Press Note 3 Rules for FDI from Land Border Countries (2026)

Written by CA Nandini Hasija, Krystal7 Consultants. Last updated 23 October 2026.

Press Note 3 (2020 Series), issued by DPIIT on 17 Apr 2020, puts FDI from countries sharing a land border with India on the government route. Any entity or citizen of those countries needs approval. The seven countries are China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan. A foreign investor whose beneficial owner is a citizen of one of them also needs approval. Rule 6(a) of the NDI Rules carries the rule. Since 2026, a small non controlling land border stake in a foreign investor stays automatic.

This page covers who the rule catches and how the 2026 beneficial owner test works. It also covers Hong Kong and Singapore holding structures, approval timelines and the filing steps. It states the law as at 23 Oct 2026.

What does Press Note 3 require?

Press Note 3 requires prior government approval for FDI linked to a land border country. Entities incorporated there and citizens of those countries must use the government route. So must a foreign investor whose beneficial owner is such a citizen. The rule applies at any shareholding and in every sector, including sectors open to 100 percent FDI on the automatic route.

DPIIT issued Press Note 3 on 17 Apr 2020. The PIB release of 18 Apr 2020 gave the aim as curbing "opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic".

A press note is policy. It binds investors only once a FEMA rule carries it. The Ministry of Finance added it to the Foreign Exchange Management (Non Debt Instruments) Rules, 2019 (the NDI Rules). It went into rule 6(a) on 22 Apr 2020 through S.O. 1278(E), the Foreign Exchange Management (Non Debt Instruments) Amendment Rules, 2020, which took effect on publication.

Today rule 6(a) of the NDI Rules as hosted by RBI (updated to 2 Sep 2026) has four parts that matter here:

1. An entity or a citizen of a land border country invests only under the government route. The same applies where the beneficial owner is such a citizen, or beneficial ownership is vested in such a country.
2. A citizen or entity of Pakistan invests only under the government route. Pakistani investors cannot invest in defence, space, atomic energy or the prohibited sectors.
3. A transfer of any existing or future FDI, directly or indirectly, that moves beneficial ownership into the first two parts needs prior government approval.
4. An investor entity with any land border ownership that does not need approval must meet the reporting requirements set for it.

The fourth part arrived in 2026. The RBI Master Direction on Foreign Investment in India repeats it in paragraphs 3.2, 3.2.1 and 3.4.

Which countries does Press Note 3 cover?

Press Note 3 covers the seven countries that share a land border with India: Bangladesh, China, Pakistan, Nepal, Myanmar, Bhutan and Afghanistan. Neither the press note nor the NDI Rules prints a list. Rule 6(a) says only "a country, which shares land border with India", so the seven follow from geography.

Country	Route under rule 6(a)	Extra point
Bangladesh	Government route	Rule 31 property limits also apply
China	Government route	We treat Hong Kong and Macau entities as Chinese entities
Pakistan	Government route	No investment in defence, space, atomic energy or prohibited sectors
Nepal	Government route	Rule 31 property limits also apply
Myanmar	Government route	Not on the rule 31 property list
Bhutan	Government route	Rule 31 property limits also apply
Afghanistan	Government route	Rule 31 property limits also apply

Sri Lanka and the Maldives share only a maritime boundary with India, so Press Note 3 does not reach them. Some other FEMA rules use a longer list, covered further down.

Proviso (iv) to rule 6(a) adds one carve out. A multilateral bank or fund of which India is a member is not treated as an entity of any particular country. So a multilateral lender headquartered in Beijing, with India as a member, is not a Chinese entity for this rule.

Who counts as a beneficial owner under Press Note 3?

Since 2026, a beneficial owner is the person defined in section 2(1)(fa) of the Prevention of Money Laundering Act, 2002. The tests come from rule 9(3) of the PML (Maintenance of Records) Rules, 2005. The test runs on the investor entity, meaning the foreign entity that puts money into India. For a company, the threshold is more than 10 percent, or control by other means.

Explanation 1 to rule 6(a) sets this out. The "beneficial owner of an investment into India" means the beneficial owner of an investor entity incorporated or registered outside the land border countries. The meaning of "beneficial owner" then follows the PMLA and the PML Rules, as amended.

