FEMA Third Amendment 2026: Why NRIs Are No Longer Separated from Foreign Investors in Indian Stocks

For decades, investing in Indian listed stocks through the Portfolio Investment Scheme (PIS) was an exclusive club  reserved only for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs). If you were a US citizen of non-Indian origin, a British national, or any other foreign individual with no Indian roots, you simply couldn’t access this route. You had to navigate the far more complex Foreign Portfolio Investor (FPI) path or skip Indian equities altogether.

That just changed.

On June 12, 2026, the Ministry of Finance notified the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026 and quietly opened India’s listed stock market to every individual living outside India, regardless of nationality or origin.

This blog breaks down FEMA Third Amendment 2026, exactly what changed, why it matters, who benefits, and what compliance guardrails are in place.

What Was the Old Rule? 

Under Schedule III of the FEMA (Non-Debt Instruments) Rules, 2019, only two categories of individuals could invest in listed Indian securities on a repatriation basis through PIS:

• NRIs — Indian citizens living outside India
• OCIs — Foreign nationals of Indian origin holding an OCI card

Anyone outside these two categories say, a Japanese national, an American with no Indian roots, or a German investor had no direct access to PIS. Their only legal alternatives were:

• Registering as a Foreign Portfolio Investor (FPI): An institutional-level process requiring SEBI registration, custodian arrangements, and significant compliance overhead.
• Investing through FDI: Which carries permanence and strategic corporate implications very different from portfolio investing.

This created a two-tier system: NRIs/OCIs got a streamlined individual route, while all other foreign individuals faced complex institutional barriers.

What Is the FEMA Third Amendment 2026? 

The FEMA Third Amendment Rules 2026 is a central government notification that amends Schedule III of the existing FEMA Non-Debt Instruments Rules, 2019.

It was notified on June 12, 2026, following:

• Finance Minister Nirmala Sitharaman’s Union Budget FY2026-27 announcement permitting all Persons Resident Outside India (PROI) to invest in listed equities via PIS.
• A June 5, 2026 announcement by the Department of Economic Affairs (DEA) confirming the notification was forthcoming.
• Corresponding RBI amendments to the FEMA Mode of Payment and Reporting Regulations to operationalize the new framework.

Together, these changes constitute the most significant opening of India’s retail-level equity investment route to foreign individuals since the PIS was established.

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The Single Biggest Change: “NRI or OCI” → “Any Individual Outside India

The amendment makes one surgical but sweeping change to Schedule III language:

• Old text: Investment permitted by “NRI or OCI”
• New text: Investment permitted by “individual person resident outside India, including an NRI or an OCI”

This is the core identity of the FEMA Third Amendment 2026.  The new term — “individual person resident outside India” (PROI) — covers any human being who resides outside India, regardless of:

• Nationality
• Origin or ethnicity
• Whether they have any connection to India at all

A British citizen in London, a Brazilian investor in São Paulo, a South Korean professional in Seoul all can now invest in Indian listed stocks through the same PIS route that was previously exclusive to NRIs and OCIs.

What Can Foreign Individuals Now Invest In? 

The investment is specifically on a repatriation basis meaning both the principal invested and the capital gains can be legally taken outside India.

Investment Limits You Must Know

The amendment does not give foreign individuals unlimited access. Clear portfolio-style caps apply:

• Individual Cap:- A single investor can hold less than 10% of the paid-up equity capital of any listed Indian company (on a fully diluted basis). The same 10% threshold applies to debentures, preference shares, and share warrants.
• Aggregate Cap:- The combined holdings of all Schedule III individual foreign investors in a single company cannot exceed 24% of total paid-up equity capital (fully diluted basis).

What Happens If You Cross the 10% Limit? 

This is critically important under the FEMA Third Amendment 2026 guidelines. If your holding breaches the 10% individual threshold (for example, due to market orders or a corporate action like a buyback by other shareholders), you have two options:

• Option 1 — Divest the Excess: Reduce your holding below 10% within exactly 5 trading days from the settlement date of the transaction that triggered the breach.
• Option 2 — Reclassify as FDI: If you don’t divest in time, your entire investment in that company gets reclassified as Foreign Direct Investment (FDI).

Consequences of FDI Reclassification:

1. You can no longer make portfolio investments in that company under Schedule III.
2. You must formally notify your designated Authorized Dealer (AD) bank, the depositories (NSDL/CDSL), and the concerned company within 7 trading days.

National Security Safeguards Still Apply

The liberalization does not mean India has opened its doors without checks. Prior government approval remains mandatory in two scenarios:

1. The investment results in transfer of ownership or control of a listed Indian company to entities or citizens of a country that shares a land border with India (e.g., China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar).
2. The ultimate beneficial owner of the investment is a citizen of such a country.

