Refining the Framework for Investments from Land Bordering Countries: Key Changes under the 2026 Amendment

(Xerxes Antia and Agrima Choudhary)

Background

On March 10, 2026, following approval by the Union Cabinet, the Government of India, through a press release issued by the Press Information Bureau (“Press Release”), proposed certain changes to the Indian exchange control regulations restricting investments from countries sharing land borders with India originally introduced in 2020 under Press Note 3 (2020 Series) (“PN3”). The Press Release was followed by the issuance of Press Note 2 (2026 Series) by the Department for Promotion of Industry and Internal Trade, Government of India ("PN2”) which formally amended the Consolidated FDI Policy, 2020 but stipulated that the changes would only take effect from the date of notification under Indian foreign exchange control regulations.

Subsequently, on May 01, 2026, the Ministry of Finance notified the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2026 (“Amendment Rules”), that introduced amendments to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“NDI Rules”). The Amendment Rules are broadly consistent with PN2, however, these also contain certain additional clarifications.

This update builds on our earlier update which analysed the Press Release (available at https://www.btgadvaya.com/post/easing-of-fdi-restrictions-for-investments-from-land-bordering-countries). 

What Has Changed

• The concept of ‘beneficial owner’ has now been formally linked to the definition under the Prevention of Money Laundering Act, 2002 and the rules framed thereunder. Instead of relying on a subjective or market driven standard, the NDI Rules now adopt clear objective thresholds of what would be ‘beneficial ownership’ and aligns foreign investment regulations with anti-money laundering standards.

• The Amendment Rules further adds a detailed explanation on when ‘beneficial ownership’ is deemed to be situated in a bordering country and identifies three tests in this regard, namely where a person or entity from such country has the ability to (i) hold rights or entitlements above prescribed thresholds; (ii) exercise control over the investor entity, or (iii) exercise ultimate effective control over the investee entity.  

• At the same time, the Amendment Rules introduce an additional reporting obligation for foreign investments involving ownership links to land border countries but which do not meet the threshold for seeking prior government approval. The reporting obligation would be as prescribed by the Reserve Bank of India. 

Key Takeaways

• The Amendment Rules does not change the core policy requiring government approval for investments linked to border countries. It however provides much needed clarity on ‘beneficial ownership’ aligning it with anti-money laundering standards.

• Even where approval is not triggered, reporting obligations may apply, increasing compliance oversight.