A German founder wants to put €200,000 of personal money into an Indian SaaS company she advises. Her lawyer tells her she cannot — she is not an NRI, not an OCI, so she must either register as a Foreign Portfolio Investor or set up a holding company in Singapore and invest through it. That advice was correct until 12 June 2026. It is now wrong, and the cost of acting on stale advice here is a six-figure structuring bill for a vehicle nobody needs.
The Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026 quietly removed one of the most consequential eligibility barriers in India's foreign investment framework. Here is what actually changed, what did not, and what a foreign individual should now do.
What the regulation actually says
India's inbound investment framework sits on two legs. The Foreign Exchange Management Act, 1999 (FEMA) is the parent statute; Section 6(2A) and Section 47 give the Central Government power to make rules on non-debt instruments — equity shares, compulsorily convertible preference shares (CCPS), compulsorily convertible debentures (CCDs), and units of investment vehicles. Those rules are the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, usually called the NDI Rules. Sitting on top is the Consolidated FDI Policy, administered by the Department for Promotion of Industry and Internal Trade (DPIIT), which sets sector caps and entry routes. The Reserve Bank of India (RBI) and its Master Direction on Foreign Investment in India govern the reporting mechanics.
The change sits in Rule 9 of the NDI Rules, which deals with investment by individuals in the capital of Indian companies. Before the amendment, Rule 9 was drafted around a defined category: "Non-Resident Indian (NRI) or Overseas Citizen of India (OCI)". A person resident outside India who held neither status simply fell outside the rule. The Third Amendment Rules, notified on 12 June 2026, replaced that phrase with the broader term "an individual" — meaning any individual resident outside India, regardless of nationality or Indian-origin status.
Three practical consequences follow:
1. Eligibility is now nationality-neutral. A Japanese, Kenyan or Brazilian individual with no Indian connection can subscribe to shares of an Indian company directly, in their own name, on the same footing previously reserved for NRIs and OCIs.
2. The 10% listed-company ceiling continues to apply. For investment in a listed Indian company on a repatriation basis, an individual investor remains capped at 10% of the paid-up value of each series of equity or debentures, with an aggregate ceiling of 24% across all such individual investors (raisable to the sectoral cap by a special resolution of the shareholders). This is the schedule that governs the erstwhile NRI/OCI portfolio route; widening the investor definition did not widen the limit. Foreign individuals looking for meaningful listed-equity exposure will still find the FPI route more workable.
3. Unlisted companies are the real unlock. For unlisted Indian companies, there is no equivalent 10% individual ceiling — the applicable constraint is the sectoral cap and entry route under the FDI Policy. So an angel investor taking 15%, 20% or more of an unlisted Indian startup in a 100%-automatic-route sector can now do so directly.
Automatic route vs government approval route — this did not change. Under the automatic route, no prior permission is needed; the Indian company simply reports the inflow to RBI afterwards. Under the government approval route, the investment cannot be made until DPIIT (through the Foreign Investment Facilitation Portal on the National Single Window System) clears it. Most sectors — IT, SaaS, manufacturing, most services — are 100% automatic. Sectors like defence beyond 74%, print media, multi-brand retail, and broadcasting content services require approval. Widening the individual investor definition does not move any sector between routes.
Press Note 3 (2020) still bites. An investor who is a citizen of, or resident in, a country sharing a land border with India — China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan, Afghanistan — requires government approval regardless of sector, and regardless of this liberalisation. If anything, the 2026 amendments strengthened scrutiny of the beneficial ownership question. A foreign individual who is a citizen of a land-border country cannot use the widened Rule 9 to bypass approval.
Practical implications: what happens if you get this wrong
There are two failure modes, and they cost differently.
Over-structuring. The expensive but non-penal mistake. A foreign individual is told they need an FPI licence or an offshore holding company. An FPI registration through a Designated Depository Participant carries fees, KYC, a custodian relationship and ongoing reporting. A Singapore or Mauritius holding company carries incorporation cost, annual substance requirements, local directors, audit, and — under the treaty's Limitation of Benefits provisions and India's General Anti-Avoidance Rules — real risk that the structure is looked through anyway. Spending ₹15–40 lakh across setup and three years of maintenance to solve a problem that no longer exists is a live risk for anyone relying on pre-June-2026 advice.