The PML Rules on the FIU-IND website give a different threshold for each legal form:

Investor's legal form	Beneficial owner test under rule 9(3) of the PML Rules	Control test
Company	More than 10% of shares, capital or profits	Right to appoint a majority of directors or control management or policy decisions, including through shareholder or voting agreements
Partnership firm	More than 10% of capital or profits	Right to control management or policy decisions
Unincorporated association or body of individuals	More than 15% of property, capital or profits	Control through other means
Trust	Author, trustee, beneficiaries with 10% or more interest	Any natural person with ultimate effective control over the trust
No natural person found under the tests above	The senior managing official	Not applicable

Explanation 2 to rule 6(a) then says when beneficial ownership is "vested" in a land border country. It is vested where a land border citizen or entity can, directly or indirectly, hold rights that do one of three things:

1. Exceed the rule 9(3) threshold over the foreign investor entity.
2. Give control over the foreign investor entity.
3. Give "ultimate effective control over the Investee entity in any manner", meaning the Indian company.

The text adds that the rights count "individually or cumulatively with any another citizen or entity", whether the holders act together or not. On our reading, you add up every land border holder in the investor. Three Chinese shareholders with 4 percent each hold 12 percent between them, and the investor is caught.

The text does not say how to count indirect holdings through several layers. We multiply the stakes through the chain and also test control at each layer. Where the result is close to 10 percent, we treat the case as one for approval or ask DPIIT first.

Rule 9(3)(f) of the PML Rules relaxes identification for some listed entities. Whether that relaxation carries into Press Note 3 has not been tested. We screen listed investors on the same basis as unlisted ones.

When does a foreign investor need government approval?

A foreign investor needs government approval when it is itself from a land border country. It also needs approval when land border citizens or entities pass one of the three tests in Explanation 2. Ownership at or below the PML threshold, with no control over the investor or the Indian company, keeps the investment on the automatic route. That investment still carries a reporting duty.

The 2026 text also changed who counts. The 2020 text caught a beneficial owner who "is situated in or is a citizen of" a land border country. Press Note 2 (2026 Series) and the amended rule 6(a) speak only of a citizen. On our reading, a US or Singapore citizen who lives in Shanghai is no longer caught by residence alone.

Investor and its owners	Route under rule 6(a)	Report to DPIIT before money arrives
Company incorporated in China, Hong Kong or another land border country	Government route	Not needed, approval covers it
Individual citizen of a land border country, wherever resident	Government route	Not needed, approval covers it
Singapore company wholly owned by a Chinese citizen	Government route	Not needed, approval covers it
US fund company with Chinese shareholders at 8% in total and no control rights	Automatic route, within sector caps	Yes
US fund company with Chinese shareholders at 12% in total	Government route	Not needed, approval covers it
Japanese company with a 6% Chinese shareholder that holds a veto over the Indian company's business plan	Government route, on our reading (ultimate effective control)	Not needed, approval covers it
Singapore company owned by a US citizen who lives in Shanghai	Automatic route, on our reading	No land border ownership, so no report on our reading
Indian citizen living in China (an NRI)	Not a land border citizen, so automatic route within sector caps	No
Multilateral bank with India as a member	Not an entity of any country under proviso (iv)	No

On our reading, a small investor with a veto over budgets, senior hires or the business plan can pass the third test. We read every shareholder agreement and side letter before we sign off on the automatic route. For the Companies Act view of the same owners, see our page on significant beneficial owners and Form BEN-2.

Does Press Note 3 apply when existing shares change hands?

Yes. Proviso (iii) to rule 6(a) covers any transfer of existing or future FDI in an Indian entity, "directly or indirectly". If the transfer brings beneficial ownership within the restriction, the new owner needs prior government approval. The rule bites even when no Indian share moves, because a sale of the foreign parent changes the beneficial owner.

Transaction	Approval under rule 6(a)?	FEMA filing after closing
Indian resident sells shares of an Indian company to a Chinese company	Yes, before closing	Form FC-TRS within 60 days of transfer or receipt of funds, whichever is earlier
Non land border investor sells its Indian shares to a Hong Kong company	Yes, before closing	Check whether FC-TRS applies to the transfer between the two parties
Chinese buyer acquires 35% of the German parent of an Indian subsidiary	Yes, before closing of the offshore deal	No FC-TRS on our reading, as no Indian share moves; the Indian company updates its beneficial owner records
Chinese shareholders of a US fund move from 8% to 11% in total	Yes, on our reading, as beneficial ownership now vests	None for the fund; the Indian company should hold the approval before the change
Land border investor sells its Indian shares to an Indian resident	No approval under Press Note 3 for the exit	Form FC-TRS within 60 days
Land border investor sells to another approved land border investor	Yes, for the buyer	Depends on the parties' residence

In the offshore case, the Indian subsidiary's beneficial owner changes even though only a German or Japanese company is sold. We put the Indian approval in the share purchase agreement as a condition precedent with a long stop date.

