DPIIT issues Press Note No. 2 (2026 Series) notifying amendments to Press Note 3 of 2020 (Investment from Land Bordering Countries)

The Department of Promotion of Industry and Internal Trade (FDI Section) (DPIIT) issued Press Note No. 2 (2026 Series) (Press Note 2), to amend the Consolidated Foreign Direct Investment Policy Circular of 2020 dated 15.10.2020 (FDI Policy), on investments from countries sharing land border with India (LBC) as notified vide Press Note No. 3 (2020 Series) (PN3).

The key aspects under Press Note 2 include, inter alia, the following:

1. Incorporation of the Definition and Criteria for ‘Beneficial Owner’: A new Paragraph 3.1.1(c) has been introduced, which provides that:

• • For the purposes of Paragraph 3.1.1 of the FDI Policy, the expression ‘beneficial owner’ (BO) of an investment into India shall mean the beneficial owner(s) of the investor entity incorporated or registered in a country other than a country which shares land border with India.

• • The expression ‘beneficial owner’ shall have the same meaning as defined under Section 2(1)(fa) of the Prevention of Money-laundering Act, 2002 (PMLA), as amended from time to time, and shall be determined as per the criteria stipulated under Rule 9(3) of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, as amended from time to time (the PML Rules).

In this regard, please note that Section 2(1)(fa) of the PMLA defines ‘beneficial owner’ as an individual who ultimately owns or controls a client of a reporting entity or the person on whose behalf a transaction is being conducted and includes a person who exercises ultimate effective control over a juridical person. Rule 9(3) of the PML Rules sets out the criteria inter alia for BO in connection with a company, and states that in such a case, the beneficial owner is the natural person(s), who, whether acting alone or together, or through one or more juridical person, has a controlling ownership interest or who exercises control through other means. For this purpose, (i) ‘controlling ownership interest’ means ownership of or entitlement to more than ten per cent of shares or capital or profits of the company; and (ii) ‘control’ shall include the right to appoint majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements. The said Rule also provides the criteria for determining BO for other persons (such as partnership firm, trust, etc.).

• • The beneficial ownership of the investment shall be construed to be vested in an LBC in the event that: (i) citizen(s) of a LBC; and/or (ii) entity(ies) incorporated or registered in an LBC, has/have the ability to directly or indirectly, individually or cumulatively, independently or collectively, whether acting together or otherwise, hold rights/entitlements –
    • • in excess of the applicable thresholds prescribed under Rule 9(3) of the PML Rules over an investor entity which is incorporated or registered in a country other than an LBC; or
      • which enable such citizen(s) and/or entity(ies) to exercise control over the investor entity referred above; or
      • which enable such citizen(s) and/or entity(ies) to exercise ultimate effective control over the Investee entity in any manner.

• • This stipulation of a definition of ‘beneficial owner’ for the purposes of PN3, a term that until now was not defined under the Foreign Direct Investment (FDI) regulatory regime, is the most consequential change. The absence of a defined threshold had meant that PN3 inadvertently cast a wide net, causing difficulties for private equity and venture capital funds in the United States and Europe that were never intended to be caught by these restrictions, on account of miniscule participation from passive limited partners from such LBCs exercising no operational control. With the threshold now defined, these funds can invest under the automatic route so long as the relevant ownership remains up to 10%, which should also unlock greater FDI inflows for Indian startups and deep tech ventures. The clarification equally benefits overseas listed companies with dispersed shareholding bases, for whom it was untenable to ensure that not a single share was held by a resident or entity of a land border country.

2. Reporting Requirements for investments from LBCs not requiring government approval: 

• • The Press Note 2 stipulates that investments into India from an investor entity: (i) having any direct / indirect ownership by a citizen or an entity of an LBC; and (ii) not requiring prior Government approval under the provisions of Paragraph 3.1.1 of the FDI Policy, shall be subject to reporting requirements in the format as per the standard operating procedure laid down by DPIIT. These requirements shall be in addition to compliance with the applicable sectoral cap, entry route and attendant conditions.

• • This expedited processing of PN3 approval applications in certain specified manufacturing sectors is significant, as PN3 applications had historically taken close to a year to be decided, and a definitive 60-day timeline will enable ease of doing business and speedy closure of foreign investment transactions.

• • Further, the Committee of Secretaries under the Cabinet Secretary has been empowered to revise the above list of sectors, suggesting the framework may expand over time. A definitive timeline signals that the government is amenable to these proposals, where the investment benefits the Indian economy, though majority shareholding and control must remain with resident Indian citizens or Indian-owned and controlled entities. Implicitly, this also signals willingness to consider minority investments of up to 49% investment from land border country investors, at least in these specified sectors.

The above decision announced under Press Note 2 will take effect from the date of the requisite gazette notification under the provisions of Foreign Exchange Management Act, 1999, once published by the Government. For more details, kindly refer to Press Note 2 by clicking on this link.