DPIIT Press Note 2 (2026): India Tightens FDI Rules for Land-Border Investors
Source: Department for Promotion of Industry and Internal Trade Press Note 2 (2026 Series)
Background
India had introduced restrictions in 2020 (Press Note 3) to curb opportunistic acquisitions from countries sharing land borders with India.
Press Note 2 (2026) now revisits and strengthens this framework — shifting from a jurisdiction-based restriction to a control and beneficial ownership-based regime.
Key Changes
1. Government Route Requirement Continues
Any investment into India:
By an entity from a country sharing land border with India, OR
Where the beneficial owner is from such a country
👉 Requires prior Government approval
2. Transfer of Ownership Now Explicitly Covered
Even if initial investment was compliant:
👉 Any subsequent transfer (direct or indirect)
that results in beneficial ownership falling under restricted categories
➡️ Will require Government approval
Implication:
Secondary transactions, exits, and restructuring are now directly captured.
3. Beneficial Ownership — Tightened Definition
The concept of “beneficial owner” is now aligned with:
Prevention of Money-laundering Act, 2002
Rule 9 of PML Rules
It includes:
Direct or indirect ownership
Rights exceeding prescribed thresholds
Ability to exercise control
Ability to exercise ultimate effective control
4. Deemed Beneficial Ownership (Substance Over Form)
Even if the investing entity is based outside restricted jurisdictions:
👉 Investment will still be treated as restricted if entities/persons from land-border countries:
Hold significant rights, OR
Exercise control or influence, OR
Have ultimate effective control
Implication:
Layered/global fund structures will be closely scrutinized.
5. New Reporting Requirement (Important Addition)
Where:
There is any direct or indirect ownership from such countries
But approval is not required
👉 Mandatory reporting to DPIIT (as per SOP)
Implication:
Even non-triggering cases are now under regulatory visibility.
6. Pakistan-Specific Position Continues
Investments allowed only under Government route
Prohibited in:
Defence
Space
Atomic Energy
Key Implications for AIFs, VCs, and Startups
1. Look-Through Becomes Critical
Fund managers must now:
Trace ultimate beneficial ownership of LPs
Assess control rights, not just shareholding
2. Secondary Transactions Under Scrutiny
Share transfers
ESOP exits
Fund exits
👉 May trigger approval if ownership profile changes
3. Offshore Structures Not Automatically Safe
Structures via:
Singapore
Mauritius
UAE
👉 Will be tested based on who ultimately controls capital
📊 4. Compliance is Now Ongoing, Not One-Time
Ownership monitoring
Periodic reassessment
Reporting obligations
👉 Compliance becomes a continuous function
AIFServices Insight
This amendment marks a clear shift:
From “where the investor is located”
to “who actually controls the investment”
For fund managers and founders:
Structuring decisions need deeper diligence
LP onboarding requires enhanced checks
Exit planning must factor regulatory triggers
Effective Date
The above changes will take effect upon corresponding amendments under FEMA (NDI Rules).
🔗 Related Reading
👉 For implementation under FEMA, read:
“FEMA (Non-Debt Instruments) Amendment – What Changes?”
https://www.aifservices.in/p/fema-non-debt-instruments-amendment