India has expanded Schedule III of the FEMA Non-Debt Instruments Rules, replacing “NRI or OCI” with the broader category “individual resident outside India, including an NRI or an OCI.” This lets any eligible foreign individual buy and sell Listed Indian Equity on a repatriation basis. Ownership caps stay at under 10% per investor and 24% in aggregate, government approval is still required for investments tied to land-bordering countries, and banks must now report transactions via a new Form LEC (Individual Foreign Investor – IFI).
Why This Amendment Matters
The FEMA Third Amendment Rules, 2026 represent one of India’s most significant capital market liberalization measures in recent years. By expanding eligibility beyond NRIs and OCIs, India has effectively opened a new gateway for global retail and high-net-worth investors to participate directly in the country’s listed equity markets.
The amendment is expected to:
- Increase foreign participation in Indian capital markets.
- Improve liquidity in listed securities.
- Expand India’s global investor base.
- Enhance market depth and efficiency.
- Align India’s investment framework with international market practices.
At the same time, the government has retained existing safeguards relating to national security, foreign ownership thresholds, and investments originating from countries sharing a land border with India.
India has introduced a major shift in its foreign investment framework through the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026, paired with the RBI’s updated Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment) Regulations, 2026.
Together, they widen who can invest in India’s listed securities market – moving from a regime built mainly around Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) to one that welcomes a much broader category of foreign individual investors, while keeping national security checks firmly in place.
The reforms aim to attract greater global capital while maintaining regulatory safeguards and national security protections.
What Changed Under the FEMA Non-Debt Framework?
Previously, Schedule III primarily allowed NRIs and OCIs to invest in listed Indian securities on a repatriation basis. The amendment replaces that with the broader term “individual person resident outside India, including an NRI or an OCI.”
In practice: any eligible foreign individual, anywhere in the world, can now use the investment route that used to be reserved for NRIs and OCIs. Also such Foreign Individuals need not even obtain FPI registration to invest in the Indian Security market which was a mandatory requirement earlier.
What Foreign Individuals Can Now Do
Under the revised Schedule III, an individual resident outside India may:
- Purchase equity instruments of listed Indian companies;
- Sell equity instruments of listed Indian companies;
- Invest through recognized Indian stock exchanges;
- Invest on a repatriation basis, moving proceeds outside India subject to FEMA requirements.
Want to understand more about these regulations? Contact us.
Practical Example
Consider a resident of the United States who is neither an NRI nor an OCI. Prior to the amendment, such an individual could not access the Schedule III investment route available to NRIs and OCIs. Following the 2026 amendment, the same investor can purchase and sell shares of listed Indian companies through recognized stock exchanges, subject to the applicable ownership limits and FEMA compliance requirements.
Government Approval Still Required for Sensitive Investments
Liberalized access doesn’t mean fewer checks. Prior central government approval remains mandatory where an investment:
- Transfers ownership or control of a listed Indian company to entities or citizens of a country sharing a land border with India, or
- Involves a beneficial owner who is a citizen of such a country.
This mirrors India’s existing screening framework for land-border-country investments.
Transfer of Equity Instruments: What’s Allowed
An individual resident outside India holding equity instruments or units may transfer them -by sale or gift – to another person resident outside India. Approval is still required if:
- The company operates in a sector where foreign investment needs prior government clearance, or
- The transfer shifts ownership/control to an entity or citizen of a land-bordering country.
Investment Limits: Per-Investor and Aggregate Caps
Ownership Limits Under Schedule III
| Limit Type |
Threshold |
Applies To |
| Individual cap |
Under 10% of paid-up equity capital (fully diluted) |
Equity, debentures, preference shares, share warrants |
| Aggregate cap |
24% of total paid-up equity capital (fully diluted) |
Combined Schedule III holdings, all eligible investors |
| Aggregate cap (instruments) |
24% of paid-up value per series |
Debentures, preference shares, share warrants |
These caps preserve the line between portfolio investment and FDI.
Crossing the 10% Threshold: Two Options
If an investor’s holding exceeds 10%:
Option 1 – Divest: Reduce the holding below 10% within five trading days of the settlement date of the breaching transaction.
Option 2 – Reclassify as FDI: If not divested in time, the entire investment converts to FDI. The investor loses eligibility for further Schedule III investments in that company, and the AD bank, depositories, and the company must be notified.
