India changed an important part of its foreign direct investment framework in 2026. The immediate foreign investor’s country of incorporation is no longer the only question that matters: businesses may need to examine the investor’s beneficial ownership, control rights and wider ownership chain to determine whether prior Government approval is required.
The key reform came through DPIIT Press Note No. 2 (2026 Series), dated 15 March 2026, followed by the Foreign Exchange Management (Non-Debt Instruments) (Amendment) Rules, 2026, which took effect on 1 May 2026. The revised framework also created a significant relaxation: certain investments involving non-controlling ownership of up to 10% from countries sharing a land border with India may proceed without prior Government approval, although special reporting requirements apply.
For Indian companies raising foreign capital, the practical message is straightforward: check the complete ownership and control structure before accepting the investment or signing the transaction documents.
What changed in India’s FDI rules in 2026?
The 2026 reform changed how India applies the special FDI restrictions introduced in 2020 for investments connected with countries sharing a land border with India.
Under the original Press Note 3 of 2020, an entity from a country sharing a land border with India—or an investment whose beneficial owner was situated in or was a citizen of such a country—generally required the Government route. A subsequent transfer resulting in such beneficial ownership also required Government approval.
The 2026 framework retained the national-security screening principle but introduced clearer beneficial-ownership criteria.
Most importantly, it now allows investors with non-controlling land-border-country beneficial ownership of up to 10% to use the otherwise applicable automatic route, subject to sectoral caps, entry-route conditions and mandatory reporting. The Government expressly confirmed this position in August 2026.
This is a relaxation, but it is not a blanket 10% exemption from FDI regulation.
Which countries are covered by the land-border FDI restriction?
The special rule applies where the foreign investor, relevant beneficial owner or ownership/control structure falls within the framework concerning countries sharing a land border with India.
For businesses, the more important question is not simply the nationality written on the immediate investor’s incorporation certificate.
A Singapore, Mauritius, Luxembourg, Cayman Islands or US investment vehicle may still require additional analysis where persons or entities from a land-border country participate further up its ownership or control chain.
DPIIT’s 2026 reporting framework specifically requires information concerning ownership structures, beneficial owners, citizenship, investment managers, sponsors, general partners, investment committee members and relevant control rights where applicable.
The country of the immediate investor may therefore not settle the issue.
An Indian company should identify who ultimately owns and controls the investing entity rather than relying only on its registered jurisdiction.
For foreign founders planning an Indian subsidiary, see Edvisars’ guide on Company Registration in India for Foreign Founders. Company Registration in India for Foreign Founders: A Step-by-Step Guide
Does every small indirect holding from a land-border country now require Government approval?
No.
One of the most commercially important 2026 changes is that an investor entity with non-controlling land-border-country beneficial ownership of up to 10% may proceed without prior approval where the investment otherwise qualifies for the automatic route.
The Government described the reform as permitting automatic-route investment where such ownership is up to 10% and non-controlling, subject to the normal sectoral cap, entry route and conditions.
However, two points are critical.
First, control can matter even where the economic percentage is small.
Second, an investment that does not require prior Government approval may still trigger the new advance reporting requirement.
A company should therefore not apply a simplistic rule such as:
“The shareholder owns less than 10%, so FEMA approval is irrelevant.”
Ownership percentage is only one part of the analysis.
How is “beneficial ownership” determined after the 2026 changes?
Press Note 2 of 2026 connects the FDI beneficial-ownership analysis with the framework under the Prevention of Money-laundering Act, 2002 and Rule 9(3) of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005.
For an investor entity incorporated outside a country sharing a land border with India, the authorities may examine whether persons or entities connected with such a country possess rights or entitlements exceeding the applicable threshold, exercise control over the investor, or exercise ultimate effective control over the Indian investee.
Press Note 2 specifically contemplates direct or indirect rights and the possibility of persons acting individually, cumulatively or collectively.
What does this mean in practice?
Before accepting foreign investment, businesses should ordinarily map:
the direct foreign shareholder;
intermediate holding companies;
ultimate shareholders or beneficial owners;
citizenship and place of incorporation;
voting rights;
board appointment rights;
veto and reserved-matter rights;
rights under shareholders’ agreements;
investment-manager or general-partner control in fund structures; and
any person capable of exercising ultimate effective control.
This is particularly important for private equity, venture capital and investment fund structures, where the entity providing the funds may not itself represent the complete control structure.
Can veto rights cause a problem even if shareholding is below 10%?
Potentially, yes.
The revised framework does not look solely at equity percentages.
DPIIT requires disclosure of control arrangements including director appointment rights, veto rights, voting rights and other rights capable of granting direct, indirect or ultimate effective control.
Accordingly, a minority investor with extensive contractual protections may require closer scrutiny than its headline shareholding suggests.
Normal minority-protection rights do not automatically mean that the investor controls the company. The result depends on the actual rights granted and the relevant legal definition of control.
Businesses should therefore review both:
the shareholding table, and
the shareholders’ agreement and governance documents.
