One word did the work of a whole policy overhaul. On 12 June 2026 the Central Government replaced "Non-Resident Indian or Overseas Citizen of India" in the FEMA rulebook with "an individual person resident outside India, including an NRI or an OCI." With that swap, the repatriable route into India's listed shares, shut to everyone except NRIs and OCIs for years, opened to any foreign individual on the planet. A family office in Dubai, an angel in London, a founder's ex-colleague in Singapore: all of them can now buy Indian listed equity on a repatriation basis, and take their money back out. This is the FEMA Third Amendment Rules 2026, and the part nobody is reading is the five-trading-day trap buried three paragraphs down.
TL;DR, FEMA (Non-Debt Instruments) Third Amendment Rules 2026
Effective: Notified 12 June 2026 (with the companion Mode of Payment and Reporting amendment).
Who is affected: Every individual resident outside India, Indian listed companies receiving such investment, foreign angels and family offices, and NRIs/OCIs already on this route.
The risk: Cross the 10% individual cap and fail to sell the excess within five trading days of settlement, and your entire holding is reclassified as FDI and you are barred from further portfolio buying in that company.
Key action: Set up cap monitoring, a designated repatriable rupee account, and a beneficial-ownership check for any land-border connection before the money moves.
Time to act: The rules are live now, investments and reporting under Form LEC (IFI) already run on the new framework.
The problem: a route that shut out most of the world
India runs two broad doors for foreign money into a company's shares. One is Foreign Direct Investment (FDI), where a foreign investor takes a strategic stake and stays. The other is the portfolio route, where an investor buys listed shares to hold, trade and repatriate, capped well below the level of control. Schedule III of the FEMA (Non-Debt Instruments) Rules 2019 is the portfolio door for individuals, and until June it carried a hard eligibility filter: you had to be an NRI or an OCI to walk through it.
That filter caught out a large group of willing investors. A German family office, a Gulf-based HNI, a US citizen with no Indian passport or OCI card: none of them could use the individual repatriable route. Their only options were the SEBI-registered Foreign Portfolio Investor (FPI) structure or an intermediate corporate vehicle, both of which cost money to set up and maintain. For a founder trying to bring an overseas individual onto the cap table of a listed group entity, or for an NRI-focused wealth manager pitching Indian equity, the door was simply the wrong shape.
The cost of that friction was real. Structuring an FPI licence, or building a holding company in Mauritius or Singapore just to hold a small listed position, ran into lakhs of rupees in legal and maintenance fees and months of lead time. Many individual investors abroad looked at that and put their money elsewhere. The Third Amendment removes the eligibility barrier while keeping the guardrails, and that trade-off is the whole story.
| Point | Before 12 June 2026 | After the Third Amendment |
|---|---|---|
| Who may invest | NRIs and OCIs only | Any individual resident outside India, including NRIs and OCIs |
| Individual cap | Below 10% of paid-up equity (fully diluted) | Unchanged, below 10% of paid-up equity (fully diluted) |
| Aggregate cap (all such individuals) | 24% of paid-up equity capital | Unchanged, 24% of paid-up equity capital |
| Route for non-NRI/OCI individuals | FPI licence or corporate vehicle | Direct individual route now available |
| Bank reporting | NRI/OCI-focused framework | Form LEC (IFI) for individual foreign investors |
| Land-border approval | Applied to direct investor | Extended to the beneficial owner behind the structure |
What changed: the three moves inside one notification
The FEMA Third Amendment Rules 2026 arrived alongside a matching amendment to the FEMA (Mode of Payment and Reporting of Non-Debt Instruments) Regulations. Read together, they revise Chapter V, Rule 12, Rule 13 and Schedule III of the FEMA (Non-Debt Instruments) Rules 2019. Three moves matter.
First, eligibility opened up. The individual investor route into listed Indian equity is no longer limited by NRI or OCI status. Any individual resident outside India can now buy and sell equity instruments of listed Indian companies through recognised stock exchanges, on a repatriation basis, so the proceeds can leave India subject to the usual FEMA conditions. The character of the route stays the same. It is still portfolio investment, not a backdoor to control.
