On June 5, 2026, the Ministry of Finance issued a press release announcing that India would open its Portfolio Investment Scheme (“PIS”) to a broader class of individual foreign investors. The Department of Economic Affairs gave effect to this by notifying the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026 on June 12, 2026, amending the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“NDI Rules”).
Scope prior to amendment
Before this amendment, Rule 12 of the NDI Rules permitted only non-resident Indians (“NRIs”) and overseas citizens of India (“OCIs”) to purchase or sell equity instruments of a listed Indian company on a repatriation basis. An NRI or OCI could hold no more than 5% (five percent) of the total paid-up equity capital or each series of debentures or preference shares or share warrants of an Indian company on a fully diluted basis, and the aggregate ceiling for all NRIs and OCIs together was 10% (ten percent). An Indian company could raise this ceiling to 24% (twenty-four percent) only by passing a special resolution of its shareholders.
Widened scope of PIS post amendment
The amendment made two key changes.
Firstly, Rule 12 now covers any individual who is a person resident outside India (“PROI”), not merely NRIs and OCIs. Any individual PROI may now purchase or sell equity instruments of a listed Indian company on a repatriation basis, subject to the terms and conditions of Schedule III of the NDI Rules.
Secondly, the individual cap has been raised from 5% (five percent) to less than 10% (ten percent) of paid-up equity capital or each series of debentures or preference shares or share warrants of an Indian company on a fully diluted basis, and the aggregate cap from not exceeding 10% (ten percent) to not exceeding 24% (twenty-four percent), without requiring a special resolution of the Indian company as was needed before. This expansion applies only to the repatriation route under Schedule III; Schedule IV remains available only to NRIs and OCIs.
Consequences of Breaching the Investment Limits
Before this amendment, Rule 13(1)(ii) contained a mandatory-sale obligation: an NRI or OCI who breached the applicable limit was required to sell the excess holding to a person resident in India eligible to hold such instruments, within the time specified by the Reserve Bank of India in consultation with the Central Government.
Now, an individual PROI who breaches the 10% (ten percent) limit now has two options: divest the excess within 5 (five) trading days of the settlement of the trades that caused the breach or decline to divest and the entire investment is treated as foreign direct investment (“FDI”) and the individual may not make further portfolio investment in that company. In either case, the individual must notify the depositories and the company within 7 (seven) trading days of the settlement date.
Schedule III also now requires that an individual PROI’s total holding in a listed Indian company be aggregated across all schedules of the NDI Rules, not just Schedule III. Holdings under Schedule II or any other applicable schedule count towards the 10% (ten percent) cap.
LBC safeguards
The expanded scope of PIS comes with a safeguard with respect to India’s restrictive policy on foreign investment from countries that share a land border with India (“LBCs”).
The amendment requires that an individual PROI must obtain prior government approval before making any investment or transfer that would result in ownership or control of a listed Indian company passing to entities or citizens of an LBC, or where the beneficial owner of the investment is a citizen of an LBC. It is also clarified that prior government approval is required for any transfer where the Indian company is engaged in a sector that requires government approval.
Conclusion
The amendment represents a significant liberalization of India’s PIS framework, widening the investor base, raising applicable limits, and easing the consequences of breaching these limits. These changes were announced alongside an expansion of the fully accessible route for FPI investment in government securities to cover longer-tenor securities and sovereign green bonds, and a tax exemption on FPI income from government securities, collectively aimed at simplifying market access, and encouraging wider participation from global investors in one of the world’s fastest-growing major economies.
Please find attached a copy of the 2026 Amendment Rules here.
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