‍Introduction

(Authored by: Sambhram Shetty, Associate, Boolean Legal)

On 12 June 2026, the Ministry of Finance, Department of Economic Affairs, issued notification S.O. 3030(E), bringing into force the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026. The amendment further modifies the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“FEMA NDI Rules”).

The amendment is significant because it moves away from the earlier framework, under which certain investment routes were available only to Non-Resident Indians (“NRIs”) and Overseas Citizens of India (“OCIs”), and extends those routes to all individual persons resident outside India, while simultaneously introducing a land-border safeguard aligned with Press Note 3 policy architecture.

1.     Broadening of Rule 9(1): Rule 9(1) of the FEMA NDI Rules has been amended to substitute the words “a non-resident Indian or an overseas citizen of India” with the words “an individual”. Consequently, Rule 9(1) of the FEMA NDI Rules will now primarily continue to govern transfers by non-resident individuals.

2.     Amendment to Rule 12(1): The revised Rule 12(1) of the FEMA NDI Rules provides that an individual person resident outside India may, on repatriation basis, purchase or sell equity instruments of a listed Indian company and other securities in the manner and subject to the terms and conditions specified in Schedule III.

Key implications:

a)     The reference to “an NRI or an OCI” has been replaced with the wider expression “an individual person resident outside India”, thereby extending the benefit of Schedule III to all individual persons resident outside India.

b)    A regulatory safeguard has been introduced by way of a proviso: where an investment by an individual person resident outside India results in the transfer of ownership or control of a listed Indian company to entities or citizens of a country which shares a land border with India, or where the beneficial owner of such investment is a citizen of any such country, the transaction will require prior Government approval.

c)     The amendment also inserts an Explanation clarifying that the terms “ownership” and “beneficial owner” are to be interpreted by reference to Rule 23 of the FEMA NDI Rules and the definition and identification criteria prescribed under the Prevention of Money-laundering Act, 2002 and the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, (“PLMA”), respectively. This effectively imports the PMLA beneficial ownership tests into the FEMA NDI framework for the purposes of Rule 12.

3.     Amendment to Rule 13: ‍

Rule 13 has been substantively amended to align it with the widened investor class under Rule 12 of FEMA NDI Rules. Transfers by way of sale or gift of equity instruments/units by non-resident individuals (beyond NRIs and OCIs) to other persons resident outside India are now expressly permitted, subject to  (i) sectoral approval requirements; and (ii) the land-border/beneficial ownership safeguard.

4.     Amendment to Schedule III: ‍

Schedule III of the FEMA NDI Rules has been the route through which NRIs and OCIs could invest in listed Indian companies on a recognised stock exchange. Paragraph (1) of Schedule III has been substituted to allow any individual non-resident to purchase and sell equity instruments which was earlier limited to NRIs and OCIs; and holding limit has been increased from a limit of less than 5% to less than 10% of the total paid-up equity capital on a fully diluted basis, or less than 10% of the paid-up value of each series of debentures, preference shares or share warrants issued by an Indian company. However, the aggregate limit of investment by all individual non-residents not exceed twenty four per cent of the paid-up value of each series of debentures or preference shares or share warrants.

Further, in case there is any investment made in breach of the less than 10% limit must be divested within five trading days from the date of settlement of the trades causing the breach. Where the individual person resident outside India chooses not to divest:

• The entire investment in the concerned company shall be reclassified as FDI;
• Such individual shall not make further portfolio investment in the company concerned;
• The individual, through the designated branch of the Authorised Dealer, must notify the depositories and the concerned company within seven trading days from the date of settlement of the trades causing the breach;
• The breach of the aggregate or sectoral limit for the intervening period (between acquisition and sale or conversion to FDI within the prescribed time as set forth) will not be reckoned as a contravention under the FEMA NDI Rules.

Conclusion

Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026 has opened up specific investment and transfer routes to all individual persons resident outside India, while simultaneously tightening the land-border and beneficial ownership safeguards.

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