I. Ministry of Finance Notifies FEMA (Non-Debt Instruments) (Amendment) Rules, 2026
The Ministry of Finance, Department of Economic Affairs, has notified the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2026 vide Notification No. S.O. 2174(E) dated 01st May 2026. The amendment concerning investments involving entities or beneficial owners connected with countries sharing a land border with India.
The amendment seeks to strengthen India’s foreign investment screening mechanism by enhancing transparency in ownership structures, clarifying the concept of beneficial ownership, and prescribing additional safeguards for investments originating from or connected with neighbouring countries.
Background
In April 2020, India introduced restrictions on foreign investments from countries sharing a land border with India to prevent opportunistic acquisitions of Indian businesses. Over time, practical challenges emerged regarding the interpretation of “beneficial ownership” and the scope of investments requiring Government approval.
The present amendment provides greater clarity on these aspects and aligns the FEMA framework with the revised policy measures announced by the Government.
Key Amendments
1. Government Approval Route for Border-Country Investments
The amendment reiterates that any investment into India by:
- An entity incorporated in a country sharing a land border with India;
- A citizen of such country; or
- An investor whose beneficial owner is situated in or is a citizen of such country,
shall require prior Government approval before making the investment.
The requirement extends beyond direct investments and also covers indirect ownership structures where beneficial ownership is traced to restricted jurisdictions.
2. Transfers Resulting in Beneficial Ownership Changes
Government approval is also required for subsequent transfers of ownership of existing or future FDI where such transfer would result in beneficial ownership falling within the scope of the land-border restrictions.
This expands the regulatory oversight from merely initial investments to post-investment ownership restructuring transactions.
3. Alignment of Beneficial Ownership Test
A significant amendment is the alignment of the “beneficial owner” concept under FEMA with the framework prescribed under the Prevention of Money Laundering Act, 2002 (PMLA) and related rules.
The revised approach is intended to provide a uniform basis for determining ultimate ownership and control, thereby reducing ambiguity in assessing whether Government approval is required.
4. Clarification on Control and Ownership Structures
The amendment introduces additional clarity on identifying control and beneficial ownership through layered corporate structures and investment vehicles.
The objective is to ensure that investments routed through intermediary entities are appropriately examined to determine the ultimate source of ownership and control.
5. Exemption for Certain Multilateral Institutions
The amendment clarifies that investments made through specified multilateral institutions, sovereign-backed funds, or similar international financial organisations will not automatically attract country attribution merely because investors from restricted jurisdictions may have indirect participation in such institutions.
This provides certainty for globally diversified investment platforms and multilateral financing institutions.
6. Revised Reporting Framework
The amendment introduces a revised reporting mechanism for investments connected with land-border jurisdictions where Government approval is not otherwise required.
Such reporting is now required to be undertaken in the manner prescribed by the Reserve Bank of India, replacing the earlier proposal of reporting through a separate DPIIT-driven mechanism.
7. Clarification for Oil and Gas Sector Transactions
The amendment specifically clarifies that the issue or transfer of a “participating interest or right” in oil fields by an Indian company to a person resident outside India shall be treated as foreign investment and must comply with the applicable provisions of Schedule I of the NDI Rules.
This removes ambiguity regarding the treatment of such sector-specific transactions under the foreign investment framework.
Practical Implications
The amendment is expected to have a significant impact on cross-border investments involving complex ownership structures, particularly where investors have direct or indirect links to jurisdictions sharing a land border with India.
Key implications include:
- Enhanced due diligence requirements for foreign investors and Indian investee companies;
- Greater scrutiny of beneficial ownership and control structures;
- Increased compliance obligations during fund raising, mergers, acquisitions and secondary share transfers;
- Need for periodic review of ownership structures to identify approval requirements; and
Greater regulatory certainty through harmonisation of beneficial ownership standards with the PMLA framework.
II. Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2026 – S.O. 2186(E)
India Opens Insurance Sector to 100% Foreign Investment: FEMA Framework Aligned with Revised FDI Policy
Ministry of Finance Notifies FEMA Amendments for Insurance Sector
The Ministry of Finance, Department of Economic Affairs, has notified the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2026 (“Amendment Rules”) on 2nd May 2026, amending Schedule I of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“NDI Rules”). The Amendment Rules came into effect from the date of their publication in the Official Gazette.
The notification operationalises the Government’s decision to increase the foreign direct investment (“FDI”) limit in the insurance sector from 74% to 100%.
Key Amendments
1. 100% FDI Permitted in Indian Insurance Companies
The Amendment Rules permit aggregate foreign investment, including foreign portfolio investment, up to 100% of the paid-up equity capital of an Indian insurance company under the automatic route. Such investment remains subject to:
- Approval and verification by the Insurance Regulatory and Development Authority of India (“IRDAI”);
- Compliance with the provisions of the Insurance Act, 1938; and
- Obtaining all necessary licences and regulatory approvals from IRDAI.
2. 100% FDI Allowed in Insurance Intermediaries
Foreign investment up to 100% is also permitted under the automatic route in insurance intermediaries, including:
- Insurance brokers;
- Re-insurance brokers;
- Insurance consultants;
- Corporate agents;
- Third Party Administrators (TPAs);
- Surveyors and Loss Assessors;
- Managing General Agents (MGAs);
- Insurance repositories; and
- Other entities as may be notified by IRDAI from time to time.
3. Separate Regime Continues for LIC
The Amendment Rules retain a distinct framework for the Life Insurance Corporation of India (LIC). Foreign investment in LIC continues to be capped at 20% under the automatic route and remains subject to the provisions of the Life Insurance Corporation Act, 1956 and applicable provisions of the Insurance Act, 1938.
4. Governance and Resident Indian Requirements
To ensure effective domestic oversight and governance, the Rules prescribe that:
- For Insurance Companies: At least one among the Chairperson, Managing Director, or Chief Executive Officer must be a Resident Indian Citizen.
- For Insurance Intermediaries with Majority Foreign Ownership: At least one among the Chairperson, Chief Executive Officer, Principal Officer, or Managing Director must be a Resident Indian Citizen.
5. Clarification for Bank-Linked and Diversified Businesses
The Rules clarify that where an entity’s primary business activity is outside the insurance sector (for example, banks acting as insurance intermediaries), the applicable FDI limits of its principal business sector will continue to apply, provided revenue from non-insurance activities exceeds 50% of total revenue during a financial year.
Practical Implications
The amendment marks one of the most significant liberalisation measures in India’s insurance sector in recent years. The revised framework is expected to:
- Facilitate greater foreign capital inflows into the insurance ecosystem;
- Enable foreign insurers to increase ownership in existing joint ventures;
- Encourage new market entrants and strategic investments;
- Strengthen capital adequacy and solvency positions of insurers;
- Promote innovation, technology adoption and product development; and
- Support deeper insurance penetration across India.
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