India FDI Amendments 2026, Press Note 2 & Press Note 3: Practical Compliance Checklist

The latest round of FDI amendments India has seen in years landed in March 2026, when the Union Cabinet approved Press Note 2 and Press Note 3, two instruments that recalibrate the boundary between the automatic route and the government-approval route for inbound investments linked to countries sharing a land border with India. For corporate counsel, PE/VC funds and M&A advisers, the immediate question is whether a live or planned transaction now requires prior DPIIT approval, and if so, what the compliance timeline looks like. This article provides a deal-ready checklist covering beneficial-ownership evidencing, multi-authority clearance sequencing and structuring options designed for practitioners who need to act now.

TL;DR, three immediate actions for deal teams:

• Re-screen every investor chain against the updated beneficial-ownership test to determine whether a land-border-country nexus triggers the approval route.
• Map the 60-day DPIIT approval timeline into your transaction timetable and build a conditionality buffer for sectoral-regulator referrals.
• Collect beneficial-ownership documentation now, KYC packs, corporate-structure charts, share registers and BO declarations, before signing, not at closing.

The Primary Compliance Decision: Do You Need DPIIT Approval or Is This Automatic?

The single question every deal team must answer first is: does any entity in the investor’s ownership chain have a beneficial owner who is a citizen of, or is incorporated in, a country sharing a land border with India? If yes, the investment falls on the government-approval route and requires prior clearance from DPIIT, regardless of whether the sector otherwise permits 100% automatic-route FDI. If the answer is no, the standard FDI policy India sectoral caps and route classifications apply as before. The rule of thumb: when in doubt, trace ultimate beneficial ownership upward to the natural-person level and document the analysis before signing.

What Press Note 2 (2026) and Press Note 3 (2026) Change, Plain-English Summary

Press Note 2 (2026): Recalibrated Thresholds and Safe Harbour

Press Note 2 2026 amends the Consolidated FDI Policy to introduce a safe-harbour framework for minority, passive investments from entities with an indirect land-border-country nexus. The Cabinet approved these amendments on 10 March 2026, as confirmed in the official PIB press release. The DPIIT subsequently published the formal amended policy text as a PDF notice.

The core change: where a foreign company’s aggregate beneficial ownership attributable to land-border-country nationals or entities does not exceed 10%, and the investment itself is passive (no board seat, no veto right, no operational control), the transaction may proceed on the automatic route subject to post-investment intimation. This carve-out addresses a long-standing pain point for global PE and VC funds whose limited-partner bases include small passive allocations from sovereign wealth funds or institutional investors domiciled in land-border countries. Press Note 2 also clarifies that the 10% threshold is calculated on a look-through basis across the entire chain, not merely at the immediate-investor level.

Additionally, Press Note 2 tightens the definition of “control” by cross-referencing the Companies Act, 2013 and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, ensuring consistency across corporate and securities-law frameworks. Practitioners should note that the definition explicitly captures negative-control rights, such as veto powers over budgets, key appointments or asset disposals, as triggers for the approval route.

Press Note 3 (2026): Beneficial-Ownership Definition and Approval-Route Mechanics

Press Note 3 2026 complements Press Note 2 by overhauling the beneficial-ownership test and streamlining the government-approval procedure. The revised definition of “beneficial owner” is now aligned with the Prevention of Money Laundering Act, 2002 (PMLA) framework, requiring identification of every natural person who, directly or indirectly, holds more than 10% of the shares or voting rights, or exercises significant influence over the entity, at every tier of the holding structure.

On procedure, Press Note 3 formalises a 60-day target for DPIIT to process and dispose of approval applications, counted from the date a complete application is filed. While this is an administrative target rather than a statutory deadline, industry observers expect it to function as a practical benchmark against which deal conditionality and long-stop dates should be calibrated. The Press Note also introduces a standardised application form and mandates that applicants submit a corporate-structure chart certified by a practising company secretary or chartered accountant, together with beneficial-ownership declarations at every ownership tier.