The fund case is harder, because fund investors trade without telling the Indian company. We ask funds with land border investors for a transfer restriction and a notice clause. For resident to non resident transfers, see our guide to share transfers and Form FC-TRS.

How are Hong Kong and Singapore holding structures treated?

On our reading, a company incorporated in Hong Kong or Macau is an entity of China for Press Note 3. Both are Special Administrative Regions of China. A Singapore company is not a land border entity. You look through it to its beneficial owners, and the PML tests decide the route.

Neither DPIIT nor the NDI Rules name Hong Kong in Press Note 3. Other FEMA rules list "China, Hong Kong or Macau" side by side, for example rule 31 of the NDI Rules on immovable property. We do not read that drafting as taking Hong Kong outside Press Note 3. Rule 6(a) speaks of a country, and Hong Kong is part of China. We file on that basis.

A Singapore holding company raises three questions:

1. Who owns it? Chinese citizens or entities holding more than 10 percent in total send the investment to the government route.
2. Who controls it? A Chinese founder with the right to appoint most of the board passes the control test at any percentage.
3. Who controls the Indian company? Veto rights over the Indian company, held by a land border person, can pass the third test.

Citizenship is the test, so ethnicity is irrelevant. A Singapore citizen of Chinese descent is not a land border citizen. A Chinese citizen who holds Singapore permanent residence is one.

A Hong Kong holding company with non Chinese owners is still a Hong Kong entity, on our reading. The route is government approval even if every shareholder is British or American. Some groups hold the Indian shares through a company in another jurisdiction instead. The owners of that company then face the same beneficial owner tests.

For the incorporation side of each corridor, see our guides for Singapore parent companies and Hong Kong investors.

What must an investor with small land border ownership report?

Any investment from a foreign investor with direct or indirect land border ownership that does not need approval must be reported. Paragraph 3.1.1(d) of the FDI Policy, inserted by Press Note 2 (2026 Series), says so. DPIIT's SOP of 4 May 2026 puts the duty on the Indian company, or on the resident Indian transferor or transferee. The report is due before the money arrives.

The DPIIT Standard Operating Procedure of 4 May 2026 sets the rules in Annexure VII, paragraph I. The report is "to be made prior to the inward remittance of foreign capital". Where no foreign capital comes in, it is made before the transaction. The report is filed online on the portal, and no physical copy is needed.

The trigger is "any" direct or indirect land border ownership. A single Chinese shareholder with 1 percent of a US fund company triggers the report. The reporting entity uses the format in Schedule I of Annexure VII, which has four parts:

1. Investor: incorporation details, business activity, shareholding pattern with the citizenship of shareholders, PML beneficial owners, and group structure. For a fund it adds the investment manager, sponsor and committee members. It also asks for the citizenship of promoters, directors and key managers, and the control rights held by land border persons.
2. Indian investee: incorporation documents, NIC code, shareholding with citizenship, board and key managers, PML beneficial owners and significant beneficial owners. It also asks for land border shareholding before and after the deal, any technology or foreign collaboration with land border entities, and the project location.
3. Others: the proposed FDI in INR, existing and proposed downstream investments, and copies of the investment, shareholder, transfer or joint venture agreement or term sheet, if available.
4. Declaration: the authorised signatory certifies that the information is true, complete and correct. The SOP treats false or misleading information as a FEMA contravention.

The amended rule 6(a) says these investments "shall be subject to reporting requirements specified by the Reserve Bank". We found no separate RBI format in the FEMA 395/2019-RB regulations (amended to 13 Jun 2026) or the RBI Master Direction (updated to 15 Jun 2026). Annexure VII of the SOP says the report adds to existing FEMA reporting and that RBI can access it. Check RBI's FEMA notifications page and your Authorised Dealer bank for any later format. We file the DPIIT report and keep the acknowledgement with the FC-GPR file.

How does the government approval route work for Press Note 3 cases?

The Indian company or the investor files a proposal online on the Foreign Investment Facilitation (FIF) portal, reached through the National Single Window System. DPIIT sends it to the administrative ministry for the sector and to the Ministry of Home Affairs for security clearance. The administrative ministry decides the case and issues an approval letter with conditions.

