New FEMA Non-Debt Investment Rules 2026 Explained for NRIs & OCIs

India has introduced significant changes to its foreign investment framework through the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026 and the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment) Regulations, 2026, notified by the Government of India and the Reserve Bank of India (RBI).

These amendments revise the eligibility criteria for foreign investments under the FEMA Non-Debt Instruments Rules by expanding participation beyond Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) to a broader category of persons resident outside India, subject to prescribed conditions. The updated framework also introduces changes to payment mechanisms, repatriation, and reporting requirements to support the revised investment regime.

What Are FEMA Non-Debt Investment Rules?

The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019  commonly shortened to the FEMA Non-Debt Instruments Rules, or NDI Rules govern how individuals and entities resident outside India can invest in Indian equity, equity-linked instruments, and other “non-debt” instruments such as units of mutual funds, investment vehicles, and convertible securities. Debt instruments like government bonds and corporate debt are governed separately under FEMA’s debt instrument framework, which is why this set of rules is called “non-debt.”

Schedule III of the NDI Rules is the specific section that has historically dealt with purchases of shares and convertible debentures of Indian listed companies by NRIs and OCIs on a repatriation and non-repatriation basis, through a designated branch of an authorised dealer bank. This is the schedule that has just been substantially rewritten.

Before this amendment, Schedule III was one of the more NRI-friendly parts of India’s foreign investment law, because it treated NRI and OCI investors as a distinct, relatively favourable category compared to general foreign investors, who typically have to route through the FPI or FDI routes with heavier disclosure and approval requirements. The 2026 amendment doesn’t remove that favourable treatment for NRIs and OCIs it extends a version of it to a wider pool of individual investors while tightening the guardrails around ownership transparency and aggregate market exposure. 

Why Did the Government Amend the Rules?

India introduced these amendments to make its financial markets more accessible to foreign investors while maintaining strong regulatory oversight. By expanding the pool of eligible investors, the government aims to attract more global investment and strengthen India’s capital markets.

At the same time, the updated rules require better disclosure and reporting of investments to improve transparency and comply with anti-money laundering (PMLA) standards. In simple terms, the government is allowing more foreign investors to participate while ensuring regulators can effectively monitor ownership and investment activities.

What Has Changed Under the FEMA Non-Debt Framework

Previous Rules vs New FEMA Non-Debt Rules (2026) Comparison

1. The definition of “eligible investor” has been widened

The single biggest change in the FEMA (Non-Debt Instruments) Third Amendment Rules, 2026 is in Rule 9. The earlier wording “a Non-Resident Indian (NRI) or an Overseas Citizen of India (OCI)” — has been replaced with “an individual” resident outside India. In practice, this means the investment route that used to be exclusive to NRIs and OCIs under Schedule III is now open to a much broader category: any individual person resident outside India, subject to the usual safeguards. This is a structural shift in India’s foreign investment regime, not a minor wording tweak, and it’s the reason this amendment has been widely covered as opening India’s capital markets to a wider pool of overseas retail investors.

2. Schedule III now sets explicit investment caps

The revised Schedule III introduces detailed, codified conditions for the purchase and sale of equity instruments by individuals resident outside India. It sets an individual investor holding limit of less than 10% of the paid-up capital of a listed Indian company, along with an overall aggregate cap of 24% across all such investors combined. If these limits are breached, the rules require the excess to be rectified within a prescribed timeframe  failing which, the investment is reclassified as Foreign Direct Investment (FDI), which carries a very different, more restrictive compliance regime.

3. A designated repatriable rupee account is now mandatory for Schedule III investments

Alongside the NDI Rules amendment, the RBI issued the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Fourth Amendment Regulations, 2026 (Notification No. FEMA.395(4)/2026-RB, dated 13 June 2026). Under this, NRIs and OCIs investing under Schedule III on a repatriation basis must now route funds through a designated repatriable rupee account, opened specifically for this purpose under the FEMA Deposit Regulations, 2016 rather than using an ad hoc mix of NRE/NRO transfers as before.

If you’re planning to invest in Indian stocks, read our complete guide on opening an NRI Demat Account in India. 

4. NPS payment rules have been relaxed

In a rare simplification, the amended payment regulations now explicitly permit NRO accounts as a payment source for NPS subscriptions by NRIs and OCIs, in addition to inward remittance and repatriable accounts. Sale proceeds from mutual fund units and NPS can be credited to any account permitted under the FEMA Deposit Regulations, 2016, giving investors more flexibility on the exit side even as the entry side has tightened.

5. Beneficial ownership and reporting have been tightened

The amended rules align the definition of “beneficial owner” with the Prevention of Money Laundering Act, 2002, closing gaps that previously allowed layered ownership structures to obscure the ultimate individual behind an investment. On the reporting side, AD Category I banks are now required to report purchases and transfers of equity instruments by individuals resident outside India on Indian stock exchanges through Form LEC (IFI), improving RBI’s ability to track aggregate foreign holding levels in real time.

Importantly, the government has retained  and in some areas strengthened  safeguards relating to ownership transfers and investments involving entities or individuals connected to countries sharing a land border with India, which continue to require prior government approval regardless of the broader eligibility changes.

Who Can Invest Under the New Rules?

NRIs

Non-Resident Indians retain full access to Schedule III investment routes and, in most respects, see the least disruption  the changes mainly affect the account structure they must use and the caps that now apply explicitly to their holdings.

