of foreign money. This helps the central bank keep enough reserves and keeps the exchange rate stable.
FDI has various regulatory frameworks in India. Some are mentioned below:
a) Securities and Exchange Board of India Act, 1992 and SEBI Regulations
This establishes regulations that control investments made in publicly traded companies.
b) Foreign Exchange Management Act (FEMA)
FEMA, 1999, establishes the primary legal framework. The Reserve Bank of India uses this framework to control all foreign exchange activities. This includes foreign direct investment.
c) Companies Act, 2013
The Companies Act of 2013 created rules for foreign investors. They need to follow it. This applies if they want to create Indian companies through their business operations.
d) FDI Policy
The DPIIT created this FDI policy. The full name of DPIIT is Department for Promotion of Industry and Internal Trade. It establishes specific limits for different sectors. This also specifies the methods and conditions for market entry.
e) Income Tax Act, 1961
This act created tax regulations for investors from foreign countries.
f) Competition Act, 2002
The Competition Act of 2002 requires monitoring of merger and acquisition activities. It is because such practices can lead to market manipulation.
g) Foreign Trade (Development and Regulation) Act, 1992
This act establishes government control over foreign trade operations
Conclusion
Foreign Direct Investment (FDI) is essential for the modern global economy. This helps with growth, infrastructure development, innovation, and so on. FDI brings new technology and creates jobs. This also connects nations and promotes long-term economic success. This helps businesses and individuals to balance capital inflows with sustainable and good policies. A country can succeed in a connected global market.
FAQ
Q1. What is Foreign Direct Investment (FDI)?
Foreign direct investment (FDI) is when someone invests for a long time in another country. It allows a company or an individual to make an investment from one country. Next, it goes into business interests located in another country. This mainly relies on management control and financial returns. An FDI is different from Foreign Portfolio Investment (FPI).
Q2. What are the types of FDI?
Foreign Direct Investment (FDI) contains four types. Here they are:
Q3. Does FDI have two types of Routes in India?
Yes, Foreign Direct Investment (FDI) has two types of routes in India. It includes:
Disclaimer
This article is for informational purposes only and does not constitute legal advice. Online Legal India is a digital platform. If you require legal assistance, we strongly recommend consulting a qualified lawyer or law firm.
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