Recalibrating India’s FPI regime beyond NRIs/OCIs

On 12 June 2026, the Ministry of Finance issued the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026 (Third Amendment Rules), which brought in substantial alterations to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (NDI Rules). While primarily amending chapter V and certain provisions of schedules II and III, the reforms substantially expand the schedule III investment framework from non-resident Indians (NRIs) and overseas citizens of India (OCIs) to all individual persons residing outside India, alongside introducing enhanced safeguards relating to ownership, beneficial ownership, investment thresholds, and transactions involving land-bordering jurisdictions.

Prior to the Third Amendment Rules, chapter V of the NDI Rules exclusively governed investments by NRIs and OCIs, permitting repatriable investments under schedule III and non-repatriable investments under schedule IV. Other foreign investors were required to invest through alternative routes, including the foreign portfolio investment (FPI) or foreign direct investment (FDI) regimes. This distinction was reinforced through rules 9 and 13, which prescribed a separate framework for transfers by NRIs and OCIs. Before the amendment, the schedule III route did not cover other non-resident individuals, nor did the framework mandate prior government approval for transfers that would result in the ownership or control of a listed Indian company, or its beneficial ownership, being transferred to persons associated with countries sharing a land border with India.

Schedule III open to individuals

The principal change introduced by the Third Amendment Rules is the substitution of the phrase “a non-resident Indian or an overseas citizen of India” with “an individual” in rule 9, accompanied by consequential amendments across chapter V, including its title and rule 12. As a result, the schedule III investment framework is no longer confined to NRIs and OCIs but extends to all individual residents outside India. Foreign individuals who are neither NRIs nor OCIs may now acquire and transfer equity instruments of listed Indian companies on a repatriation basis, subject to the applicable conditions. This amendment represents a significant policy shift aimed at expanding individual foreign participation in India’s capital markets. The liberalisation under rule 12 is accompanied by enhanced national security safeguards. Prior government approval is now required where an investment leads to the ownership or control of a listed Indian company, or its beneficial ownership, vesting in entities or citizens of countries sharing a land border with India. While the term “ownership” remains governed by rule 23 of the NDI Rules, “beneficial owner” is defined under the Prevention of Money Laundering Act, 2002, and the Prevention of Money Laundering (Maintenance of Records) Rules, 2005.

Schedule III widened, security tightened

A corresponding amendment to rule 13 extends the same approval requirement to transfers of equity instruments. Collectively, these amendments align the Foreign Exchange Management Act with India’s broader beneficial ownership and anti-money laundering framework, reinforcing a risk-based approach to foreign investment.

The Third Amendment Rules also harmonise the investment thresholds across the NDI framework. Schedule II clarifies that an FPI’s aggregate holding, including investments across all schedules and through an investor group, must remain below 10%; otherwise, the investment is reclassified as FDI. Correspondingly, schedule III prescribes an individual investment cap of less than 10% and an aggregate cap of 24% for all individuals residing outside India, alongside a structured mechanism for divestment or reclassification when a breach occurs, coupled with a limited statutory safe harbour for temporary non-compliance.

Liberalised access with stronger safeguards

In conclusion, the Third Amendment Rules reflect a measured development in India’s foreign investment regime. By expanding access to the schedule III investment route while introducing enhanced safeguards on ownership, beneficial ownership, investment thresholds, and land-bordering jurisdictions, the amendments strike a measured balance between facilitating foreign capital and preserving regulatory oversight. The reforms underscore India’s commitment to an investment framework that is both liberal in outlook and robust in safeguarding strategic and national security interests.

Aman Avinav is a partner in the dispute resolution, white-collar crime, and internal investigations team at Phoenix Legal