The SOP of 4 May 2026 lists applications under Press Note 2 of 2026 among the cases that need MHA security clearance. The applicant uploads a Security Clearance Form (Annexure II) separately. Larger cases go to the Cabinet Committee on Economic Affairs (CCEA). Paragraph II.8 of the SOP sends a proposal there when total foreign equity inflow is above the limit in paragraph 4.1.5 of the FDI Policy. Annexure III of the SOP quotes a limit of INR 5,000 crore. It cites paragraph 4.2.1(iv) of the Policy for it. Read both paragraphs of the current FDI Policy before you size a proposal.

Annexure I of the SOP lists the documents. Every document must be digitally signed. A document in a foreign language needs an English translation that is apostilled or consularised.

1. Authorisation letter on letterhead and a summary of the proposal.
2. Shareholding pattern before and after the deal, on a fully diluted basis.
3. Fund flow and group structure charts down to natural persons, with beneficial ownership and SBO details.
4. The Indian company's incorporation certificate, MoA, AoA, board resolution and audited accounts. Declarations are accepted for a company not yet formed or audited.
5. The investor's incorporation details, board resolution and audited accounts.
6. Downstream investment reports, past approvals and earlier FDI reporting.
7. The investment or share transfer agreement, and a valuation certificate where pricing rules apply.
8. A sanctions and debarment undertaking and any NOCs.
9. A notarised affidavit on INR 100 stamp paper in the Annexure VI format.
10. The Security Clearance Form in Annexure II, uploaded separately.

We build the group chart first. A missing layer, or a shareholder whose citizenship is not shown, invites a query and stops the clock.

How long does Press Note 3 approval take?

DPIIT's SOP of 4 May 2026 allows 12 weeks from filing to decision for a standard proposal, excluding time the applicant takes to fix gaps. Annexure VII adds a 60 day track for land border stakes up to 49 percent in named manufacturing sectors. Resident Indians must keep majority ownership and control at all times.

Annexure V of the SOP sets the standard clock:

Stage	Time allowed	Cumulative time
DPIIT sends the proposal to the ministry, RBI, MHA and MEA	2 days	2 days
Initial scrutiny and requests for information	12 days	2 weeks
DPIIT clarification on FDI Policy issues	2 weeks	4 weeks
Comments from MHA, MEA, RBI and other bodies	6 weeks	8 weeks
Decision by the competent authority	4 weeks	12 weeks
Extra time where rejection or added conditions are proposed	2 weeks	14 weeks

The SOP says the time limits "shall exclude time taken by applicants in removing deficiencies". A slow reply to a query stops the clock. Where a consulted body does not reply in time, the SOP presumes it has no comments.

The 60 day track came from the Cabinet decision of 10 Mar 2026. The Cabinet release named capital goods, electronic capital goods, electronic components, polysilicon and ingot and wafer. Schedule II of Annexure VII to the SOP lists these sector groups:

1. Capital goods manufacturing, including heavy electrical items, metal forming machinery and machine tools.
2. Electronic capital goods and electronic component manufacturing, including PCB assembly, display, camera and power modules, and lithium ion cells.
3. Polysilicon, and ingots and wafers.
4. Advanced battery components, such as cathode, anode, electrolyte and separator.
5. Rare earth permanent magnets.
6. Rare earth processing.

Schedule II of the SOP of 4 May 2026 ends at item 6. The Cabinet release says a Committee of Secretaries under the Cabinet Secretary may revise the list. Check the current SOP on the DPIIT website before you rely on a sector.

The 60 day track has two conditions. The land border investors, together, hold up to 49 percent of the capital or voting rights. Resident Indian citizens, or Indian entities they own and control, hold majority ownership and control "at all times". A foreign owned Indian subsidiary does not qualify, even in a Schedule II sector.

We have not found official data on actual disposal times for land border cases.

What happens after the government approves the investment?

The administrative ministry issues an approval letter in the Annexure III format. It carries conditions that bind the Indian company. The company then receives the money and issues shares within 60 days. It files Form FC-GPR on RBI's FIRMS portal within 30 days of allotment, with the approval letter attached.

Condition (ix) in Annexure III helps with follow on rounds. No fresh approval is needed for an increase in the amount of foreign equity, if two things hold. The approved foreign percentage does not change. Total foreign equity stays within INR 5,000 crore. The company must notify the ministry within 30 days of receiving the funds and of allotting the shares.

