Centre Mandates Govt. Route For Investments With Beneficial Ownership Linked To Border Countries

The Centre has mandated that investments into India in non-debt instruments, including equity, by entities or individuals from countries sharing a land border with India, as well as investments where the beneficial ownership is traceable to such countries, must be made only through the Government approval route, under amendments notified on May 1, 2026.

The Ministry of Finance, Department of Economic Affairs, brought into force the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2026 with effect from May 2, 2026, the date of their publication in the Official Gazette.

The amendment substitutes Rule 6(a) of the 2019 Rules governing investment in equity instruments of Indian companies.

It provides that “an entity or a citizen of a country that shares land border with India, or where the beneficial owner of an investment into India is a citizen of any such country, or where the beneficial ownership of an investment is vested in any such country, shall invest only under the Government route” .

The rules also extend this requirement to subsequent changes in ownership. Any transfer of ownership of existing or future foreign investment in an Indian entity, whether direct or indirect, that results in such beneficial ownership will require prior Government approval .

Earlier, Government approval was required for investments from countries sharing a land border with India. The amendment now clarifies that the requirement also applies where beneficial ownership of the investment is linked to such countries.

The amendment also links the concept of beneficial ownership to the definition under the Prevention of Money-laundering Act, 2002, and the rules framed thereunder.

It provides that beneficial ownership will be attributed to a border-sharing country where a citizen or entity of such country, directly or indirectly, individually or together with others, has the ability to exercise control, hold rights above prescribed thresholds, or exercise ultimate effective control over the investment.

The notification separately provides that “a citizen of Pakistan or an entity incorporated in Pakistan shall invest only under the Government route,” and only in sectors or activities other than defence, space, atomic energy and other sectors prohibited for foreign investment.

It also clarifies that a Multilateral Bank or Fund of which India is a member will not be treated as an entity of any particular country, nor will any country be considered the beneficial owner of such investments.

Additionally, even where prior Government approval is not required, investments into India from entities having any direct or indirect ownership by citizens or entities of countries sharing a land border with India will be subject to reporting requirements specified by the Reserve Bank of India