Foreign Exchange Management (Non-debt Instruments) Rules, 2019

What it does

The rules, notified as S.O. 3732(E), govern the issue and transfer of non-debt instruments, chiefly equity shares, between a person resident in India and a person resident outside India. They were made by the Central Government under the Foreign Exchange Management Act, 1999, and they replaced the earlier regulation of the Reserve Bank of India on the same subject, so that the rules on equity investment now come from the Government and the rules on debt instruments are separate.

The rules open the Indian economy to non-resident investment on two routes. Under the automatic route no prior approval is needed. Under the government route the investment needs prior approval. Which route applies depends on the sector, and sectoral caps limit the share a non-resident may hold in some sectors. The rules also lay down the entry conditions, the pricing guidelines for an issue or a transfer, the time within which money must be received and shares issued, and the reporting to the Reserve Bank.

The rules are arranged by type of investor. There are separate provisions for foreign direct investment, for foreign portfolio investment and for investment by non-resident Indians and Overseas Citizens of India, with the conditions on repatriation of the proceeds varying by category.

Who it binds

An Indian company that issues shares to a non-resident, the non-resident who subscribes or buys, and the resident who sells shares to a non-resident or buys from one. An authorised dealer bank that handles the money and the reporting is also within them. A business incorporated outside India with a stake in an Indian entity, and an Indian living abroad who invests at home, are among the persons who deal with these rules most often.

What has changed, and when

The rules have been amended repeatedly since 2019, as the Government has revised sector caps and conditions. An amendment of April 2020 to rule 6 required prior government approval for investment from countries that share a land border with India, a change that moved many transactions from the automatic route to the government route. Those provisos were amended again in 2026, so the current text of rule 6 is read, not the 2020 version alone. The rules are read as amended at the date of the transaction, and a transaction closed years ago is judged under the text then in force.

What turns on it in practice

Every acquisition of or investment in an Indian company by a non-resident starts with the question of route. If the sector is under the government route, or the investor falls within the land border condition as it now stands, approval is a condition of closing, and a deal that closes without it is a contravention that has to be compounded afterwards. The firm's transaction advisory work therefore begins with the route and the cap and goes on to the pricing, which must meet the valuation standard in the rules.

The second point is the timing and the reporting. Money must be received and shares issued within the periods the rules and the Reserve Bank's directions fix, and the filings that report the issue are made on time. A late filing is a contravention that is dealt with by the Reserve Bank on application and payment, and it is a point checked in diligence on an Indian company with foreign shareholders.

The third is the position of the individual. The site's note on inheriting property in India from abroad names the rules because an heir living outside India who receives shares is treated as a non-resident holder, and the sale of those shares and the sending abroad of the proceeds are subject to the rules and to the separate limits on remittance. The rules are therefore relevant to the businesses incorporated outside India and the Indians outside India whom the firm advises.