India Amends NDI Rules to Implement Press Note 3: New Framework for Investments from Land Border Countries

• Author(s): Dipak Rao, Nishita Arora
• Date: 16-Jun-2026
• Post in: Foreign Direct Investment

Pursuant to Press Note 3 of 2026, which liberalized and clarified the foreign investment framework for investors from Land Border Sharing Countries (LBCs), the Ministry of Finance has now formally incorporated these changes into the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) through Notification No. S.O. 2174(E) dated May 1, 2026.

Pursuant to the amendment, rule 6 of the NDI Rules has now been amended to regulate foreign investment from LBCs under the automatic route, subject to the following conditions:

1. The investor is not an entity incorporated in the LBC;
2. The investor is not a citizen of the LBC;
3. The beneficial owner of the investor entity incorporated or registered in a country other than an LBC is not a citizen of the LBC; and
4. The beneficial ownership of such investment is not vested in an LBC.

In case the investment leads to non-fulfilment of either of the above conditions, prior Government approval would be required. Further, the other restrictions provided under Rule 6, remain the same.

The Amendment has clarified that the term ‘beneficial owner’ will have the same meaning as ascribed to it under the Section 2(1)(fa) of the Prevention of Money Laundering Act 2002 and shall be determined as per the criteria laid out in rule 9(3) of the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 (PMLA Rules).

In terms of rule 9(3) of the PMLA Rules, a beneficial owner is determined as follows:

1. Where investor is a company, beneficial owner is the natural person(s) who, acting alone or together, through one or more juridical persons, has ownership or entitlement to more than 10% of shares or capital or profits of the company or who exercises ‘Control’ through other means; or
2. Where the investor is a partnership firm, beneficial owner is the natural person(s) who, acting alone or together, through one or more juridical persons, has ownership or entitlement to more than 10% of the capital or profits of the partnership or who exercises ‘Control’ through other means; or
3. Where the investor is an unincorporated association or body of individuals, beneficial owner is the natural person(s) who, acting alone or together, through one or more juridical persons, has ownership or entitlement to more than 15% of the property or capital or profits of such association or body of individuals.

For this purpose, ‘Control’ includes the right to appoint majority of directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreement or voting agreements in case of a company, and the right to control the management or policy decisions in case of a partnership.

The Amendment further clarifies that the beneficial ownership of the investment shall be construed to be vested in an LBC, where –

1. a citizen of an LBC; or
2. an entity incorporated or registered in an LBC,

has the ability to directly or indirectly, individually or cumulatively with any another citizen or entity, independently or collectively with any another citizen or entity, whether acting together or otherwise, hold rights or entitlements –

1. in excess of the applicable thresholds specified in rule 9(3) of Prevention of Money Laundering (Maintenance of Records) Rules, 2005 over an investor entity which is incorporated or registered in a country other than an LBC; or
2. which enables such citizen or entity or both to exercise control over the investor entity referred above; or
3. which enables such citizen or entity or both to exercise ultimate effective control over the Investee entity in any manner.

However, the Amendment specifies that such investments will be subject to reporting of relevant information by the investee entity as prescribed by the Reserve Bank of India (RBI).

Accordingly, pursuant to the Amendment and the definition of “beneficial owner” under the Prevention of Money Laundering Act, citizens of, or entities incorporated in, an LBC are not permitted to invest in India under the automatic route. However, where the investor is a citizen of, or an entity incorporated in, a country other than an LBC, and the beneficial owner of the investment is a citizen of, or an entity incorporated in, an LBC, such investment may now be made under the automatic route, provided that the beneficial ownership held by the LBC citizen/entity is non-controlling and does not exceed 10%. Such investments will remain subject to the applicable sectoral caps, prescribed entry routes, RBI reporting requirements, and all other conditions stipulated under the NDI Rules.

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