To enforce this, the 2026 rules align upstream ownership screening with the Prevention of Money Laundering Act, 2002 (PMLA) definitions. Even if multiple unrelated foreign individuals from border-sensitive regions buy small 3% stakes, the system will aggregate them to track macro-level control attempts.

Transfer of Equity: New Rules 

The amendment also liberalizes transfer rights. An individual resident outside India holding equity instruments of an Indian company may now transfer those holdings through sale or gift to another person resident outside India.

However, government approval is still required if:

• The company operates in a sector requiring prior government approval for foreign investment, OR
• The transfer results in ownership/control shifting to entities from land-border countries.

Payment & Repatriation: How Money Flows 

The RBI has aligned its payment and reporting regulations alongside the amendment. Here’s how eligible investors can fund and repatriate:

• Funding Investments: Capital must move via direct inward remittances from abroad through normal banking channels or via funds drawn from existing repatriable deposit accounts maintained under FEMA (such as NRE or FCNR accounts). Investors must designate a repatriable rupee account exclusively for Schedule III investments.
• Getting Money Out: Net sale proceeds (after tax clearance) may be remitted outside India or credited back to the investor’s repatriable rupee account.

Tax Warning : Portfolio investments under Schedule III are fully subject to Indian Capital Gains Tax laws. Short-Term Capital Gains (STCG) at 20% or Long-Term Capital Gains (LTCG) at 12.5% will be directly deducted as TDS (Tax Deducted at Source) by your equity broker before the funds are cleared for repatriation.

New Reporting Requirement: Form LEC (IFI) 

To support the expanded investor base under the FEMA Third Amendment rules 2026, the RBI has introduced a brand new reporting format: Form LEC (Individual Foreign Investor – IFI). 

• Who files it: AD Category-I banks (your designated bank).
• What it covers: All purchases and transfers of equity instruments by individual foreign investors under Schedule III.
• The Deadline: Your bank is legally mandated to report these transactions to the RBI central registry within 3 to 5 trading days of transaction execution.

As an investor, your bank handles this filing but you must ensure your designated AD bank is fully aware of your Schedule III investment status to avoid compliance delays.

Why Did India Do This? 

Several macro factors drove this reform:

1. Capital Market Deepening: Allowing global individuals not just institutions to participate directly increases liquidity and retail market depth.
2. Simplification of Entry: The FPI route requires institutional-level setup. Extending PIS to all foreign individuals removes a significant friction point for smaller global investors.
3. Confidence Signal: The amendment shows absolute trust in India’s robust digital trading architecture and regulatory framework to welcome retail capital globally without compromising safety.

What This Means for NRIs Specifically 

NRIs are not replaced or disadvantaged by this change. In fact:

• NRIs and OCIs continue to have full access to Schedule III — they are explicitly included in the new definition.
• NRIs retain their exclusive NRE/NRO/FCNR bank account privileges for funding transactions.
• NRIs retain the ability to use NRO accounts for NPS subscriptions, which other foreign individuals cannot do.

The key shift is that NRIs are no longer the exclusive beneficiaries of the PIS route. They now share that route with all other individuals outside India.

For NRI investors: Monitor the 24% aggregate cap in companies you invest in. As more foreign individuals enter via PIS, aggregate utilization may rise, potentially triggering buying restrictions in popular, high-demand stocks.

Not sure how this affects your portfolio? Talk to a FEMA-compliant investment advisor who specializes in NRI and cross-border investments.

Action Checklist for Investors 

For NRIs/OCIs (Existing PIS Investors)

• No immediate action required your existing PIS account remains valid.
• Monitor aggregate foreign investment levels (24% cap) in your portfolio companies.
• Review any specific stock holdings approaching the 10% individual paid-up capital mark.

For Foreign Individuals (New to Indian Markets)

• Open an account with a SEBI-registered broker that supports the new PROI category under Schedule III.
• Designate a repatriable rupee account with an AD Category-I bank in India.
• Obtain a PAN (Permanent Account Number)  this remains mandatory for Indian market transactions.
• Confirm your country of residence is not subject to additional approval requirements (land-border countries).
• Consult a FEMA-compliant advisor or CA familiar with cross-border investment regulations before making large transfers.

Conclusion 

The FEMA Non-Debt Instruments (Third Amendment) Rules, 2026 is one of the most significant structural changes to India’s foreign investment framework in recent years. By replacing “NRI or OCI” with “individual person resident outside India,” the government has officially ended the NRI-only monopoly on the PIS route.

For NRIs, this is an expansion of the ecosystem you already operate in, prompting closer tracking of collective pool caps. For foreign individuals worldwide, it’s a historic first-ever direct entry point into one of the world’s fastest-growing capital markets.