Foreign Exchange Management (Non-Debt Instruments) (Amendment) Rules, 2026

The Ministry of Finance has notified the Foreign Exchange Management (Non-Debt Instruments) (Amendment) Rules, 2026 on May 1, 2026 (Notification). The amendment is consequent to Press Note 2 of 2026, following the Union Cabinet decision of March 10, 2026, to ease foreign direct investment (FDI) restrictions on land border countries, facilitate investments which can contribute towards greater FDI inflows, access to new technologies, domestic value addition, expansion of domestic firms and integration with the global supply chain.

By way of this Notification, Rule 6 of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) has been substituted in its entirety. The key changes are as follows:

• Non-controlling beneficial ownership from land-bordering countries of up to 10% shall be permitted under the automatic route. This is a notable shift from the erstwhile position under Press Note 3 of 2020, which required all investments from land-border country entities or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, to be routed through the Government approval route irrespective of the size of the stake. This 10% threshold has been derived from the existing Prevention of Money Laundering (Maintenance of Records) Rules, 2005.

• Investments from the land-bordering countries remain subject to the applicable conditionalities in relation to sectoral caps, pricing guidelines etc.

• The expression “beneficial owner of an investment into India” has been clarified to mean the beneficial owner of the investor entity incorporated or registered in a country other than a country which shares land border with India.

• The expression “beneficial owner” takes the meaning assigned under the Prevention of Money-laundering Act, 2002 and is to be determined in accordance with Rule 9(3) of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 Under Rule 9(3) of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, ‘beneficial owner’ is determined to be a person who individually or together, or through one or more juridical persons has a controlling ownership interest or exercises control through other means. Prior to this amendment, ‘beneficial owner’ was undefined in the NDI Rules, requiring reference to multiple frameworks with varying thresholds.

• The expression “beneficial ownership of the investment” will be construed to be vested in a country sharing land border with India, where: (a) a citizen of a country sharing land border with India; (b) or an entity incorporated or registered in such country sharing land border with India, has the ability to directly or indirectly, individually or cumulatively with any another citizen or entity, independently or collectively with any another citizen or entity, whether acting together or otherwise, hold rights or entitlements: (a) in excess of the 10% threshold; or (b) which enables such citizen or entity or both to exercise control over the investor entity; or (c) which enables such citizen or entity or both to exercise ultimate effective control over the investee entity in any manner.

• A multilateral bank or fund of which India is a member shall not be treated as an entity of any particular country, nor shall any country be treated as the beneficial owner of such institution’s investments in India.
Pursuant to the issuance of the Amendment Rules, the concepts enumerated under Press Note 2 of 2026 have now been incorporated into the NDI Rules, providing statutory footing to the revised land-border FDI framework. This marks an important development in relation to the restrictions applicable to investments received from citizens or entities of land-bordering countries.

Credits: Tryambica Singh (Associate)