Key takeaways
- Up to 10% non-controlling land-border beneficial ownership: automatic route, where the sector allows.
- Above 10% or any control: government approval still needed.
- Map the investor's ownership to individuals and keep the evidence for the bank.
Quick answer: if the land-border-country beneficial ownership in the investor is 10% or less and non-controlling, the investment can go through the automatic route where the sector allows it, with extra reporting. More than 10%, or any control, still needs government approval.
What changed
| Press Note 3 (2020) | Press Note 2 (2026) | |
|---|---|---|
| Who is caught | Investor, or beneficial owner of the investment, in a land-border country | Same countries; beneficial ownership measured against a 10% threshold |
| Small, passive LBC ownership | Government approval needed, however small | Automatic route for non-controlling beneficial ownership up to 10%, subject to sector rules |
| Above 10% or control | Government approval | Government approval (still) |
| Reporting | Through the approval process | Investments with any LBC ownership are reported even when no approval is needed |
The Press Note was issued on 15 March 2026; commentators report the matching FEMA (Non-Debt Instruments) Rules amendment as effective from 1 May 2026. Some reports also mention a 60-day fast-track for approvals in certain manufacturing sectors. Check the current DPIIT and FEMA text for your case.
The land-border countries are China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan. Investors from Pakistan and Bangladesh face separate restrictions as well.
Who this affects in practice
- Global and Asian funds with Chinese or Hong Kong-based limited partners.
- Singapore, Hong Kong or Cayman holding companies whose shareholders trace back to China.
- Foreign JV partners and acquirers with a Chinese strategic shareholder somewhere up the chain.
- Indian startups raising from funds with any LBC money in them.
How to apply the 10% test
- Map the ownership chain of the investor up to the individuals, including funds’ LPs where relevant.
- Measure beneficial ownership held by LBC citizens or entities, using the beneficial-owner thresholds of the anti-money-laundering (PML) rules that the Press Note follows.
- Check control: board seats, vetoes, affirmative votes or management rights for the LBC holder take the case out of the automatic route even below 10%.
- Check the sector: the automatic route is only available where the sector allows it, within the cap.
- Document it: the Indian company’s bank will ask for beneficial-ownership declarations when the investment is reported (FC-GPR or FC-TRS). Keep the ownership chart and evidence on file.
If you get it wrong
- Taking LBC-linked money without a needed approval is a FEMA contravention. It can mean unwinding the investment, or compounding with RBI and a penalty. See FEMA compounding.
- Later investors and acquirers will check this in diligence. A gap can delay or reprice a deal.
Related: acquiring a company in India, joint ventures in India, India FDI updates 2026.
Sources
- Saraf Partners: DPIIT issues Press Note No. 2 (2026 Series)
- INAAC Advisors: FDI Press Note 2 (2026), investors with land-border ownership
- Sansa Legal: Press Note 2 (2026), beneficial ownership tests
- PwC India: DPIIT amends FDI policy on investments from land-border countries
Frequently asked questions
What is Press Note 2 of 2026?
A DPIIT amendment, issued on 15 March 2026, to the 2020 rule on investment from countries sharing a land border with India. Investors whose land-border-country beneficial ownership is non-controlling and up to 10% can use the automatic route where the sector allows it; larger or controlling stakes still need government approval.
Can a fund with Chinese investors invest in India without approval?
Under Press Note 2 (2026), yes if the Chinese or other land-border beneficial ownership in the investor is 10% or less and carries no control, and the sector is under the automatic route. The investment must still be reported, and the ownership chain documented.
Which countries are covered by India's land-border FDI rule?
China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan.
What happens if an Indian company takes land-border money without approval?
It is a FEMA contravention. The company may have to unwind the investment or apply to RBI for compounding with a penalty, and the gap will surface in later due diligence.
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.