What changed
Press Note 3 (2020), issued on 17 April 2020, required Government approval for any investment by an entity of a country sharing a land border with India, or where the beneficial owner was situated in or a citizen of such a country, however small the holding. Press Note 2 (2026 Series), dated 15 March 2026, rewrites paragraph 3.1.1 of the FDI Policy.
The beneficial owner has the meaning in Section 2(1)(fa) of the Prevention of Money-laundering Act, 2002 and is identified using Rule 9(3) of the PML (Maintenance of Records) Rules, 2005. It is tested at the level of the investor entity incorporated in a country that does not share a land border with India. Beneficial ownership is treated as vested in a land-border country where its citizens or entities can hold rights above the Rule 9(3) thresholds, control the investor entity, or exercise ultimate effective control over the Indian investee.
A later transfer that brings beneficial ownership within the restriction still needs prior approval. Investments with some land-border ownership that do not need approval must be reported, in the form and manner set under the Non-debt Instruments Rules. Investment from Pakistan stays under the Government route and remains barred in defence, space and atomic energy. The Press Note took effect from the FEMA notification: S.O. 2174(E) dated 1 May 2026, published and in force on 2 May 2026.
Who is affected
Indian companies receiving foreign investment, and investors with owners in countries sharing a land border with India.
Effective dates
| Item | Date or period |
|---|---|
| Press Note 3 (2020) | 17 April 2020 |
| Press Note 2 (2026 Series) issued | 15 March 2026 |
| FEMA (Non-debt Instruments) Amendment Rules, 2026 | S.O. 2174(E) dated 1 May 2026; in force on publication, 2 May 2026 |
What to do now
- Map the investor’s ownership chain up to the individuals, applying the Rule 9(3) PML thresholds.
- Record the beneficial ownership analysis and keep it with the investment papers.
- Where land-border ownership exists but approval is not needed, complete the reporting.
- Check whether a proposed share transfer would bring beneficial ownership within the restriction before it happens.
Penalty or consequence if missed
Taking investment that needs Government approval without it is a contravention of FEMA and the Non-debt Instruments Rules. The investment may have to be unwound, and under Section 13 of FEMA the penalty can be up to three times the sum involved. A contravention can be compounded on application to RBI or the Enforcement Directorate, but compounding is not available as of right.
Official source
Effective: 2 May 2026 · Note published · Last reviewed
Related on this site
This note summarises a public notification for general information. It is not professional advice and does not cover every condition or exception, and the rule can change again by a later notification. Read the notification itself before acting on it, or consult a qualified professional on your own facts.