FEMA (Non-Debt Instrument) Rules Amended: New Investment Routes for Global Investors in Indian Listed Companies

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Dated: 13.06.2026

FEMA (Non-Debt Instrument) Rules Amended: New Investment Routes for Global Investors in Indian Listed Companies

The Ministry of Finance has introduced the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026, bringing significant changes to the regulatory landscape for foreign investment in India. Here’s a detailed look at the amendments and their implications for investors and Indian companies.

Overview of the 2026 Amendments

1. Broader Eligibility for Foreign Investors

Previous Framework: Only Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) were explicitly permitted to invest under certain provisions.
Amendment: The rules now allow “an individual person resident outside India,” including but not limited to NRIs and OCIs, to invest in Indian companies. This broadens the scope for foreign individuals to participate in the Indian equity market.

2. Investment and Transfer of Equity Instruments

Purchase and Sale:
- Any individual resident outside India can purchase or sell equity instruments of a listed Indian company on a repatriation basis through a designated branch of an Authorized Dealer.
- The individual holding must be less than 10% of the total paid-up equity capital (fully diluted basis) or less than 10% of each series of debentures, preference shares, or share warrants.
- The aggregate holding of all such individuals in a company must not exceed 24%.
Transfer:
- Individuals resident outside India can transfer equity instruments or units by sale or gift to any other person resident outside India, subject to sectoral restrictions and government approval where required.

3. Special Provisions for Bordering Countries

Government Approval:
- Any investment or transfer that results in the ownership or control of a listed Indian company passing to entities or citizens of countries sharing a land border with India (or where the beneficial owner is a citizen of such a country) requires prior government approval.

4. Compliance and Breach Handling

Breach of Limits:
- If an individual’s holding exceeds the 10% limit, the excess must be divested within five trading days from the date of settlement.
- If not divested, the entire investment is reclassified as Foreign Direct Investment (FDI), and further portfolio investment in that company by the individual is prohibited.
- The individual must notify the depositories and the company within seven trading days of the breach.

5. Clarification of Key Terms

Ownership: As defined under Rule 23 of the principal rules.
Beneficial Owner: As per the Prevention of Money-laundering Act, 2002 and related rules.
Investor Group: As per SEBI (Foreign Portfolio Investors) Regulations, 2019.

Implications for Stakeholders

For Foreign Investors

Wider Access: The amendments open up Indian equity markets to a broader range of individual foreign investors.
Clearer Compliance: Defined limits and procedures for breach ensure transparency and reduce regulatory uncertainty.

For Indian Companies

Increased Foreign Participation: Potential for greater foreign investment, but with safeguards for sensitive sectors and ownership changes involving bordering countries.
Enhanced Reporting: Companies must monitor foreign holdings closely to ensure compliance with the new limits and reporting requirements.

For Compliance Professionals

Updated Procedures: Need to update internal compliance frameworks to reflect the new definitions, limits, and approval requirements.
Vigilance on Beneficial Ownership: Enhanced due diligence is required to identify beneficial owners, especially for investments from bordering countries.

Conclusion

The 2026 amendments to the Foreign Exchange Management (Non-debt Instruments) Rules mark a significant step in liberalizing and clarifying the foreign investment regime for non-debt instruments in India. By expanding eligibility and tightening compliance around sensitive sectors and beneficial ownership, the government aims to balance openness with national security and regulatory oversight.

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.

We offer Legal advice and litigation support in matters related to Indirect Tax-Customs, FTP, other Indirect Tax matters & Arbitration law, all sorts of Central licensing and related matters. Come and explore the new way of doing business with us!

Source: Ministry of Finance

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