Condition (xiii) of Annexure III says downstream investments must follow paragraph 3.8.4 of the FDI Policy, read with rule 23 of the NDI Rules. A land border owned Indian company that invests in another Indian company should check that rule before it signs. See our page on downstream investment and Form DI.

On the FEMA side, regulation 4(1) of the FEMA 395/2019-RB reporting regulations sets the FC-GPR deadline. The form is due "not later than thirty days from the date of issue of equity instruments". Our guide to the FC-GPR timeline and FIRMS steps walks through the form.

A late FC-GPR costs INR 7,500 plus 0.025 percent of the amount involved for each year of delay. The delay is rounded up to the month. The fee is capped at 100 percent of the amount involved. A.P. (DIR Series) Circular No. 16 of 30 Sep 2022 sets that fee.

Does Press Note 3 apply to rights issues, bonus shares and conversions?

A rights issue to a land border investor is a fresh investment, so it needs approval unless an earlier approval already covers the increase. Condition (ix) of Annexure III covers increases that keep the approved percentage and stay within INR 5,000 crore. DPIIT has not published guidance on bonus shares for land border investors.

Three cases come up often:

1. Rights issue to an approved investor. If the investor takes its share and the percentage stays the same, condition (ix) usually covers it. The company still notifies the ministry within 30 days of funds and allotment.
2. Rights issue to an investor that came in before April 2020. Such an investor never needed approval. Fresh money now is a new investment under rule 6(a). We treat it as needing approval.
3. Bonus shares. No money moves and percentages do not change. We see this as lower risk, but no official text settles it. Where the stake is large, we ask DPIIT through the FDI clarification route first.

A conversion of a loan into equity is fresh FDI on the date of conversion. See our guide on converting a loan from a foreign parent into equity. Convertible instruments issued under an approval convert under that approval, within its terms.

Which other Indian rules apply to land border investors?

Press Note 3 governs FDI. Several separate rules reach land border nationals for directorships, offices, property and listed shares. Each has its own list of countries and its own approval route. Check them alongside the FDI route.

Activity	Rule	What it requires
Director appointment	Companies (Appointment and Qualification of Directors) Rules, 2014, as amended by MCA	Security clearance from the Ministry of Home Affairs for a national of a land border country; check the current rule text and MCA forms for where the clearance is attached
Branch, liaison or project office	FEMA 22(R)/2016-RB and the RBI Master Direction on such offices	Applications from entities of some neighbouring countries, including Pakistan, need prior RBI approval; check the current country list and conditions in the regulation before you apply
Immovable property	Rule 31 of the NDI Rules	Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Hong Kong, Macau or DPRK need RBI permission, except for a lease up to five years; the rule does not apply to an OCI cardholder
Listed shares bought or sold by individuals resident outside India	Provisos to rules 12(1) and 13(1) of the NDI Rules, inserted by S.O. 3030(E) of 12 Jun 2026	Prior government approval where the investment or transfer moves ownership or control of a listed Indian company to land border entities or citizens, or the beneficial owner is a land border citizen
Portfolio investment by an FPI	Rules 10 and 11 of the NDI Rules	No land border proviso in rules 10 and 11; an FPI that reaches 10% is reclassified as FDI under A.P. (DIR Series) Circular No. 19 of 11 Nov 2024, and rule 6(a) then applies

Director clearance often decides the timeline, so we start it with the FDI application. Our page on DIN for foreign directors covers the general DIN process.

On FPIs, an investor with Chinese beneficial owners that crosses 10 percent of a listed company moves into FDI. See our page on the 10 percent line between FDI and FPI.

What changed in 2026

Press Note 3 itself stayed in force. Its paragraph was rewritten by Press Note 2 (2026 Series), and the NDI Rules were amended to match. The changes added a defined beneficial owner test, a threshold, a reporting duty and a 60 day approval track. When this page first went up on 10 Jan 2026, the 2020 text applied without any threshold.