Second, the breach mechanic got teeth. The caps did not move: an individual must hold below 10% of a company's paid-up equity on a fully diluted basis, and all such non-resident individuals together must stay at or under 24%. What the amendment added is a precise consequence for crossing the line, and it runs on a five-trading-day clock. More on that below, because it is the section that turns a good-news reform into a compliance risk.
Third, the land-border screen now traces beneficial ownership. The prior-approval requirement that has applied to investors from countries sharing a land border with India since 2020 no longer stops at the immediate investing entity. It now follows the chain to the beneficial owner. A nominee arrangement or a multi-tier vehicle that ends in a citizen of one of those seven countries needs Government approval, even where the visible investor sits somewhere else.
Definition: what "Schedule III repatriable route" actually means
Schedule III of the FEMA (Non-Debt Instruments) Rules governs portfolio investment by individuals resident outside India into listed Indian securities on a repatriation basis. "Repatriation basis" means the investor can send the sale proceeds back out of India through banking channels, rather than being locked into a rupee account. A "person resident outside India" (PROI) is the FEMA term for someone who does not meet the residency test under the Act. The amendment simply widened which PROIs may use this particular door.
The five-trading-day trap most write-ups skip
Here is the mechanic that deserves a screenshot. If an individual investor's holding crosses the 10% cap, or if the combined non-resident individual holding crosses 24%, the investor has two options, and only two.
Option one: sell the excess within five trading days from the settlement date of the transaction that caused the breach. Do that, and the position is fine. The amendment confirms that a temporary breach during this window is not treated as a contravention of FEMA.
Option two: do nothing, and the entire holding, not merely the slice above 10%, is reclassified as Foreign Direct Investment. The investor is then barred from any further portfolio buying in that company, and the position picks up the full weight of FDI compliance: reporting to the Reserve Bank of India, valuation reporting, source-of-funds substantiation, and any sectoral approval the company's activity attracts.
The clock is where people will get hurt. It does not start on the trade date. It does not start when the investor notices. It starts on the settlement date of the triggering transaction. A breach can be caused by a fresh purchase, but it can also be caused by a corporate action the investor never initiated: a buyback that shrinks the capital base, a bonus issue, or a rights offering that shifts everyone's percentage. Someone who spots the breach on the third trading day after settlement has two days left to execute a sale. For a family office with a layered investment committee, two days is not much.
Diagram 2, What happens when an individual investor crosses the cap
Sell the excess in time
Holding drops below the cap. No contravention. Portfolio route continues.
Miss the window
Entire holding reclassified as FDI. Barred from further portfolio buying. Full FDI reporting, valuation and sectoral approval apply.
The by-the-numbers view
FEMA Third Amendment Rules 2026, in five figures
What you must do now
Whether you advise the investee company or the investor, the reform creates a short list of things to get right before money changes hands. Company secretaries sitting on the investee side carry most of this load, because the reporting and the record-keeping land on the Indian company and its authorised dealer bank.
- Confirm the route before you accept the money. Decide whether a foreign individual is coming in under Schedule III (portfolio, below 10%) or as FDI (strategic, larger stake). The two carry different reporting, valuation and approval paths, and a mismatch is expensive to unwind.
- Open a designated repatriable rupee account. The investor must fund the purchase through inward remittance or a repatriable deposit account, and must designate a repatriable rupee account used only for Schedule III investment. Get this in place first; a wrongly sourced payment is a FEMA problem, not a paperwork problem.
- Run a beneficial-ownership check for any land-border link. Trace the structure to the ultimate individual. If a citizen of China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar or Afghanistan sits at the end of a nominee, trust or multi-tier chain, prior Government approval is required before the investment, not after.
- Set up cap monitoring on both dimensions. Track the individual position against 10% and the combined non-resident individual position against 24%, on a fully diluted basis. Watch corporate actions closely, because a buyback or bonus issue can trigger a breach with no trade from the investor.
- Pre-agree the divestment mechanic. For any position near a cap, put standing sale instructions or broker protocols in place ahead of time. Five trading days from settlement is not enough runway to start a fresh committee discussion.
