Background
The Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (NDI Rules) serve as the principal regulatory framework governing foreign investment in India through non-debt instruments such as equity shares, convertible instruments, units of investment vehicles, and other similar securities. Since their original notification in October 2019, these rules have undergone several amendments to align with evolving policy priorities around foreign direct investment (FDI) and foreign portfolio investment (FPI).
The Ministry of Finance, Department of Economic Affairs, has now issued the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026 vide S.O. 3030(E) dated 12th June 2026. This amendment comes into force on the date of its publication in the Official Gazette and introduces a significant conceptual shift — expanding the class of eligible investors from Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) to all individual persons resident outside India.
Key Amendments
1. Substitution in Rule 9 — Widening the Investor Definition
Rule 9, which governs investment by non-residents in Indian securities, previously referred specifically to "a non-resident Indian or an overseas citizen of India." Through this amendment, the said expression has been substituted with "an individual." This change, though textual in appearance, has considerable substantive effect — it removes the earlier nationality-based restriction and brings all individual persons resident outside India within the ambit of Rule 9, regardless of whether they hold NRI or OCI status.
2. Substitution of Chapter V Heading
The heading of Chapter V of the NDI Rules, which previously read "Investment by Non-Resident Indian or an Overseas Citizen of India," has been replaced with the following:
"Investment by an Individual Person Resident Outside India Including a Non-Resident Indian or an Overseas Citizen of India"
This revision reflects the expanded scope of the chapter and signals a policy intent to provide a unified framework for all individuals resident outside India who wish to invest in Indian securities, while still acknowledging NRIs and OCIs as a subset of this larger category.
3. Amendments to Rule 12 — Portfolio Investment
Two changes have been made to Rule 12:
The sub-heading "Investment by NRI or OCI — A NRI or an OCI may make investments as under:-" has been substituted with "An individual person resident outside India including a NRI or an OCI may make investments as under:-", consistent with the broadened scope of the chapter.
Sub-rule (1) of Rule 12 has been substituted to read as follows: an individual person resident outside India may, on a repatriation basis, purchase or sell equity instruments of a listed Indian company and other securities in the manner and subject to the terms and conditions as specified in Schedule III.
An important safeguard has been retained through a proviso: where any such investment results in the transfer of ownership or control of a listed Indian company to entities or citizens of a country sharing a land border with India, or where the beneficial owner of such investment is a citizen of any such country, prior approval of the Government shall be required before such investment is made.
For the purposes of this rule, "ownership of an Indian Company" carries the same meaning as under Rule 23, and "beneficial owner" is defined in accordance with clause (fa) of sub-section (1) of Section 2 of the Prevention of Money-laundering Act, 2002, as determined under Rule 9(3) of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005.
4. Amendments to Rule 13 — Transfer of Equity Instruments
Rule 13, which governs the transfer of equity instruments held by non-residents, has been amended in the following respects:
The sub-heading "Transfer of equity instruments by NRI or OCI" has been replaced with "Transfer of equity instruments by an individual person resident outside India including a NRI or an OCI."
The opening portion of Rule 13, which previously referred to "An NRI or an OCI holding equity instruments," has been substituted to read: "An individual person resident outside India holding equity instruments of an Indian company or units in accordance with these rules may transfer such equity instruments or units so held by him in compliance with the conditions, if any, specified in the Schedules of these rules and subject to the terms and conditions provided hereunder."
Sub-rule (1) has also been substituted: an individual person resident outside India holding equity instruments of an Indian company or units on repatriation basis may transfer the same by way of sale or gift to any person resident outside India, subject to prior Government approval where the company operates in a sector requiring such approval. The same land-border country / beneficial ownership restriction applicable under Rule 12 also applies to transfers under this rule.
5. Amendment to Schedule II — FPI Aggregate Limit Proviso
In Schedule II, paragraph (1), sub-para (a), clause (i), a new proviso has been inserted. The proviso provides that the total holding of a foreign portfolio investor under Schedule II, III, or any other schedule of the NDI Rules — including through an investor group under that schedule — in a listed Indian company, shall be less than the prescribed individual limit. Where such holding equals or exceeds ten per cent, the provisions of clause (iii) of sub-paragraph (a) of paragraph 1 of that schedule shall apply.
For the purposes of Schedule II, the expression "investor group" carries the same meaning as assigned to it under the SEBI (Foreign Portfolio Investors) Regulations, 2019, as amended from time to time.
6. Amendments to Schedule III — Investment Conditions for Individuals Resident Outside India
Schedule III, which sets out the conditions for portfolio investment by non-resident individuals in listed Indian companies, has been comprehensively updated:
The heading has been modified to refer to "an individual person resident outside India including a Non-Resident Indian (NRI) or Overseas Citizen of India (OCI)" instead of the earlier NRI/OCI-only reference.
Paragraph (1) has been substituted in its entirety under the heading "Purchase or sale of equity instruments of a listed Indian company." The revised paragraph provides that an individual person resident outside India may purchase or sell equity instruments of a listed Indian company on a repatriation basis on a recognised stock exchange in India, subject to the following conditions:
Transactions must be routed through a branch designated by an Authorised Dealer for this purpose.
The total holding of any single individual person resident outside India shall be less than ten per cent of the total paid-up equity capital on a fully diluted basis, or less than ten per cent of the paid-up value of each series of debentures, preference shares, or share warrants issued by an Indian company. The aggregate holdings of all individual persons resident outside India together shall not exceed twenty-four per cent of the total paid-up equity capital on a fully diluted basis, or twenty-four per cent of the paid-up value of each series of debentures, preference shares, or share warrants.
A further proviso clarifies that the total holding of an individual person resident outside India in a listed Indian company under Schedule II, III, or any other schedule, shall remain less than the prescribed individual limit of ten per cent. Where holdings equal or exceed ten per cent, the provisions of clause (c) of sub-paragraph (a) of paragraph 1 of the schedule apply.
Where an individual person resident outside India breaches the prescribed limit of less than ten per cent, the excess investment shall be required to be divested within five trading days from the date of settlement of the trades causing the breach. If such individual chooses not to divest, the entire investment in the concerned company shall be reclassified as foreign direct investment (FDI), and the individual shall be precluded from making further portfolio investment in that company. The individual must, through the designated branch of the Authorised Dealer, bring the breach to the notice of the depositories and the concerned company within seven trading days from the date of settlement of the trades causing the breach. The reclassification of foreign portfolio investment as FDI shall be subject to the same conditions as applicable to a foreign portfolio investor (FPI) under SEBI and RBI regulations. Importantly, the breach of the aggregate or sectoral limit on account of acquisition and sale, or conversion to FDI within the prescribed time, shall not be considered a contravention under these rules.
Significance of the Amendment
This amendment represents a meaningful liberalisation of India's foreign investment framework. By replacing the NRI/OCI-specific terminology with the broader concept of "an individual person resident outside India," the Government has opened portfolio investment routes in listed Indian companies to a wider class of foreign individuals who may not hold Indian-origin status. At the same time, the amendment carefully preserves existing safeguards — particularly the land-border country restrictions and beneficial ownership conditions — ensuring that the liberalisation does not inadvertently dilute national security considerations embedded in the NDI Rules since the 2020 amendments.
The FPI aggregate limit proviso introduced in Schedule II also brings greater alignment between the NDI Rules and the SEBI FPI Regulations, 2019, ensuring consistent treatment of investor group holdings across schedules.
Source: Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii) | S.O. 3030(E) dated 12th June 2026 | Ministry of Finance, Department of Economic Affairs
— PMK Advisors | Compliance. Simplified.
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