Date	Instrument	Old rule	New rule
10 Mar 2026	Cabinet decision on investments from land border countries	No threshold; any land border beneficial owner sent the case to approval	Non controlling land border ownership up to 10% allowed on the automatic route; 60 day decisions for specified manufacturing sectors
15 Mar 2026	Press Note 2 (2026 Series), DPIIT	Beneficial owner "situated in or is a citizen of" a land border country, with no definition	Citizen test only; PMLA definition and PML Rules thresholds; three tests for vested ownership; reporting under paragraph 3.1.1(d); effective from the FEMA notification
May 2026	Foreign Exchange Management (Non Debt Instruments) Amendment Rules, 2026, notified by the Ministry of Finance (Department of Economic Affairs)	2020 text in rule 6(a)	New proviso (i), Explanations 1 and 2, and a reporting proviso in rule 6(a)
4 May 2026	DPIIT Standard Operating Procedure for FDI proposals	Earlier SOP with no land border reporting format	Annexure VII reporting before remittance; 60 day track for land border stakes up to 49% in Schedule II sectors; MHA clearance for Press Note 2 applications
12 Jun 2026	Foreign Exchange Management (Non Debt Instruments) (Third Amendment) Rules, 2026, S.O. 3030(E)	No land border proviso for individuals resident outside India buying or selling listed Indian shares	Prior government approval under new provisos to rules 12(1) and 13(1) where ownership or control of a listed Indian company moves to land border entities or citizens
15 Jun 2026	RBI Master Direction on Foreign Investment in India, updated	2020 wording	Paragraphs 3.2, 3.2.1 and 3.4 restate the new rule

The new text speaks from the date of the FEMA notification. It does not regularise an earlier investment that needed approval under the 2020 text. On our reading, an investment made before the notification is judged under the old text.

Worked example

Scenario 1: a Singapore fund company with small Chinese holdings.

A Singapore fund company plans to invest INR 60 crore in a Bengaluru software company. Software sits on the automatic route at 100 percent. The fund company has five groups of shareholders:

1. A US endowment with 55 percent.
2. A European fund of funds with 25 percent.
3. Japanese and Singapore investors with 11 percent.
4. A Hong Kong company with 6 percent.
5. A Chinese citizen with 3 percent.

Test	Working	Result
Land border holders added together	Hong Kong company 6% + Chinese citizen 3%	9%
More than 10% of the investor company?	9% is not more than 10%	Not met
Control of the investor company?	Neither holder can appoint a majority of the board	Not met
Ultimate effective control of the Indian company?	No board seat, no veto in the term sheet	Not met
Route	No test met	Automatic route
Reporting	Some land border ownership exists	Schedule I report to DPIIT before the INR 60 crore arrives

The Indian company files the Schedule I report on the portal first. It then receives the money, allots the shares and files FC-GPR within 30 days of allotment.

Six months later, the Hong Kong company buys a further 2 percent from the European fund of funds. The land border total becomes 6 + 3 + 2 = 11 percent. That is more than 10 percent, so beneficial ownership of the INR 60 crore investment now vests in China. On our reading, proviso (iii) needs prior approval for that change. The fix is a clause in the fund's documents that blocks the transfer until approval is in place.

Scenario 2: an offshore sale of a foreign parent.

A German company owns 100 percent of an Indian subsidiary with INR 120 crore of equity. A Chinese group agrees to buy 35 percent of the German parent.

1. Look through to the Indian subsidiary: 35 percent of 100 percent is 35 percent.
2. 35 percent is more than 10 percent, so beneficial ownership vests in China.
3. Proviso (iii) needs prior government approval before the German deal closes.
4. The 60 day track is not available, because the Indian subsidiary is foreign owned.
5. A proposal filed on 1 Jul 2026 has a 12 week clock to 23 Sep 2026, plus any time spent answering queries.

Scenario 3: the 60 day track.

A Chinese electronics company plans to take 26 percent of an Indian owned component maker for INR 50 crore. The Indian promoters keep 74 percent and control. The sector is in Schedule II and the land border stake is under 49 percent. A proposal filed on 1 Jul 2026 should be decided within 60 days, by 30 Aug 2026.

Common mistakes

1. Stopping at the holding company. A Singapore or Cayman company is the start of the inquiry. Fix: trace every layer to natural persons under rule 9(3) of the PML Rules.
2. Testing each land border holder alone. Explanation 2 counts holdings "cumulatively". Fix: add up all land border holders before you compare with 10 percent.
3. Skipping the report for small stakes. Any land border ownership triggers paragraph 3.1.1(d). Fix: file the Schedule I report before the money arrives.
4. Ignoring veto rights. A small investor with control of the Indian company passes the third test. Fix: review the shareholder agreement and side letters, not just the cap table.
5. Closing an offshore deal first. An indirect change of beneficial owner needs prior approval. Fix: make Indian approval a condition precedent in the share purchase agreement.
6. Using the old test for new deals. The 2020 "situated in" wording no longer applies after the 2026 notification. Fix: date each test and apply the text in force on the date of investment.
7. Taking money before approval. Funds received for a land border investor before approval create a FEMA contravention. Fix: hold the money offshore until the approval letter arrives. If it is too late, see our guide to FEMA compounding.
8. Forgetting director clearance. A land border national needs MHA security clearance before appointment as a director and for the DIN. Fix: start the security clearance with the FDI proposal.

