Key takeaways
- Draft released 21 July 2026; comments closed 31 August; not yet notified as of 24 October.
- Would replace the NDI Rules 2019 — which still apply to every deal today.
- Key changes: 10% FDI line for listed and unlisted, 'foreign controlled entity', one pricing standard, investor-side compliance, easier gifts and pledges.
Status at 24 October 2026
- Draft only. The Foreign Exchange Management (Foreign Investment) Rules, 2026 were released for comments on 21 July 2026 (RBI press release 2026-2027/726), with a deadline of 31 August 2026.
- When notified in the Gazette by the Ministry of Finance, they would replace the FEM (Non-debt Instruments) Rules, 2019. We have not seen a final notification as of 24 October 2026.
- Until then, the NDI Rules 2019 apply — including today’s pricing, reporting and deferred-consideration rules. Structure current deals on the existing rules, and build in flexibility for the change.
Key proposed changes
| Topic | NDI Rules 2019 (in force) | Draft FI Rules 2026 |
|---|---|---|
| Who can receive foreign investment | Separate categories (Indian company, LLP, investment vehicles…) | One term — “eligible investee entity” — covering companies, LLPs, SEBI-registered investment vehicles, and registered partnership firms and proprietary concerns |
| What counts as equity | Equity shares, and fully, compulsorily and mandatorily convertible debentures and preference shares, and share warrants | Instruments classified as equity under accounting standards; mandatorily convertible instruments with a fixed conversion ratio and price qualify |
| FDI vs portfolio investment | Any investment in an unlisted company is FDI; in a listed company, 10% or more | 10% or more = FDI; below 10% = portfolio investment — listed or unlisted |
| Foreign-controlled companies | “Foreign owned and/or controlled company” (FOCC) tests | “Foreign controlled entity” — ownership and control follow the sectoral regulator’s rules or the entity’s governing law |
| Pricing | Different rules for issues and transfers; some transfers exempt | One arm’s-length standard for issues and transfers (certified by a Chartered Accountant, SEBI-registered merchant banker or cost accountant); SEBI rules for listed companies; rights issues exempt |
| Who is responsible | Mainly the Indian investee company | Also the foreign investor — and, on transfers, both transferor and transferee |
| Gifts of shares | 5% cap, USD 50,000 a year, prior RBI approval | Caps and approval removed; gifts between individuals must be to close relatives; repatriation-basis gifts within LRS limits |
| Pledge of shares | Limited by who can pledge, to whom and why | Non-residents and foreign-controlled entities can pledge equity without those limits |
| Listing abroad | Separate framework | Direct listing on international exchanges codified in the Rules (Annexure I) |
The FDI policy itself would sit in an annexure, with DPIIT interpreting it and RBI administering the rules and issuing operational directions.
What the draft leaves open
Commentators have flagged points the draft does not address, including:
- Deal mechanics: deferred consideration, escrow and indemnity holdbacks.
- Convertible notes for startups and how convertible instruments are valued.
- Anti-dilution and assured-return features common in PE and VC deals, under a fair-value pricing standard.
- Immovable property acquisition by non-residents, which the NDI Rules cover.
What it means for foreign investors now
- In due diligence, keep checking past compliance against the NDI Rules — FC-GPR and FC-TRS filings, pricing certificates and sectoral caps. Gaps found now are cleaned up under today’s rules. See FC-GPR and FC-TRS.
- In documents, add a change-in-law clause for deals that will close or have later tranches after the new rules are notified — especially if they use deferred consideration, escrows or convertible instruments.
- Investors under 10% in unlisted companies would be treated as portfolio investors under the draft — check what that means for your reporting.
- Responsibility shifts to investors too — keep your own record of each investment’s compliance.
All 2026 changes in one place: India FDI & FEMA updates 2026. Help with filings: FEMA & RBI compliance.
Sources
- Cyril Amarchand Mangaldas blog — Draft FI Rules 2026: hits and misses
- CorpLawUpdates — RBI releases draft FEMA (Foreign Investment) Rules, 2026
- Reserve Bank of India — press releases
Frequently asked questions
What are the draft FEMA (Foreign Investment) Rules 2026?
A draft released by the RBI on 21 July 2026 for public comment (to 31 August 2026) that would replace the FEM (Non-debt Instruments) Rules, 2019 governing foreign investment in Indian companies, LLPs and investment vehicles.
Are the FEMA Foreign Investment Rules 2026 in force?
Not as of 24 October 2026 — they are a draft. The NDI Rules 2019 continue to apply until the new rules are notified in the Gazette.
How would the draft rules define FDI?
Foreign investment of 10% or more in the equity of a company or LLP would be FDI, and below 10% portfolio investment — whether the company is listed or unlisted.
Do the draft rules change gifts of Indian shares to non-residents?
Yes. The draft drops the 5% cap, the USD 50,000 annual limit and prior RBI approval; gifts between individuals would be limited to close relatives, and repatriation-basis gifts to LRS limits.
Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.