India’s Cross-Border Merger Framework
Section 234 of the Companies Act, 2013 (read with Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016) enables two categories of cross-border merger: inbound mergers where a foreign company merges into an Indian company (with the Indian company as the survivor), and outbound mergers where an Indian company merges into a foreign company (with the foreign entity as the survivor). The operational framework is governed by the FEMA (Cross Border Merger) Regulations, 2018.
Cross-border mergers under Section 234 are growing in significance in 2026, primarily driven by three use cases: Indian technology companies migrating their holding structure to GIFT IFSC through an inbound merger; foreign companies consolidating their Indian operations through an inbound merger of Indian subsidiaries; and Indian companies seeking to establish a foreign-incorporated ultimate holding entity through an outbound merger.
Inbound vs. Outbound Mergers — The Key Distinction
Inbound Merger (Foreign Company into Indian Company)
In an inbound merger, the foreign company is the transferor and the Indian company is the transferee. All assets and liabilities of the foreign company vest in the Indian company by operation of the merger order. Shareholders of the foreign company receive shares of the Indian company as consideration.
From a FEMA perspective, an inbound merger results in foreign ownership of shares in the Indian company — which is treated as FDI. The merger must comply with the FDI sectoral cap, pricing norms, and post-merger FC-GPR filing requirements.
Outbound Merger (Indian Company into Foreign Company)
In an outbound merger, the Indian company is the transferor and the foreign company is the transferee. All assets and liabilities of the Indian company vest in the foreign company. This is treated as ODI from India — and the shares received by Indian shareholders in the foreign company constitute their ODI investment.
The foreign jurisdiction selected for the surviving entity is critical — it must be a jurisdiction notified by the RBI as permissible for outbound mergers. The current list includes jurisdictions that are FATF members and do not appear on FATF’s list of high-risk or non-cooperative jurisdictions.
Step-by-Step Process for a Cross-Border Merger
- Obtain Board approval for the merger scheme in both companies — prepare a detailed Scheme of Amalgamation
- Obtain shareholder approval in both companies — typically requires a Special Resolution
- File with the National Company Law Tribunal (NCLT) — apply for approval of the merger scheme in India
- Issue notices to shareholders, creditors, secured lenders, government authorities (including RBI for FEMA compliance, SEBI for listed companies, sector-specific regulators as applicable)
- Obtain RBI ‘no objection’ (for outbound mergers) or confirm FDI compliance framework (for inbound mergers)
- NCLT issues order approving the scheme — file INC-28 with ROC within 30 days
- Transfer of assets and liabilities on the effective date as specified in the NCLT order
- Post-merger FEMA compliance: file FC-GPR (inbound) or update ODI records (outbound)
Tax Treatment of Cross-Border Mergers
For a cross-border merger to qualify for tax-neutral treatment under Section 47(vi) of the Income-tax Act, the following conditions must be met: the merger must be in accordance with the laws of the country where the foreign company is incorporated; the shareholders of the foreign company receive shares of the Indian company as sole consideration (for inbound mergers); and the Indian company is required to be incorporated in India (for inbound mergers).
Where the conditions for tax-neutral treatment are not met, the merger is treated as a taxable event — with capital gains assessed on the difference between the fair market value of assets transferred and their cost of acquisition.
GIFT IFSC — The Most Active Use Case for Cross-Border Mergers in 2026
The most common application of the Section 234 inbound merger in 2026 is the migration of offshore holding entities (Mauritius, Cayman, Singapore) into GIFT IFSC-incorporated Indian entities. The structure involves: (1) the offshore holding entity merging into the GIFT IFSC entity through an inbound merger under Section 234; (2) the foreign shareholders receiving GIFT IFSC entity shares as consideration; (3) the resulting entity being an Indian entity within IFSCA jurisdiction with zero capital gains tax on security transfers for 10 years.
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