Under-reporting. The penal mistake, and it sits with the Indian company, not the investor. Foreign investment must be reported. If the Indian company fails to file Form FC-GPR within the prescribed window after allotment, the transaction becomes a contravention of FEMA. The remedy is compounding under Section 13 read with the Foreign Exchange (Compounding Proceedings) Rules — an application to RBI, a hearing, and a monetary penalty calculated on the amount and duration of the delay. Late Single Master Form filings attract a Late Submission Fee as an administrative alternative for delays within specified bounds.
The downstream damage is worse than the fine. An unreported or improperly priced allotment is a diligence finding. At the next funding round, at an acquisition, or at exit, the buyer's counsel flags it. Repatriating sale proceeds requires the Authorised Dealer bank to be satisfied the original inflow was compliant. An investor whose entry was never reported can find their exit stuck at the AD bank while a compounding application runs for months.
Pricing is the third trap. Under the NDI Rules pricing guidelines, shares issued to a person resident outside India cannot be priced below fair value. For an unlisted company, fair value must be determined by an internationally accepted pricing methodology on an arm's-length basis, certified by a Chartered Accountant, SEBI-registered Merchant Banker, or practising Cost Accountant. An informal "friends and family" valuation will not clear the AD bank.
Step-by-step: what to do
1. Confirm you are not caught by Press Note 3. Check citizenship and residence. If either points to a land-border country, stop — you are on the government approval route and must file through the Foreign Investment Facilitation Portal on NSWS before any money moves.
2. Confirm the sector and route. Identify the Indian company's activity and locate it in the current Consolidated FDI Policy. Establish the sectoral cap and whether it is automatic or approval. If approval, budget for the DPIIT process, which the May 2026 SOP formalised but which still realistically runs several months.
3. Get the valuation certificate before you agree a price. Commission a fair value report from a CA, merchant banker or cost accountant. The subscription price must be at or above that figure. Date it close to the allotment.
4. Complete KYC with the Indian company's AD Category-I bank. The bank will require passport, proof of overseas address, and source-of-funds documentation. Start this early — it is the most common cause of delay.
5. Remit through banking channels only. Send funds by inward remittance to the Indian company's bank account, or from an NRE/FCNR(B) account if you hold one. Cash, informal transfers and third-party remittances are all fatal to the filing. Obtain the FIRC (Foreign Inward Remittance Certificate) and the KYC report from the receiving bank.
6. Allot the shares. The Indian company must allot within the timeline prescribed under the Companies Act, 2013 for share application money, and file Form PAS-3 with the MCA.
7. File Form FC-GPR on the RBI FIRMS portal. The company files under the Single Master Form on the FIRMS portal, attaching the FIRC, KYC report, valuation certificate, board resolution and a company secretary's certificate. Do this promptly after allotment — the reporting clock is short and the LSF/compounding exposure begins the moment it lapses.
8. Diarise the annual FLA return. Every Indian company with foreign investment on its books must file the Foreign Liabilities and Assets return with RBI each year by 15 July. It is missed constantly and it is a FEMA obligation.
9. Plan the exit at entry. If the individual later sells to a resident, that transfer is reported on Form FC-TRS, and the sale price is subject to a pricing ceiling (cannot exceed fair value when selling to a resident). Knowing this at entry avoids an unsellable position later.
FAQ
Does this mean a foreign individual can now own 100% of an Indian private company?
Subject to the sector being on the 100% automatic route and Press Note 3 not applying — yes. The 10% ceiling discussed above applies to listed companies on the repatriation route, not to unlisted ones.
Do I still need a PAN?
Yes. A foreign individual holding shares in an Indian company will need an Indian Permanent Account Number for tax purposes, and practically for the demat account if shares are held in dematerialised form.
Is the FPI route now obsolete for individuals?
No. For listed Indian equities at any meaningful scale, the 10% individual ceiling still binds, and the FPI framework offers a cleaner path. The amendment is decisive for unlisted and private-company investment, not for public markets.
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