New Delhi | The decision to allow overseas companies with Chinese shareholding of up to 10 per cent to invest in India under the automatic route has come into effect from May 1, as the Finance Ministry has notified the changes under FEMA.
In March, the Union Cabinet approved amendments in the press note (PN) 3 of 2020 of the DPIIT.
As per the amendments, foreign companies having a Chinese/Hong Kong shareholding of up to 10 per cent will be eligible to invest in India in sectors where FDI is permitted under the automatic route, subject to sectoral conditions.
However, these relaxed FDI rules will not apply to entities registered in China or Hong Kong or other countries sharing land borders with India.
Earlier, foreign firms with shareholders from these land border nations owning even a single share had to seek mandatory approval to invest in India in any sector. Countries that share a land border with India are China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, and Afghanistan.
Now, these restrictions will apply only to beneficial owners.
After the Cabinet approval, the Department for Promotion of Industry and Internal Trade (DPIIT) notified it in March through a press note 2 (2026 series). The DPIIT issues FDI notifications through press notes.
According to a notification of the Department of Economic Affairs (DEA), the expression "beneficial owner" shall have the same meaning as assigned to it in clause (fa) of sub- section (1) of section 2 of the Prevention of Money-laundering Act, 2002 (15 of 2003), and shall be determined as per the criteria specified under a provision of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005.
As per a PMLA rule, controlling ownership interest means ownership of or entitlement to more than ten per cent of shares or capital or profits of the company.
The DEA's notification subject is "amendment to the Foreign Exchange Managemengt (Non debt Instruments) Rules 2019 consequent to DPIIT Press Note No 2 (2026 Series)".
In order to curb opportunistic takeovers/acquisitions of Indian companies due to the COVID-19 pandemic, the government had amended the FDI policy through Press Note 3 (2020) on April 17, 2020.
The notification also said that a multilateral bank or fund, of which India is a member, will not be treated as an entity of a particular country, nor shall any country be treated as the beneficial owner of the investments of such bank or fund in India.
However, the investments into India from an investor entity having any direct or indirect ownership by a citizen or an entity of a country sharing land border with India; and not requiring prior government approval under the provisions of this provision, will be subject to reporting requirements specified by the Reserve Bank, it added.
China stands at the 23rd position with only 0.32 per cent share (USD 2.51 billion) in the total FDI equity inflow reported in India from April 2000 to December 2025.
The Finance Ministry also notified 100 per cent foreign direct investment (FDI) in the insurance sector under the automatic route.
While 100 per cent foreign investment will be allowed in insurance companies and intermediaries, including brokers, under the automatic route, the cap is 20 per cent for Life Insurance Corporation (LIC), said the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2026.
