Introduction
The Union Budget 2026 represents a step forward in India’s efforts to update its foreign exchange and cross-border investment rules under the Foreign Exchange Management Act, 1999 (FEMA). The Budget highlights the focus of government on making regulations simpler, easing compliance requirements, and improving the overall ease of doing business for overseas investors, while continuing to ensure proper regulatory checks. One of the key messages from Budget 2026 is the gradual relaxation of FEMA provisions affecting overseas persons and cross-border transactions.
Liberalisation of Portfolio Investment by Overseas Individuals
Paragraph 47 Budget speech related to portfolio investments by overseas individuals provides:
“Individual Persons Resident Outside India will be permitted to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme. It is also proposed to increase the investment limit for an individual overseas investor from 5 per cent to 10 per cent, and the aggregate limit for such investors to 24 per cent.”
Under the current FEMA and RBI framework, direct portfolio investment through the PIS route is mainly available to NRIs and OCIs, while other foreign individuals must invest through the SEBI FPI route, which involves additional registration and compliance. Budget 2026 proposes to widen access by allowing all individuals resident outside India to invest directly through a unified PIS framework, while continuing to treat such investments as portfolio (non-controlling) investments.
Portfolio Investment Scheme (PIS): Existing vs Proposed FEMA Framework
| Particulars | Existing FEMA / RBI Framework | Proposed Framework (Budget 2026) |
| Eligible individual investors | NRIs and OCIs only | All Individuals Resident Outside India including foreign national |
| Investment route | √ PIS for NRIs/OCIs
√ FPI route for others |
Unified PIS route |
| SEBI FPI registration | Mandatory for Individuals other than NRI/OCI | Not required |
| Overseas Individual Investor threshold | 5% of paid-up capital | 10% of paid-up capital |
| Aggregate threshold for all overseas individuals | 10% | 24% |
FPI -Foreign Portfolio Investor | OCIs- Overseas Citizen of India | NRIs -Non-Resident of India
These changes indicate a move towards residency-based classification under FEMA, reducing reliance on nationality-based distinctions. If implemented as proposed, the revised framework is expected to significantly broaden participation by global individual investors in Indian listed companies.
Review and Modernisation of FEMA (Non-Debt Instruments) Rules
Paragraph 44 of the Budget Speech states as under:
“I propose a comprehensive review of the Foreign Exchange Management (Non-Debt Instruments) Rules to create a more contemporary, simplified and user-friendly framework for foreign investments, aligned with India’s evolving economic priorities.”
This announcement recognises that the existing Non-Debt Instruments (NDI) Rules have become increasingly complex over time due to multiple amendments, sector-specific conditions, and varying compliance requirements for different categories of investors.
The proposed review is expected to:
- rationalise and consolidate foreign investment provisions under FEMA;
- simplify reporting and compliance mechanisms;
- align FEMA regulations with present day capital market realities; and
- enhance regulatory clarity and predictability for overseas investors.
This structural reform provides the foundation for the liberalisation measures announced for overseas individuals as mentioned in previous para in the same Budget.
Simplification of Compliance for Property Purchases from Non-Residents
Budget 2026 seeks to simplify compliance for resident buyers purchasing immovable property from non-resident sellers. With effect from 1 October 2026, a PAN-based challan and reporting mechanism will replace the existing TAN-based reporting for tax deduction under section 195, thereby reducing procedural difficulties, particularly for one-time transactions.
Property Transactions with Non-Residents – TDS Compliance
| Particulars | Existing Framework | Proposed Framework (Budget 2026) |
| TAN requirement | Mandatory | Not required |
| Mode of TDS payment | TAN-based challan | PAN-based challan |
| Compliance burden | High for one-time buyers | Significantly simplified |
| Alignment | Separate compliance process | Aligned with section 194-IA framework |
This measure brings much-needed relief to resident buyers and improves consistency in tax compliance for property transactions involving non-residents.
Conclusion
The Union Budget 2026–27 signals a clear shift towards a more open and simplified foreign exchange and cross-border investment framework. By reviewing the FEMA Non-Debt Instruments Rules, expanding portfolio investment access for overseas individuals, and easing compliance for property transactions, the Government aims to make India a more investor-friendly destination.
While these proposals will take effect only after formal legal amendments, the policy direction is clear India is strengthening its appeal to global individual investors while maintaining necessary regulatory safeguards.
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Niranjan Shah | Chartered Accountant | S N S S & Co | niranjan@snssindia.in | +91 982 586 0488
Disclaimer: This blog is intended for educational purposes only and should not be interpreted as advice. It is recommended to seek guidance from a qualified professional for advice relevant to your circumstances. For any feedback, inquiries, or suggestions, please feel free to reach out to the author.
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