- Make sure the AD bank files Form LEC (IFI). Authorised Dealer Category-I banks now report purchases and transfers of equity instruments by individual foreign investors through Form LEC (Individual Foreign Investor). Confirm your banker is on the new format, because the reporting record is what protects the company later.
- Fix your transaction documents. Term sheets and share purchase agreements should carry explicit beneficial-ownership representations covering land-border citizenship, backed by warranties and indemnities. This is cheap to add now and hard to argue about later.
Common errors already showing up: treating the 10% cap as a target rather than a ceiling, forgetting that the aggregate 24% is shared across all non-resident individuals in the same company, and assuming the land-border screen only bites when the direct investor is from one of those countries. Each of these is a reporting or approval failure waiting to happen.
The deeper implication
According to CS Sapna Malpani, the Third Amendment is best read as India widening the front door while installing a sharper lock. The eligibility change is a growth signal: the country wants individual capital from beyond the diaspora, and it has removed a filter that pushed that capital into costly structures or out of India entirely. For founders of listed groups and for wealth managers, that is a genuine opening.
The forward view: expect the beneficial-ownership tracing to spread. The land-border screen has now moved from "who is the investor" to "who ultimately owns this", and that logic does not stay confined to one schedule for long. Diligence on cross-border deals will increasingly turn on establishing the ultimate individual behind a structure, and companies that build that check into their standard onboarding now will move faster when a foreign individual wants in. The reform rewards the investee companies that treat cap monitoring and beneficial-ownership review as routine, and it will punish the ones that treat FEMA reporting as an afterthought handled by the bank.
How this sits next to related provisions
Two comparisons help place the change. Schedule III (this route) is portfolio investment by individuals, capped below 10% each and 24% together, and it is not the same as the FDI route under Schedule I, where a foreign investor takes a larger, strategic stake and files Form FC-GPR for a primary issue of shares. The breach mechanic is precisely the bridge between the two: cross the portfolio cap without curing it, and the position falls into the FDI world with all its reporting.
The other comparison is with the FPI route. A Foreign Portfolio Investor is a SEBI-registered institutional vehicle. The widened individual route is not a replacement for FPI registration; for a large or actively managed book, the FPI structure may still be the better home. The individual route is the simpler path for a single overseas investor holding a modest listed position who does not want the cost of an FPI licence. The choice turns on the size of the position, the tax posture and the investment horizon, not on a blanket preference.
Key takeaways
- ✔ The FEMA Third Amendment Rules 2026, notified 12 June 2026, open the Schedule III repatriable listed-equity route to any individual resident outside India, not just NRIs and OCIs.
- ✔ The caps are unchanged: below 10% for an individual and 24% aggregate for all such non-resident individuals, on a fully diluted basis.
- ✔ Breach the cap and you have five trading days from the settlement date to sell the excess, or the whole holding is reclassified as FDI.
- ✔ A reclassified investor is barred from further portfolio buying in that company and picks up full FDI reporting and valuation duties.
- ✔ The Press Note 2/2020 land-border approval now traces beneficial ownership through nominee, trust and multi-tier structures across seven countries.
- ✔ Investment must be funded by inward remittance or a designated repatriable rupee account used only for Schedule III.
- ✔ AD Category-I banks now report individual foreign investor transactions through Form LEC (IFI).
Sources and references
- Reserve Bank of India, FEMA Notifications and Master Directions on Foreign Investment: rbi.org.in/Scripts/NotificationUser.aspx (Gold)
- Reserve Bank of India, Master Directions index: rbi.org.in/Scripts/BS_ViewMasDirections.aspx (Gold)
- DPIIT, FDI policy and Press Note 2 (2020) land-border framework: dpiit.gov.in (Gold)
- SCC Online, "FEMA (Non-Debt Instruments) Third Amendment Rules, 2026 explained": scconline.com (Silver)
- K Singhania & Co, "FEMA Third Amendment Rules, 2026: Three Changes Foreign Investors Must Know": singhanialaw.com (Silver)
- India Briefing (Dezan Shira & Associates), "FEMA Non-Debt Instruments (Third Amendment) Rules 2026": india-briefing.com (Silver)
Bringing a foreign individual onto your cap table or listed register?
