The Ministry of Finance, by notification dated May 01, 2026, has amended the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (the “NDI Rules”) to clarify the foreign investment regime for investors linked to countries sharing a land border with India, while also clarifying beneficial ownership, reporting, and downstream approval requirements.
These changes are in line with the Union Cabinet’s approval on 10 March 2026 of amendments to India’s Foreign Direct Investment policy, which took shape through corresponding amendments to Press Note 03 of 2020 (“PN3”).
Key Changes under the NDI Rules
Amendments to Rule 6
- Investors from land-border countries. Any entity or citizen of a country sharing a land border with India, or any investment into India where the beneficial owner is a citizen of such country, or where the beneficial ownership is vested in such country, may invest only under the Government route.
- Pakistan-linked investors. A citizen of Pakistan or an entity incorporated in Pakistan may invest only through the Government route and only in sectors or activities not prohibited for foreign investment.
- Change in beneficial ownership. Where a transfer of existing or future FDI in an Indian entity results in beneficial ownership falling within the above restrictions, such subsequent change in ownership will also require prior Government approval.
- Multilateral banks/funds. A multilateral bank or fund of which India is a member will not be treated as an entity of a particular country, and no country will be treated as the beneficial owner of such bank’s or fund’s investments in India.
- Reporting requirements. Even where prior Government approval is not required, investments into India from investor entities having any direct or indirect ownership by a citizen or entity of a land-border country will remain subject to reporting requirements prescribed by the Reserve Bank of India.
Beneficial Ownership Clarifications
The amendment also inserts explanations to Rule 6 to clarify how “beneficial ownership” is to be understood:
- The expression “beneficial owner of an investment into India” refers to the beneficial owner of an investor entity incorporated or registered in a country other than one sharing a land border with India.
- The term “beneficial owner” adopts meaning under the Prevention of Money Laundering Act, 2002 and is to be determined in accordance with the criteria under the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005.
- Beneficial ownership will be treated as vesting in a land-border country where a citizen of, or entity incorporated/registered in, such country can directly or indirectly, individually or collectively (a) hold rights or entitlements in the investor entity beyond the threshold prescribed under the PMLA framework; or, (b) exercise control over the investor entity; or, (c) exercise ultimate effective control over the investee entity.
In practice, these provisions mean that the Government route is triggered only where the investment is linked, directly or indirectly, to beneficial ownership by a citizen or entity of a land-border country. Where such beneficial ownership is not established, the investment may proceed under the automatic route, subject to the prescribed reporting requirements.