Checklist

1. List every investor, with its place of incorporation and the citizenship of each natural person behind it.
2. Trace each layer to the natural persons who meet rule 9(3) of the PML Rules.
3. Add up all land border holdings in each foreign investor entity.
4. Review shareholder agreements, side letters and fund documents for control and veto rights.
5. Decide the route: government route if any Explanation 2 test is met, automatic route otherwise.
6. File the Schedule I report on the portal before any remittance where land border ownership exists without approval.
7. Prepare the Annexure I documents, the Annexure II security clearance form and the Annexure VI affidavit for an approval case.
8. File the proposal on the FIF portal through the National Single Window System and track queries.
9. Check whether the case fits the 60 day track under Annexure VII.
10. Receive funds only after approval, then allot within 60 days and file FC-GPR within 30 days of allotment.
11. Notify the ministry within 30 days of funds and allotment for later increases under condition (ix).
12. Add transfer restrictions in fund and shareholder documents to stop an unapproved change of beneficial owner.

Our FEMA compliance team prepares land border screenings, DPIIT reports and approval files.

Frequently Asked Questions

Is Press Note 3 still in force in 2026?+

Yes. Press Note 3 (2020 Series) remains the base rule, carried by rule 6(a) of the NDI Rules. Press Note 2 (2026 Series) of 15 Mar 2026 rewrote its paragraph 3.1.1 of the FDI Policy. The change added a defined beneficial owner test, an automatic route for small non controlling stakes and a reporting duty. Direct investment by a land border entity or citizen still needs approval at any size.

Does Press Note 3 apply to Hong Kong companies?+

On our reading, yes. Hong Kong and Macau are Special Administrative Regions of China. A company incorporated there is an entity of a land border country under rule 6(a) of the NDI Rules. DPIIT has not published a separate list. We treat every Hong Kong investor as needing government approval, whatever the citizenship of its shareholders.

Can a Chinese citizen own shares in an Indian Private Limited company?+

Yes, with prior government approval. Rule 6(a) of the NDI Rules puts any investment by a citizen of a land border country on the government route. That holds at any percentage and in any sector. The proposal goes through the FIF portal and needs MHA security clearance. After approval the company files Form FC-GPR within 30 days of allotting the shares.

What is the beneficial ownership threshold under Press Note 3?+

The threshold comes from rule 9(3) of the PML (Maintenance of Records) Rules, 2005, and depends on the investor's legal form. For a company or a partnership, it is more than 10 percent of shares, capital or profits. For an unincorporated association, it is more than 15 percent. Control over the investor, or ultimate effective control over the Indian company, passes the test at any percentage.

Does a US fund with Chinese investors need approval?+

It depends on the total and on control. Add up all Chinese and other land border holdings in the fund entity that invests. If the total is more than 10 percent for a company, or a land border holder has control, rule 6(a) needs approval. Otherwise the investment is automatic, but the Indian company reports it to DPIIT before the money arrives.

Do small land border stakes still need to be reported?+

Yes. Paragraph 3.1.1(d) of the FDI Policy, added by Press Note 2 (2026 Series), covers investors with any direct or indirect land border ownership. Where no approval is needed, the investment must still be reported. Annexure VII of the DPIIT SOP of 4 May 2026 puts the duty on the Indian company and requires the report before the inward remittance.

How long does Press Note 3 approval take?+

DPIIT's SOP of 4 May 2026 allows 12 weeks from filing to decision for a standard proposal. It adds two weeks where rejection or extra conditions are proposed. Time the applicant takes to answer queries does not count. A 60 day track applies to land border stakes up to 49 percent in Schedule II manufacturing sectors where resident Indians keep control.

Which sectors get the 60 day approval timeline?+

Schedule II of Annexure VII to the DPIIT SOP lists six sector groups. They are capital goods, electronic goods and components, polysilicon and wafers, battery components, rare earth magnets and rare earth processing. The land border investors must hold up to 49 percent together. Resident Indian citizens or their Indian entities must keep majority ownership and control at all times.

