Centre Expands FEMA (Non-debt Instrument) Rules, allows All Individuals Residing Outside India to Invest [Read Notification]

The Central Government has expanded the scope of overseas investment into Indian capital markets by amending the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.

The government notified the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026, on 12 June 2026.

The Centre has replaced the earlier framework that permitted investments by Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) with a broader level allowing all individuals residing outside India to make specified investments in listed Indian companies.

To implement this change, the Government has amended Rule 9 as well as several provisions contained in Chapter V of the principal rules.

The chapter heading itself has been revised from “Investment by Non-Resident Indian or an Overseas Citizen of India” to “Investment by an Individual Person Resident Outside India Including a Non-Resident Indian or an Overseas Citizen of India.” Similar changes have been made throughout the rules to broaden the category of eligible investors.

The amended Rule 12 now permits any individual person resident outside India to purchase or sell equity instruments of listed Indian companies and other securities on a repatriation basis in accordance with Schedule III of the Rules.

However, the Government has retained safeguards in respect of investments originating from countries sharing a land border with India. Any investment that results in 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 such countries, will continue to require prior Government approval.

The amendment also revises the provisions relating to transfer of equity instruments. Under the modified Rule 13, an individual resident outside India holding equity instruments or units in accordance with FEMA rules may transfer such securities by way of sale or gift to another person resident outside India.

Transfers involving sectors requiring Government approval or resulting in transfer of ownership or control to entities linked with countries sharing a land border with India will continue to require prior approval from the Government.

The centre also brought amendments to Schedule III governing investments in listed Indian companies. The amended provisions permit any individual resident outside India to purchase or sell equity instruments of listed Indian companies on recognised Indian stock exchanges through a designated branch of an authorised dealer bank.

The individual investment limit remains capped at less than 10% of the paid-up equity capital of a listed Indian company on a fully diluted basis. Additionally, the aggregate holding of all such non-resident individuals under this route cannot exceed 24% of the paid-up equity capital unless otherwise permitted under applicable regulations.

The Government has also brought a mechanism for handling breaches of the prescribed investment threshold. Where an individual resident outside India acquires holdings exceeding the permissible portfolio investment limit of less than 10%, the excess investment must be divested within five trading days from settlement of the transaction.

The amended part of Schedule III, Paragraph 1 (c ) reads as follows:

“Investment made by an individual person resident outside India under these rules in breach of the prescribed limit of less than ten per cent shall be required to be divested within five trading days from the date of settlement of the trades causing the breach. In case the individual person resident outside India chooses not to divest, then the entire investment in the concerned company by such individual person resident outside India shall be considered as foreign direct investment (FDI) and such individual person resident outside India shall not make further portfolio investment in the company concerned. The individual person resident outside India, through the designated branch of Authorized Dealer, shall bring the same to the notice of the depositories as well as the concerned company, within seven trading days from the date of settlement of the trades causing the breach. The divestment of holdings by the individual person resident outside India and the reclassification of foreign portfolio investment as FDI, shall be subject to the same conditions as specified by Securities and Exchange Board of India and the Reserve Bank for a foreign portfolio investor (FPI). The breach of the said aggregate or sectoral limit on account of such acquisition for the period between the acquisition and sale or conversion to FDI within the prescribed time, shall not be reckoned as a contravention under these rules.”

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