To boost fund flows, the Ministry of Finance, Government of India has notified the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026, which amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and come into force on the date of publication in the Official Gazette. In addition, amendments have also been made to the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, to provide for payment and repatriation of funds for individuals resident outside India.

The 2026 Amendment significantly recasts the listed-company repatriation investment framework for individuals resident outside India. Pursuant to the amendment, an individual resident outside India may, without registering as a foreign portfolio investor, buy and sell shares of a listed Indian company through recognized stock exchanges on a repatriation basis. A summary of the amendments is set out below:

1.  Rule 9(1): general transfer provision narrowed for individuals

Under the erstwhile FDI Rules, Rule 9(1) applied to a person resident outside India not being an NRI, OCI or erstwhile OCB, and permitted such person to transfer equity instruments or units by way of sale or gift to any person resident outside India, subject to the conditions in that rule.

The amendment substitutes the words “a non-resident Indian or an overseas citizen of India” with “an individual” in Rule 9(1).

Rule 9(1) has now been recast as a transfer provision for non-individual persons resident outside India, while transfers by individual persons resident outside India are addressed separately under the amended Rule 13.

2.  Rule 12: investment by an individual person resident outside India

Rule 12(1) has been substituted to provide that 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 specified in Schedule III. However, an investment by such an individual that 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, requires prior approval of the Government.

3.  Rule 13: transfer by an individual person resident outside India

Rule 13 correspondingly permits an individual person resident outside India holding equity instruments or units on a repatriation basis to transfer the same by way of sale or gift to any person resident outside India. However:

• prior Government approval is required where the company is engaged in a sector requiring Government approval; and
• prior Government approval is also required for a transfer to an individual person resident outside India that results in transfer of ownership or control of the 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 such country.

For this purpose, “ownership of an Indian company” has the meaning assigned under Rule 23, i.e., beneficial holding of more than 50% of the equity instruments of such company. “Ownership of an LLP” means contribution of more than 50% in its capital and having majority profit share.

4.  Schedule II: FPI holdings to be monitored across schedules

The amendment substitutes the proviso to Schedule II, paragraph 1(a)(i). The revised proviso states that the total holding of a foreign portfolio investor under Schedule II, Schedule III or any other schedule of the Rules, including through an investor group under Schedule II, in a listed Indian company must be below the prescribed individual limit. If the investment is 10% or more, the breach mechanism under Schedule II, paragraph 1(a)(iii) applies.

The amendment also adds that “investor group” will have the same meaning as assigned under the SEBI FPI Regulations, 2019, as amended from time to time.

5.  Schedule III: investment route widened and limits changed

The Schedule III heading is amended from “Investments by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on repatriation basis” to cover “an individual person resident outside India including a Non-Resident Indian (NRI) or Overseas Citizen of India (OCI).”

Under the erstwhile FDI Rules, Schedule III permitted an NRI or OCI to purchase or sell listed-company equity instruments on a repatriation basis through a designated authorised dealer branch. The individual cap was 5%, and the aggregate NRI/OCI cap was 10%, with the aggregate ceiling capable of being raised to 24% by special resolution of the Indian company.

The amendment now allows any individual person resident outside India to purchase or sell equity instruments of a listed Indian company on a recognised stock exchange in India on a repatriation basis, through a designated authorised dealer branch. The new limits are:

• Individual holding: less than 10% of total paid-up equity capital on a fully diluted basis, or less than 10% of the paid-up value of each series of debentures, preference shares or share warrants; and
• Aggregate holding of all individual persons resident outside India under Schedule III: not more than 24% of the total paid-up equity capital on a fully diluted basis, or not more than 24% of the paid-up value of each series of debentures, preference shares or share warrants.

6.  Breach of the 10% limit: divestment or FDI reclassification

If, for any reason, the total holding of an individual resident outside India, whether as a portfolio investor under Schedule II or as an investor under Schedule III, breaches the prescribed limit of less than 10%, the investor must divest within five trading days from the date of settlement of the trades causing the breach. If the investor does not divest, the entire investment in the concerned company by that individual will be treated as FDI, and the individual cannot make any further portfolio investment in that company.

The individual must also, through the designated authorised dealer branch, notify the depositories and the concerned company within seven trading days from the settlement date of the trades causing the breach. The divestment and reclassification of foreign portfolio investment as FDI will be subject to the same conditions as specified by SEBI and RBI for FPIs. Any breach of aggregate or sectoral limits during the period between acquisition and sale, or conversion to FDI within the prescribed time, will not be treated as a contravention under the Rules.

7.  Payment and remittance of sale proceeds

For investments by an individual person resident outside India under the amended framework, the consideration must be paid by inward remittance from abroad through banking channels or out of funds held in any repatriable deposit account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. Further, a repatriable rupee account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016 must be designated by the individual person resident outside India and used exclusively for investments permitted under this Schedule.

The sale proceeds (net of taxes) of equity instruments may be remitted outside India or credited to the designated rupee account of the person concerned.

Conclusion: 

Allowing individuals residing outside India, other than NRIs and OCIs, to invest in the India-listed equity market is a welcome step, but the government also needs to address the logistical issues associated with it. Opening a demat account or even a bank account by a foreign resident in India is a herculean task in itself. A long list of documents, different requirements by different brokers and banks, make it a process, not worth undertaking.  The government of India really needs to look into the teething issues to make this move a success.