Does an offshore sale of a foreign parent need approval?+

Yes, where it moves beneficial ownership of the Indian company to a land border citizen or entity. Proviso (iii) to rule 6(a) covers transfers made "directly or indirectly". Take a Chinese buyer of more than 10 percent of a German parent with an Indian subsidiary. The buyer needs prior government approval before the German deal closes.

Does Press Note 3 apply to foreign portfolio investors?+

Not directly, on our reading. The land border proviso sits in rule 6(a), the FDI rule, and rules 10 and 11 on FPIs carry no such proviso. An FPI that reaches 10 percent of a listed company is reclassified as FDI under A.P. (DIR Series) Circular No. 19 of 11 Nov 2024. Rule 6(a) then applies to that holding.

Can a Chinese national be a director of an Indian company?+

Yes, after security clearance from the Ministry of Home Affairs. The Companies (Appointment and Qualification of Directors) Rules, 2014, as amended by MCA, cover a national of a land border country. The clearance is a precondition for the appointment and the DIN, so we start it with the FDI file. Check the current rule text and MCA forms for where the clearance is attached.

Is the 2026 relaxation retrospective?+

No, on our reading. Press Note 2 (2026 Series) takes effect from the date of the FEMA notification that amended rule 6(a) of the NDI Rules. An investment made before then is tested under the 2020 text, which had no threshold. A company that took land border money without approval before 2026 still needs to regularise it.

Sources

• DPIIT, Press Note No. 2 (2026 Series), amendment of paragraph 3.1.1 of the Consolidated FDI Policy, 15 Mar 2026, https://www.dpiit.gov.in/static/uploads/2026/03/b9da5830b052c2f2d788593e97d07c63.pdf
• DPIIT, Standard Operating Procedure for Processing FDI Proposals, 4 May 2026, https://www.dpiit.gov.in/static/uploads/2026/05/d7693ed0552aef6c3fa8bcdcf6a44cf3.pdf
• Cabinet decision, Cabinet approves changes in guidelines on investments from countries sharing land border with India, 10 Mar 2026, https://www.pmindia.gov.in/en/news_updates/cabinet-approves-changes-in-guidelines-on-investments-from-countries-sharing-land-border-with-india/
• Press Information Bureau, Government amends the extant FDI policy for curbing opportunistic takeovers, 18 Apr 2020, https://pib.gov.in/PressReleasePage.aspx?PRID=1615711
• Reserve Bank of India, Foreign Exchange Management (Non Debt Instruments) Rules, 2019, updated to 2 Sep 2026, https://rbi.org.in/scripts/bs_viewcontent.aspx?Id=5083
• Reserve Bank of India, Master Direction on Foreign Investment in India, updated to 15 Jun 2026, https://www.rbi.org.in/scripts/bs_viewmasdirections.aspx?id=11200
• FIU-IND, Prevention of Money Laundering (Maintenance of Records) Rules, 2005, as amended, https://fiuindia.gov.in/files/AML_Legislation/notification.html
• Ministry of Finance, Foreign Exchange Management (Non Debt Instruments) Amendment Rules, 2020, S.O. 1278(E), 22 Apr 2020, https://egazette.gov.in/WriteReadData/2020/219107.pdf
• Ministry of Finance, Foreign Exchange Management (Non Debt Instruments) (Third Amendment) Rules, 2026, S.O. 3030(E), 12 Jun 2026, https://egazette.gov.in/WriteReadData/2026/273406.pdf
• Reserve Bank of India, FEMA 395/2019-RB, Mode of Payment and Reporting of Non Debt Instruments Regulations, as amended to 13 Jun 2026, https://rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=11723
• Reserve Bank of India, A.P. (DIR Series) Circular No. 16, Late Submission Fee, 30 Sep 2022, https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=12393&Mode=0
• Reserve Bank of India, A.P. (DIR Series) Circular No. 14, Liberalisation of Foreign Portfolio Investment under Schedule III, 15 Jun 2026, https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=13483&Mode=0
• Ministry of Corporate Affairs, Companies (Appointment and Qualification of Directors) Rules, 2014 and amendments, see the notifications section, https://www.mca.gov.in/
• DPIIT, FAQs on FDI Policy, July 2025 upload, https://www.dpiit.gov.in/static/uploads/2025/07/b42b419be651a25a27d315a664cd424f.pdf