Who Is in Scope, Land-Border Countries, Ownership Tests and Excluded Entities

Definition of “Land-Border Country”

The FDI policy India framework identifies countries sharing a land border with India as: China (including Hong Kong and Macau), Pakistan, Bangladesh, Myanmar, Afghanistan, Nepal and Bhutan. Any investment where the investor, or any entity in the investor’s chain of ownership, is incorporated in one of these jurisdictions, or where a beneficial owner is a citizen of one, triggers the enhanced scrutiny pathway. This list has remained unchanged since the original April 2020 Press Note 3, and the 2026 amendments do not modify it.

Entity Types Caught: Direct, Indirect and Portfolio Investors

The amendments cast a wide net. The approval requirement applies to direct investors (a Chinese company acquiring shares in an Indian target), indirect investors (a Cayman fund whose GP or majority LP is a Chinese entity) and, subject to the safe-harbour threshold, portfolio investors whose beneficial-ownership chain includes a land-border-country nexus. The only entities fully excluded are investments routed through multilateral development banks and sovereign entities specifically exempted by a separate government notification.

Exclusions and Carve-Outs

The 2026 amendments confirm that investments by Indian citizens or entities that are Indian-owned-and-controlled, even if they have received prior FDI from a land-border country, are not subject to the approval route for subsequent downstream investments, provided the original FDI was duly approved. Additionally, the safe harbour under Press Note 2 effectively carves out passive allocations below the 10% threshold, as reported by The Hindu in its coverage of the Finance Ministry’s FEMA notifications.

Beneficial Ownership FDI, New Definition, How It Changes Due Diligence and Structuring

The Legal Test in Plain English

Under the revised beneficial ownership FDI test, a “beneficial owner” is any natural person who, alone or together with persons acting in concert, holds more than 10% of the shares, voting rights or capital of the investing entity, or who exercises significant influence over its management or policies by any means, including through shareholders’ agreements, voting arrangements, board-nomination rights or financial instruments. This PMLA-aligned definition requires a full look-through to the natural-person level, not merely to the first corporate shareholder. The DPIIT FDI guidance text specifies that the analysis must be performed at each tier of ownership.

Layered SPVs and Indirect Ownership, Worked Examples

Consider a typical PE structure: Fund LP (Cayman) → GP Entity (Delaware) → Holding Company (Singapore) → Indian Target. If a limited partner contributing 15% of the fund’s capital is a Chinese state-owned enterprise, the aggregate beneficial ownership attributable to a land-border country exceeds 10%, and the entire investment requires DPIIT approval, even though the immediate investor is a Singapore entity. Conversely, if that LP’s contribution is 8% and it holds no board seat, veto or nomination right at any level, the safe harbour may apply and the automatic route FDI classification would be available.

Deal teams must pay particular attention to side-letter arrangements, advisory-committee seats and co-investment rights that may, individually, fall short of “control” but that the DPIIT could aggregate to determine significant influence. Industry observers expect the regulator to take a substance-over-form approach, examining whether the land-border-country investor has any practical ability to direct the Indian target’s strategy.

Documentation Checklist: What to Collect and When

Robust beneficial-ownership evidencing is now the single most important pre-signing workstream for any inbound deal that may have a land-border-country nexus. The following documents should be assembled during preliminary due diligence, before heads of terms are executed:

• Corporate-structure chart. A complete, multi-tier chart from the Indian target up to every natural person holding more than 10% at any tier, certified by a practising company secretary or chartered accountant.
• Share registers and cap tables. Current share registers for every entity in the chain, including option pools, convertible instruments and preference shares.
• Shareholders’ agreements and side letters. Full copies, not summaries, of all agreements governing voting, board nomination, veto, drag/tag, co-investment and information rights.
• KYC and identity documents. Passport copies, national-ID documents and tax-residency certificates for every natural person identified as a beneficial owner.
• Beneficial-ownership declarations. Signed declarations at each tier confirming the identity of all persons meeting the BO threshold, in the standardised format prescribed by the DPIIT application form.
• Fund-formation documents. For PE/VC structures, the limited partnership agreement, private placement memorandum and subscription documents showing LP identities and commitment amounts.
• Control-rights analysis memo. An internal legal memo mapping every governance right (board seats, veto powers, reserved matters) held by any land-border-country-nexus investor and concluding on whether the safe harbour applies.

