The Central Government has notified the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026, significantly expanding the investment framework under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 by extending certain investment rights from Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) to all individuals resident outside India.
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A key feature of the amendment is the substitution of the expression “a non-resident Indian or an overseas citizen of India” with “an individual person resident outside India” across various provisions governing portfolio investments. Consequently, any individual resident outside India, including NRIs and OCIs, may now purchase or sell equity instruments of listed Indian companies and other eligible securities on a repatriation basis, subject to the prescribed conditions.
The notification, however, retains safeguards relating to investments from countries sharing a land border with India. It provides that any investment resulting in the transfer of ownership or control of a listed Indian company to entities or citizens of such countries, or where the beneficial owner is a citizen of any such country, shall require prior approval of the Central Government.
The amendment also revises the rules governing the transfer of equity instruments, permitting individual persons resident outside India to transfer equity instruments or units held on a repatriation basis by way of sale or gift to another person resident outside India, subject to sectoral restrictions and government approval requirements where applicable.
Further, the amended Schedule III prescribes that an individual resident outside India may invest less than 10% of the paid-up equity capital of a listed Indian company through the portfolio investment route. Where the investment breaches the prescribed threshold and reaches 10% or more, the holding will be treated as Foreign Direct Investment (FDI) unless the excess stake is divested within five trading days. Such reclassification will be governed by the applicable norms of the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI).
The rules also clarify that a temporary breach of aggregate or sectoral limits, where corrected through divestment or conversion into FDI within the stipulated timeline, shall not constitute a contravention under the FEMA framework.
Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026