OCI Cardholders

OCI holders continue to be treated on par with NRIs for Schedule III investment purposes. Where OCI-specific processes previously differed slightly from NRI ones (for instance around documentation), the amendment’s shift to the single term “individual resident outside India” removes much of that earlier distinction.

Other Persons Resident Outside India

This is the newly created category. Foreign nationals who are not of Indian origin, and who were previously excluded from this specific investment route, can now invest in Indian listed securities under the same Schedule III framework, subject to the same caps, account requirements, and land-border safeguards that apply to NRIs and OCIs.

Foreign Investors (Institutional)

Foreign Portfolio Investors (FPIs) and Foreign Institutional Investors continue to operate under their own separate regulatory tracks (SEBI FPI Regulations and related NDI schedules) and are not directly affected by this individual-investor-focused amendment, though the broader NDI Rules amendment does touch related definitions that institutional investors’ compliance teams should still review.

Investments Covered Under FEMA Non-Debt Rules

Key Changes for NRIs & OCIs

• Investment eligibility: No loss of rights NRIs and OCIs remain fully eligible, now formally grouped under the broader “individual resident outside India” category alongside other overseas investors.
• Repatriation: Repatriation continues to be permitted under Schedule III, but must now flow through the newly mandated designated repatriable rupee account rather than a general NRE account used informally for this purpose.
• Compliance: Beneficial ownership disclosures are now explicitly aligned with PMLA standards, meaning layered holding structures will face more scrutiny than before.
• RBI reporting: Authorised dealer banks now report equity purchases/transfers by individuals resident outside India via Form LEC (IFI), giving RBI clearer real-time visibility into aggregate foreign individual holdings.
• Account requirements: A dedicated designated repatriable rupee account, opened under the FEMA Deposit Regulations 2016, is now required specifically for Schedule III repatriation-basis investments, a new operational step for many existing investors.

Investment Limits Under FEMA

These investment limits under FEMA are not new in concept — similar caps existed before — but the 2026 amendment codifies them more explicitly within Schedule III and ties the consequence of breach directly to FDI reclassification, which is a meaningfully stricter compliance trigger than under the earlier framework.

Benefits of the New FEMA Non-Debt Investment Rules 2026

• Easier investment: A single, harmonised “individual resident outside India” category replaces multiple overlapping definitions, reducing ambiguity about who qualifies.
• Better flexibility: Broader payment-source options for NPS, and clearer rules for crediting mutual fund and NPS sale proceeds, give investors more practical flexibility on the exit side.
• Simplified compliance: A single designated account for Schedule III repatriation investments replaces the previously fragmented approach many NRIs used across NRE/NRO accounts.
• More investment options: The expanded eligible-investor category signals continued opening of India’s capital markets, which historically has preceded further liberalisation in adjacent investment routes.

Does This Affect Existing NRI Investments?

For most NRIs and OCIs, existing holdings acquired before 12 June 2026 are not automatically unwound or reclassified by this amendment  the rules primarily govern the framework for new investments and the account structure through which future repatriation must flow. That said, if your existing repatriation-basis holdings were routed through an account that doesn’t meet the new designated repatriable rupee account requirement, you should expect your authorised dealer bank to ask you to align your account structure going forward, particularly before your next repatriation request. Since implementation details are still being operationalised by individual banks as of mid-2026, it’s worth confirming directly with your bank or a FEMA-qualified advisor how your specific portfolio is being treated.

Compliance Requirements

• PAN: A valid PAN remains mandatory for any Schedule III investment, whether under Form 93 (NRIs) or Form 95 (OCIs, PIOs, and foreign citizens) of the Income-tax Rules, 2026. Don’t have one yet? Here’s how to apply for a PAN card as an NRI. 
• KYC: Full KYC with your authorised dealer bank and broker/depository participant is required before the designated repatriable rupee account can be opened or linked to a demat account.
• Bank account: A designated repatriable rupee account is now required for repatriation-basis Schedule III investments; non-repatriation investments continue to route through an NRO account.
• Reporting: Your AD Category I bank handles Form LEC (IFI) reporting to RBI on your behalf for equity purchases and transfers, but you remain responsible for ensuring your account and holding data with the bank is accurate and current.
• FEMA compliance: Minor technical breaches now fall under the Decriminalisation of Minor Offences framework, with civil penalties capped at Rs 2 lakh per contravention; larger violations, such as holding non-permitted assets without approval, attract penalties calculated against the transaction value.

One practical point worth flagging: FEMA contraventions are handled by the Enforcement Directorate, not the Income Tax Department, so a compliance slip here doesn’t automatically show up during ITR filingit surfaces separately, often when a bank flags a mismatch during a repatriation request or an audit of AD Category I reporting. That’s part of why getting the account structure right at the time of investment matters more under the new rules than it did before, when enforcement of the account-routing requirement was less codified.

Conclusion

The FEMA non-debt investment rules 2026 mark one of the more significant structural updates to India’s overseas individual investment framework in recent years. In short: the government has widened who can invest under Schedule III beyond NRIs and OCIs, introduced explicit individual and aggregate investment caps, mandated a designated repatriable rupee account for repatriation-basis investments, and tightened beneficial-ownership and reporting standards. For NRIs and OCIs already investing in India, your eligibility hasn’t changed — but your account structure, and the paperwork behind your next investment or repatriation, likely has. The practical next step is simple: check with your authorised dealer bank on whether your current account setup meets the new designated repatriable rupee account requirement before you make your next Schedule III investment or repatriation request.

Have questions about how the new FEMA non-debt investment rules 2026 affect your specific portfolio? Get in touch with our NRI tax and compliance team for a personalised review.