Where the investor is a widely held listed entity, evidencing beneficial ownership to the natural-person level may be impractical. In such cases, practitioners should rely on stock-exchange filings, substantial-shareholding disclosures and a legal opinion confirming that no single land-border-country beneficial owner crosses the 10% threshold. This approach is consistent with DPIIT FDI guidance and with the analogous PMLA framework, although deal teams should confirm acceptability with the DPIIT on a case-by-case basis.

Automatic Route vs Approval Route, Thresholds, Safe Harbour and Sectoral Impacts

The 10% Safe-Harbour Threshold

The safe harbour introduced by Press Note 2 2026 permits investments to proceed on the automatic route FDI pathway where aggregate beneficial ownership attributable to land-border-country nationals or entities is 10% or below and the land-border-country investor holds no control rights. Both conditions must be satisfied simultaneously. The 10% figure is calculated on a look-through basis at each ownership tier, meaning that a 20% stake in a 60%-owned intermediate entity produces a 12% effective interest, above the safe harbour.

Sectoral Recalibrations

Certain sectors remain subject to additional constraints regardless of the safe harbour. Defence, space, atomic energy, broadcasting and print media continue to require government approval for any FDI, irrespective of the investor’s nationality. For sectors such as banking and financial services, telecom and insurance, the FDI policy India framework imposes sectoral caps (e.g., 74% in telecom, 74% in insurance via the automatic route) and requires parallel clearances from sectoral regulators, TRAI, IRDAI or the RBI, in addition to any DPIIT approval triggered by the land-border-country nexus. As noted on the Make in India portal, sector-specific entry routes and caps are detailed in the FDI policy’s sectoral annexures.

Multi-Authority Clearance Roadmap, DPIIT, RBI/FEMA, Sectoral Regulators

Pre-Filing Checklist

Before filing a DPIIT application, deal teams should complete the following preparatory steps to avoid reject-and-refile cycles that reset the 60-day clock:

1. Complete the beneficial-ownership analysis at every ownership tier and obtain certified structure charts.
2. Confirm the applicable FDI policy sector, sub-sector, cap and entry route using the current term-sheet parameters and DPIIT sectoral annexures.
3. Prepare the standardised DPIIT application form with all mandatory annexures, including BO declarations, KYC packs and the control-rights memo.
4. Identify whether a parallel sectoral-regulator filing is required and prepare that application concurrently.
5. Draft conditionality language for the transaction documents (SPA/SHA) making closing conditional on DPIIT approval.

DPIIT Filing and the 60-Day Timeline

The DPIIT has committed to a 60-day processing target from the date of a complete application, as formalised in Press Note 3 2026. In practice, the clock starts only when DPIIT confirms completeness, not when the application is first submitted. Incomplete applications are returned with a deficiency notice, and the time spent remedying deficiencies does not count towards the 60 days. Deal teams should therefore allow a buffer of 15–20 days for deficiency-notice cycles and plan for a total elapsed time of 75–90 days from first submission to clearance.

RBI/FEMA Compliance: Post-Investment Filings and Sectoral Referrals

Regardless of whether the investment proceeds on the automatic route or the approval route, RBI/FEMA compliance requires post-investment reporting. The key filings, as specified in the RBI’s Foreign Exchange Management (Non-debt Instruments) Rules, include: Form FC-GPR (within 30 days of allotment of shares), Form FC-TRS (for share transfers between a resident and non-resident, within 60 days) and the Annual Return on Foreign Liabilities and Assets (FLA return, by 15 July each year).

Where the Finance Ministry has issued specific FEMA notifications, such as the May 2026 notification easing procedures for firms with up to 10% Chinese stakes, as reported by The Hindu, deal teams must cross-reference the current notification text with the RBI master direction to ensure filings reflect the latest procedural requirements.

Practical Compliance Checklist, Before Signing, Closing and Post-Closing

This deal-ready checklist consolidates every critical action into three phases. Use it as a working document from preliminary due diligence through to post-closing regulatory housekeeping.

