The Ministry of Finance has notified the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026. The amendments, published in the Official Gazette on June 12, 2026, introduce key changes to the investment framework governing individuals residing outside India.
The revised rules expand the scope of investment provisions that were earlier limited to Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs). Going forward, these benefits and regulations will apply to all individual persons resident outside India, subject to prescribed conditions.
Broader Investment Eligibility for Overseas Individuals
One of the most notable amendments is the replacement of the phrase "a non-resident Indian or an overseas citizen of India" with the broader term "an individual" in Rule 9 of the principal regulations. This change effectively widens the pool of eligible investors who can participate under the relevant provisions of the FEMA Non-Debt Instruments Rules.
The government has also revised Chapter V of the rules by replacing the heading "Investment by Non-Resident Indian or an Overseas Citizen of India" with "Investment by an Individual Person Resident Outside India Including a Non-Resident Indian or an Overseas Citizen of India."
Purchase and Sale of Listed Indian Securities Allowed
Under the amended Rule 12, any individual residing outside India can purchase or sell equity instruments of listed Indian companies and other eligible securities on a repatriation basis, subject to the conditions specified in Schedule III.
The amendment effectively extends investment opportunities previously available primarily to NRIs and OCIs to a wider category of overseas individual investors, thereby enhancing participation in India's capital markets.
Government Approval Mandatory in Sensitive Cases
The notification retains strict safeguards for investments that may have strategic implications.
The rules specify that prior approval of the Central Government will be required where an investment results in the transfer of ownership or control of a listed Indian company to entities or citizens of countries sharing a land border with India. The same requirement applies where the beneficial owner of the investment is a citizen of any such country.
This provision aligns with India's broader policy framework aimed at monitoring investments from neighboring countries and ensuring national security considerations are adequately addressed.
Changes in Transfer of Equity Instruments
The amendment also revises Rule 13 dealing with the transfer of equity instruments.
Under the new framework, an individual person resident outside India holding equity instruments of an Indian company or units on a repatriation basis may transfer them through sale or gift to another person residing outside India. However, transfers involving sectors requiring government approval or those resulting in ownership/control passing to entities from border-sharing countries will continue to require prior government clearance.
Revised Investment Limits Under Schedule III
The government has updated Schedule III governing portfolio investments by individuals residing outside India.
Key conditions include:
- Individual holdings must remain below 10% of the fully diluted paid-up equity capital of a listed Indian company.
- Aggregate holdings of all such overseas individuals under this route cannot exceed 24% of the company's fully diluted paid-up equity capital.
- Investments crossing the prescribed threshold must either be divested within five trading days or be reclassified as Foreign Direct Investment (FDI), subject to applicable regulatory requirements.
The rules further require investors to notify depositories and the concerned company if the prescribed limits are breached.
Impact on Foreign Portfolio Investment Framework
Another important amendment relates to the treatment of holdings by Foreign Portfolio Investors (FPIs). The notification clarifies that total holdings in a listed Indian company under various schedules of the FEMA rules, including holdings through investor groups, must remain below the prescribed individual threshold. Additional compliance requirements will apply where investments reach or exceed 10%.
Conclusion
The FEMA (Non-Debt Instruments) (Third Amendment) Rules, 2026 mark a notable shift in India's foreign investment regime by expanding investment eligibility beyond NRIs and OCIs to all individuals residing outside India. At the same time, the government has retained robust safeguards relating to ownership transfers, beneficial ownership checks and investments involving countries sharing land borders with India.
The amendments are expected to simplify participation in Indian capital markets for overseas individuals while maintaining regulatory oversight in sensitive sectors and strategic transactions.
Click here to view/download the official copy of the notification
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