Example: When an Investment Becomes FDI
Suppose a foreign individual acquires additional shares in a listed Indian company, increasing their total holding from 9.8% to 11%. Under the revised rules, the investor has five trading days from the settlement date to reduce the holding below the 10% threshold.
If the investor does not divest within this period, the entire investment in that company will be reclassified as Foreign Direct Investment (FDI), and the investor will no longer be permitted to make further investments in that company under the Schedule III portfolio investment route.
A temporary breach during this correction window is not treated as a FEMA contravention.
Clarity Across Investment Routes
Holdings under Schedule II, Schedule III, or any other route must collectively stay below the prescribed portfolio limits – cross 10% under any combination, and FDI classification rules apply. The amendment also aligns the definition of “investor group” with SEBI’s FPI regulations, closing a gap that could otherwise create inconsistent treatment for the same investor.
Need help navigating these investment thresholds? Book a Consultation
How Investors Fund and Repatriate Their Investments
Eligible individuals can fund investments via:
- Inward remittances through normal banking channels, or
- Funds in a repatriable deposit account maintained under FEMA deposit regulations.
A dedicated repatriable rupee account must be maintained exclusively for Schedule III investments.
NPS subscribers: NRIs and OCIs investing in the National Pension System can continue using inward remittances, repatriable foreign currency accounts, repatriable rupee accounts, or NRO accounts – unchanged from before.
Sale proceeds: Equity sale proceeds can be remitted abroad or credited to the designated repatriable rupee account. The same logic applies to mutual fund and NPS sale proceeds.
Indian Companies Listed Abroad: Schedule XI Update
For Indian companies listed on international exchanges, foreign investors can now pay via:
- Banking channels into the company’s permitted foreign currency account
- Inward remittances from abroad
- Repatriable foreign currency or rupee accounts
Sale proceeds follow the same path — remitted abroad or credited to an eligible FEMA-compliant account.
New Reporting Requirement for Banks
AD Category-I banks must report purchases and transfers by individual foreign investors using Form LEC (Individual Foreign Investor – IFI), replacing the older NRI/OCI-centric reporting framework and giving the RBI transaction-level visibility across the expanded investor base.
FAQ’s on FEMA Non-Debt Instruments 2026
Q1: Who can now invest under Schedule III after the 2026 amendment?
Any individual resident outside India – not just NRIs and OCIs – can invest in listed Indian equity instruments on a repatriation basis, subject to the existing ownership caps and approval requirements.
Q2: What happens if a foreign individual’s stake exceeds 10% in a listed company?
They have five trading days from the settlement date to divest below 10%. If they don’t, the entire investment is reclassified as FDI and they lose the ability to make further Schedule III investments in that company.
Q3: Is government approval still needed for any of these investments?
Yes – wherever the investment would shift ownership or control to an entity or citizen of a country sharing a land border with India, or where the beneficial owner is a citizen of such a country.
Q4: How do banks report these new categories of investors?
Through a new reporting format, Form LEC (Individual Foreign Investor – IFI), filed by AD Category-I banks for every purchase or transfer by an individual foreign investor.
Q5: Can sale proceeds be repatriated outside India?
Yes. Proceeds from selling equity instruments can either be remitted abroad or credited to the investor’s designated repatriable rupee account.
How SKP Can Help
S.K. Patodia & Associates LLP advises foreign individual investors and Indian listed companies on end-to-end FEMA compliance under the Schedule III investment route. Our support includes:
- Assessing eligibility to invest under Schedule III as an “individual resident outside India.”
- Structuring investments to stay within the 10% individual and 24% aggregate ownership caps.
- Reviewing transactions for government-approval triggers, including land-border-country ownership checks.
- Advising on the five-trading-day divestment window and FDI reclassification consequences.
- Setting up and maintaining repatriable rupee accounts compliant with FEMA deposit regulations.
- Guidance on Form LEC (Individual Foreign Investor – IFI) reporting obligations for AD banks.
- Advisory on repatriation of sale proceeds for equity, mutual fund, and NPS investments.
- Support for Indian companies listed abroad navigating Schedule XI payment and reporting rules.
We hope that the Article has provided you with the required insights into cross-border listed securities investment under FEMA. If you have any queries or wish to review your specific situation, feel free to get in touch with our team.