This is especially important before granting foreign investors affirmative voting rights or extensive reserved-matter protections.
When is Government approval clearly required?
Prior Government approval may be required where the special land-border rule applies because of the investor’s nationality, incorporation, beneficial ownership or subsequent change in beneficial ownership.
Press Note 2 retains the rule that an entity or citizen of a country sharing a land border with India, or an investment falling within the prescribed beneficial-ownership restriction, can invest only under the Government route.
Approval is also required where a later direct or indirect ownership change causes an existing or future FDI investment to fall within the restricted beneficial-ownership framework.
The approval analysis is in addition to ordinary sector-specific FDI rules.
For example, a business may already operate in a sector where:
only a specified percentage of FDI is permitted;
investment above a particular level requires Government approval;
licensing conditions apply; or
foreign investment is prohibited.
The land-border test must therefore be considered alongside the ordinary sectoral FDI regime.
DPIIT notes that most sectors are open to foreign investment, but strategically important and regulated sectors remain subject to specific restrictions and conditions.
What if the land-border ownership is 10% or less?
Where the relevant ownership is non-controlling and up to 10%, the 2026 framework can permit the investment without prior Government approval, provided the investment otherwise qualifies under the applicable FDI rules.
But the transaction may still require special reporting before the money enters India.
DPIIT's revised Standard Operating Procedure states that reporting applies where the investor has direct or indirect land-border-country ownership below the relevant beneficial-ownership threshold and Government approval is therefore not required.
The reporting is additional to ordinary FEMA reporting—it does not replace FC-GPR, FC-TRS or another filing that may independently apply.
When must this special reporting be completed?
Where foreign capital is being remitted into India, the special reporting must be made before the inward remittance.
Where there is no inward remittance, reporting must be completed before execution of the relevant transaction, including the relevant issuance or transfer of capital instruments.
This timing requirement matters.
Businesses should complete the ownership review before asking the investor to remit funds, rather than discovering the reporting requirement after the money reaches the Indian bank account.
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Who is responsible for the reporting?
Under the DPIIT procedure, responsibility generally falls on the Indian investee entity or the resident Indian transferor/transferee, depending on the transaction.
The prescribed information is submitted electronically to DPIIT through the applicable portal.
The information requested can include:
incorporation details of the investor;
registered-office information;
investor business activities;
investor shareholding structure;
citizenship or place of incorporation of shareholders;
beneficial-owner details;
fund managers, sponsors and general partners;
investment committee details;
organisation and group structure;
control arrangements;
information about the Indian investee;
pre- and post-investment shareholding; and
relevant transaction documents.
DPIIT may also require copies of an investment agreement, shareholders’ agreement, share transfer agreement, joint venture agreement, term sheet or memorandum of understanding where available.
This makes early due diligence considerably easier than trying to reconstruct ownership information after signing.
Does an automatic-route sector guarantee that Government approval is unnecessary?
No.
“Automatic route” normally means that prior Government approval is not required for the sectoral FDI entry route, provided all applicable caps and conditions are satisfied.
But investor-specific restrictions may still change the result.
For example, a company may operate in a sector allowing 100% FDI under the automatic route but still require Government approval if the investor falls within the restricted land-border beneficial-ownership framework.
Accordingly, businesses should conduct at least two separate checks:
Question
What needs to be checked?
Is the business activity eligible for automatic-route FDI?
Sector, cap and sector-specific conditions
Is this particular foreign investor eligible to use that route?
Nationality, ownership chain, beneficial ownership and control
Passing the first test does not automatically mean that the second test has also been passed.
Did India introduce faster approval for some investments in 2026?
Yes, but only for specified cases.
The revised DPIIT procedure provides an expedited 60-day decision timeline for qualifying land-border-country investments in specified manufacturing sectors and activities.
Among other conditions, the framework covers qualifying proposals where the relevant LBC investors collectively hold up to 49% of capital or voting rights, while majority shareholding and control of the Indian investee remain with resident Indian citizens or resident Indian entities owned and controlled by resident Indian citizens.
Specified activities include areas within:
capital goods manufacturing;
electronic capital goods;
electronic components; and
certain other notified manufacturing activities.
The expedited process should not be confused with the automatic route. It remains an approval process, but with a specialised timeline for qualifying proposals.
What documents should a company collect before accepting FDI?
A practical pre-investment file should generally contain:
From the foreign investor
certificate of incorporation or equivalent constitutional evidence;
registered-office details;
complete shareholding chart;
ultimate beneficial-owner information;
citizenship/residence details where relevant;
details of intermediate entities;
board and management information;
details of control or veto rights;
investor KYC documents; and
fund structure information where the investor is a PE, VC or other investment vehicle.
For the proposed transaction
term sheet;
subscription or share purchase agreement;
shareholders’ agreement;
pre- and post-investment cap table;
valuation documentation where required;
board and shareholder approvals;
remittance documentation; and
FEMA reporting records.
DPIIT itself requires detailed group-structure and beneficial-ownership information for relevant cases, so maintaining these records is a compliance requirement rather than simply good housekeeping.