Get the route, the caps and the reporting right before the money moves. Use the tools and support built for exactly this:
- Check your exposure with the FEMA Compliance Calculator.
- Plan the raise with Fundraising Compliance support.
- Keep ROC filings clean with ROC Compliance Filing.
Talk it through directly on WhatsApp: +91 96208 03375, CS Sapna Malpani, Practising Company Secretary, Bangalore.
Related reading on this blog: Press Note 2 and land-border beneficial ownership, FEMA Guarantees Regulations 2026 and Form GRN, Overseas investment under LRS and TCS for founders, and the FLA Return due date and penalty guide.
Frequently asked questions
What are the FEMA Third Amendment Rules 2026?
The FEMA (Non-Debt Instruments) (Third Amendment) Rules 2026, notified on 12 June 2026 along with a matching Mode of Payment and Reporting amendment, revise Chapter V, Rule 12, Rule 13 and Schedule III of the FEMA (Non-Debt Instruments) Rules 2019. The central change replaces the phrase "NRI or OCI" with "an individual person resident outside India, including an NRI or an OCI", which opens the individual portfolio route into listed Indian equity to any foreign individual. The caps and the national-security screening stay in place.
Who can now invest in Indian listed equity under the individual route?
Any individual resident outside India, regardless of NRI or OCI status. Before the amendment, this repatriable Schedule III route was limited to NRIs and OCIs, and other foreign individuals had to use an FPI licence or a corporate vehicle. Now a foreign family office, an overseas HNI, or an individual investor in the US, UK, Europe or Singapore can access the same route directly, subject to the individual and aggregate caps and the land-border approval requirement.
What are the investment caps under the FEMA Third Amendment Rules 2026?
The individual cap requires a single investor to hold below 10% of the company's paid-up equity capital on a fully diluted basis. The aggregate cap limits the combined holding of all non-resident individuals on this route to 24% of the paid-up equity capital. The same thresholds apply to each series of debentures, preference shares or share warrants. These caps were not changed by the amendment; what changed is who is allowed to invest under them.
What happens if an investor crosses the 10% or 24% cap?
The investor must sell the excess within five trading days from the settlement date of the transaction that caused the breach. A temporary breach cured within that window is not a contravention. If the excess is not sold in time, the investor's entire holding, not just the part above the cap, is reclassified as Foreign Direct Investment, the investor is barred from further portfolio investment in that company, and FDI-level reporting, valuation and any sectoral approval become applicable.
Does the land-border approval requirement apply to beneficial owners now?
Yes. The Press Note 2/2020 requirement for prior Government approval, which applies to investment connected to the seven countries sharing a land border with India (China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan), now traces through to the beneficial owner. Nominee arrangements, trusts and multi-tier structures that end in a citizen of one of those countries need prior approval even if the immediate investing entity sits elsewhere.
What is Form LEC (IFI) and who files it?
Form LEC (Individual Foreign Investor) is the reporting format introduced by the companion Mode of Payment and Reporting amendment. Authorised Dealer Category-I banks use it to report purchases and transfers of equity instruments by individual foreign investors, replacing the earlier framework that focused on NRI and OCI transactions. For an Indian investee company, confirming that its bank files on the new format is part of keeping the investment properly recorded.
How should an Indian company prepare before accepting this investment?
Confirm the route (portfolio versus FDI), make sure the investor funds the purchase through inward remittance or a designated repatriable rupee account, run a beneficial-ownership check for any land-border connection, set up monitoring against both the 10% and 24% caps, pre-agree a divestment mechanic for positions near a cap, and make sure the AD bank files Form LEC (IFI). Building these steps into standard onboarding avoids the reporting and approval failures that create FEMA exposure.
Need help with this in practice?
CS Sapna Malpani is a Practising Company Secretary in Bengaluru advising companies and startups on ROC and FEMA compliance, secretarial audit, incorporation and corporate governance. Book a consultation to discuss your specific requirement.