Press Note 2 (2026), Press Note 3 eased for small stakes.

Since April 2020, Press Note 3 required government approval for any investment where the investor, or the beneficial owner of the investment, was from a country sharing a land border with India. Because no threshold was set, even a small indirect Chinese holding in a global fund could trigger approval. Press Note 2 (2026), approved by the Cabinet on 10 March 2026, keeps the rule but adds a threshold and defines beneficial ownership.

• Beneficial owner defined: by reference to the Prevention of Money-laundering Act, 2002 and Rule 9(3) of the PML (Maintenance of Records) Rules, 2005.
• 10% non-controlling relief: where land-border beneficial ownership in the investor entity is within 10% and carries no control, the investment can use the automatic route, subject to sectoral caps.
• Tested at the investor level: the investor entity must itself be incorporated outside a land-border country.
• 60-day decisions: approval proposals in specified manufacturing sectors, including capital goods, electronic capital goods, electronic components and polysilicon / ingot-wafers (and other items listed in the revised SOP), get a 60-day timeline.
• Procedure: a revised standard operating procedure (reported as dated 4 May 2026) moves applications to the National Single Window System; the corresponding NDI Rules amendment was reported as notified on 1 May 2026.
• Disclosure: investors declare beneficial ownership at the time of investment; banks may ask for an undertaking.

• Direct investment by entities incorporated or registered in China, including Hong Kong, and other land-border countries.
• Land-border beneficial ownership above the threshold, or any control through board seats, veto rights or agreements.
• Routing through a Singapore, Mauritius or US holding company does not by itself remove the requirement; beneficial ownership is looked through.
• A later change in ownership that crosses the threshold needs approval.
• Prohibited sectors and sectoral caps.

• Map the cap table and the investor's upstream ownership, including fund LPs, to identify land-border beneficial owners and control rights.
• Document the 10% test at the investor level and keep the beneficial-ownership declaration on file.
• Check sectoral caps and whether the 60-day sector track applies to an approval case.
• For past investments made without approval where it was needed, assess FEMA compounding before a fundraise or exit.
• Expect buyers in M&A due diligence to ask for this analysis.

Sources: Bar & Bench (18 June 2026); TaxGuru (27 March 2026); King Stubb & Kasiva (27 October 2026).

Last updated: 31 October 2026. Practitioner summaries differ on whether the threshold reads "up to 10%" or "more than 10%" and on the full sector list; check the DPIIT Press Note and SOP text for your case.