What are the most common mistakes companies should avoid?
1. Looking only at the immediate shareholder
A Singapore or US investor does not automatically mean the investment is outside the land-border rules.
Trace the complete structure.
2. Treating 10% as an unconditional safe harbour
The relaxation concerns qualifying non-controlling ownership.
Control rights still matter.
3. Checking ownership after receiving the money
For investments falling within the special reporting framework, reporting may have to occur before inward remittance.
4. Ignoring shareholders’ agreement rights
Equity percentage and contractual control must both be reviewed.
5. Assuming automatic-route FDI means “no compliance”
Automatic-route investments remain subject to applicable FEMA conditions, pricing requirements, sectoral restrictions and reporting.
6. Forgetting later changes in the investor structure
A transaction may be compliant when the initial investment is made but become problematic after a later acquisition or restructuring changes the beneficial ownership.
Press Note 2 expressly deals with subsequent changes that cause beneficial ownership to fall within the restricted framework.
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What changed for e-commerce FDI later in 2026?
A separate reform arrived through Press Note No. 3 (2026 Series), dated 23 July 2026.
Businesses should not confuse this with the March 2026 land-border reform.
The July change concerns the e-commerce sector. It allows an FDI-backed e-commerce entity to use an inventory-based model exclusively for exports of goods manufactured or produced in India, subject to the applicable foreign-trade and FEMA framework.
The corresponding FEMA amendment took effect in September 2026.
It does not create a general permission for foreign-invested inventory-based e-commerce businesses to buy inventory and sell directly to consumers within India.
For businesses considering India entry or foreign-owned Indian subsidiaries more generally, Edvisars provides India Entry & Cross-Border Advisory. Edvisars India Entry & Cross-Border Advisory
A practical 2026 FDI ownership checklist
Before an Indian company accepts foreign capital, ask:
What exact business activity will the Indian company undertake?
What FDI sector and sectoral cap apply?
Is the investment under the automatic or Government route?
Where is the immediate investor incorporated?
Who directly and indirectly owns the investor?
Are any owners or controlling persons connected with a country sharing a land border with India?
What percentage do they own individually and cumulatively?
Do they have board, voting, veto or other control rights?
Does the 2026 non-controlling 10% relaxation apply?
Is advance DPIIT reporting required?
Is prior Government approval required?
Are ordinary FEMA filings such as FC-GPR or FC-TRS also applicable?
Could the shareholders’ agreement itself alter the control analysis?
Have future transfers and changes in beneficial ownership been addressed?
Completing this exercise before signing and remittance is substantially safer than attempting to restructure the transaction after funds have entered India.
Frequently Asked Questions
Does foreign investment below 10% always avoid Government approval?
No. The 2026 relaxation concerns qualifying non-controlling land-border beneficial ownership of up to 10%. The applicable sector, investment route, control arrangements and other FDI conditions must still be checked.
Is the investor’s country of incorporation enough to determine whether approval is required?
No. Indirect ownership, beneficial ownership and control may need to be examined throughout the investor structure.
Does a 5% shareholder with veto rights automatically require approval?
Not automatically. However, contractual rights capable of creating control can materially affect the analysis and should be reviewed before the investment proceeds.
Can a Singapore company invest automatically if one of its shareholders is from a land-border country?
Potentially, but not merely because the immediate investor is Singaporean. The percentage, cumulative ownership, beneficial ownership and control rights associated with the relevant shareholder must be analysed under the 2026 framework.
Must qualifying sub-threshold ownership still be reported?
Yes, where the special reporting rules apply. DPIIT requires reporting before inward remittance or, for transactions without inward remittance, before execution of the relevant transaction.
Does this reporting replace FC-GPR?
No. The special 2026 reporting requirements are expressly additional to existing FEMA reporting requirements.
Can Government approval become necessary after the original investment?
Yes. A subsequent direct or indirect ownership change resulting in restricted beneficial ownership may trigger prior Government approval.
Are all land-border investment applications decided within 60 days?
No. The special 60-day framework applies only to qualifying investments in specified sectors and subject to prescribed ownership and control conditions.
Did the July 2026 e-commerce reform remove the restriction on inventory-based e-commerce in India?
No. The relaxation is narrowly directed at inventory-based e-commerce exclusively for exports of qualifying Indian goods.
Final takeaway
India’s 2026 FDI reforms have made the land-border investment framework more workable, particularly for international funds whose ownership structures contain small, non-controlling interests from affected jurisdictions.
But they have not eliminated ownership screening.
For Indian businesses and foreign investors, the safest sequence is:
sector check → ownership-chain review → beneficial-ownership and control analysis → Government-approval or advance-reporting determination → transaction documentation → remittance → ordinary FEMA reporting.
Where the ownership structure involves funds, multiple intermediate holding companies, unusual veto rights, joint control or changing beneficial ownership, the result can be fact-specific and should be determined before the transaction is completed.
For related guidance, see Edvisars’ India Entry & Cross-Border Advisory and its guide for foreign founders establishing companies in India. Edvisars Law Offices
