The Central Government, through a notification dated 1 May 2026, amended the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 to strengthen regulations governing foreign investment into India. The amendment clarifies that entities or individuals from countries sharing land borders with India, or where beneficial ownership lies with such countries, can invest only through the Government approval route. It also extends this requirement to any subsequent transfer of ownership that results in such beneficial ownership. Special provisions apply to investors from Pakistan, restricting investment to permitted sectors under the Government route. The rules further define “beneficial ownership” with reference to the Prevention of Money Laundering Act and introduce detailed criteria for determining control. Additionally, investments by multilateral institutions are excluded from country-based restrictions, and certain investments are subject to RBI reporting requirements. The amendment enhances scrutiny, transparency, and national security considerations in foreign investment regulation.
MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION
New Delhi, the 1st May, 2026
S.O. 2174(E). — In exercise of the powers conferred by clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Central Government hereby makes the following rules further to amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, namely: ––
1. (1) These rules may be called the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2026.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. In the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, —
a. in rule 2, in clause (6), for the words “government approval”, the words “Government approval” shall be substituted;
b. in rule 6, for clause (a), the following clause shall be substituted, namely: –
‘(a) may subscribe, purchase or sell equity instruments of an Indian company in the manner and subject to the terms and conditions as specified in Schedule I:
Provided that —
(i) an entity or a citizen of a country, which shares land border with India, or where the beneficial owner of an investment into India is a citizen of any such country, or where the beneficial ownership of an investment is vested in any such country, shall invest only under the Government route specified in sub-clause (ii) of clause (a) of paragraph (3) of Schedule I;
ii. a citizen of Pakistan or an entity incorporated in Pakistan shall invest only under the Government route, in sectors or activities other than defence, space, atomic energy and such other sectors or activities prohibited for foreign investment;
iii. in the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction of the above clauses (i) and (ii), such subsequent change in beneficial ownership shall also require prior Government approval.
iv. a Multilateral Bank or Fund, of which India is a member, shall not be treated as an entity of a particular country nor shall any country be treated as the beneficial owner of the investments of such Bank or Fund in India:
Provided further that the investments into India from an investor entity, —
i. having any direct or indirect ownership by a citizen or an entity of a country sharing land border with India; and
ii. not requiring prior Government approval under the provisions of this clause, shall be subject to reporting requirements specified by the Reserve Bank.
Explanation 1. — For the purposes of this clause, —
i. the expression “beneficial owner of an investment into India” shall mean the beneficial owner of the investor entity incorporated or registered in a country other than a country which shares land border with India; and
ii. the expression “beneficial owner” shall have the same meaning as assigned to it in clause (fa) of sub-section (1) of section 2 of the Prevention of Money-laundering Act, 2002 (15 of 2003), and shall be determined as per the criteria specified under sub-rule (3) of rule 9 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, made under the said Act.
Explanation 2. —The beneficial ownership of the investment shall 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; or
b. 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 applicable thresholds specified in sub-rule (3) of rule 9 of Prevention of Money-laundering (Maintenance of Records) Rules, 2005 over an investor entity which is incorporated or registered in a country other than a country sharing land border with India; or
B. which enables such citizen or entity or both to exercise control over the investor entity referred above; or
C. which enables such citizen or entity or both to exercise ultimate effective control over the Investee entity in any manner.
Explanation 3. — Issue or transfer of “participating interest or right” in oil fields by Indian companies to a person resident outside India would be treated as foreign investment and shall comply with the conditions specified in Schedule I.’.
[F. No. 1/4/2026-EM]
ALOK TIWARI, Jt. Secy.
Note: The Foreign Exchange Management (Non-debt Instruments) Rules, 2019 were published in the Gazette of India, Extraordinary, Part II, Section 3. Sub-section (ii) vide number S.O.3732 (E), dated the 17th October, 2019 and subsequently amended vide the following notification numbers:
(i) S.O. 4355 (E), dated the 5th December 2019;
ii. S.O. 1278 (E), dated the 22nd April, 2020;
iii. S.O. 1374 (E), dated the 27th April, 2020;
iv. S.O. 2442 (E), dated the 27th July, 2020;
v. S.O. 4441 (E), dated the 8th December, 2020;
vi. S.O. 3206 (E), dated the 9th August, 2021;
vii. S.O. 3411 (E), dated the 19th August, 2021;
viii. S.O. 4091 (E), dated the 5th October 2021;
ix. S.O. 4242 (E), dated the 12th October 2021;
x. S.O. 1802 (E), dated 12th April 2022;
xi. S.O. 332 (E), dated 24th January 2024;
xii. S.O. 1361 (E), dated 14th March 2024;
xiii. S.O. 1722 (E), dated 16th April 2024;
xiv. S.O. 3492 (E), dated 16th August 2024; and
xv. S.O. 2549 (E), dated 11th June 2025