Phase 1: Pre-Signing

1. Map the complete investor chain to the natural-person level and identify all land-border-country nexus points.
2. Calculate aggregate beneficial ownership attributable to land-border-country nationals/entities at each tier.
3. Determine whether the 10% safe harbour applies (both the ownership threshold and the absence of control rights).
4. Collect and verify all BO documentation: structure charts, share registers, KYC, shareholders’ agreements, side letters.
5. Prepare the control-rights analysis memo.
6. Confirm the applicable FDI policy sector, sub-sector, cap and entry route.
7. Identify parallel sectoral-regulator filings (TRAI, IRDAI, RBI, MoD) and prepare concurrent applications.
8. Obtain legal opinions on BO evidencing for widely held listed entities (if applicable).
9. Draft DPIIT application form and all mandatory annexures.
10. Build the DPIIT approval timeline (75–90 days from first submission) into the transaction timetable and set the SPA long-stop date accordingly.

Phase 2: Signing to Closing

1. Execute SPA/SHA with closing conditioned on DPIIT approval (and sectoral approval, if required).
2. Submit DPIIT application within 1–5 business days of signing.
3. Monitor DPIIT completeness review and respond to any deficiency notice within 5 business days.
4. Engage with sectoral regulators in parallel, do not wait for DPIIT clearance before initiating parallel filings.
5. Prepare escrow or consideration-protection mechanics for the approval-pending period.
6. Obtain DPIIT approval letter and confirm all conditions (if any) are satisfiable at closing.
7. Satisfy any sectoral-regulator conditions and obtain final clearance letters.
8. Complete pre-closing corporate actions: board resolutions, shareholder approvals, ROC filings for share allotment.

Phase 3: Post-Closing

1. File Form FC-GPR with the authorised dealer bank within 30 days of share allotment.
2. File Form FC-TRS within 60 days of any share transfer between resident and non-resident.
3. Update the Indian company’s register of members and beneficial-ownership register (under the Companies Act, 2013).
4. File disclosure letters with the ROC as required (Form BEN-2 for significant beneficial ownership).
5. Diarise the annual FLA return deadline (15 July) and annual compliance certificate requirements.
6. Maintain and update BO declarations whenever there is a change in the investor chain or in control rights.

Structuring Options and Risk Mitigants for FDI Amendments India Compliance

Where the approval route is triggered, deal teams have several structuring options to manage timeline risk and commercial uncertainty. Each carries trade-offs that should be evaluated on a deal-specific basis:

• Investor redomiciliation. A fund or holding-company restructure that moves the immediate investor to a non-land-border jurisdiction does not eliminate the BO analysis but may simplify it if underlying beneficial ownership falls below 10%. However, substance requirements and anti-avoidance provisions apply, a brass-plate entity will not satisfy DPIIT scrutiny.
• LP exclusion or side-pocket. PE/VC funds can exclude land-border-country LPs from specific Indian investments via side-pocket arrangements or opt-out mechanisms in the LPA. This preserves automatic-route eligibility for the remaining LP base.
• Protective covenants and escrow. Where approval risk is elevated, sellers should negotiate an escrow of a portion of the purchase price, released only upon DPIIT clearance, combined with a reverse break fee if approval is denied.
• Governance ring-fencing. Structuring the land-border-country investor’s rights as purely economic (dividend, distribution) with no governance participation (no board seat, no veto, no information rights beyond statutory minimums) strengthens the safe-harbour argument. Ensure this is documented in the term sheet and SHA from inception.
• Conditional closing with long-stop date. Set the SPA long-stop date at 120–150 days to accommodate worst-case DPIIT processing (including deficiency-notice cycles and MHA referral) and include mutual walk-away rights if the date lapses.

Sector Playbook, Energy, Telecom and Insurance

Three sectors warrant particular attention under the 2026 FDI amendments India framework because they combine high foreign-investor interest with multi-regulator approval chains:

• Energy (oil, gas, renewables). FDI up to 100% is permitted under the automatic route for most exploration and production activities. However, where a land-border-country investor is present, DPIIT approval is required first, and the Directorate General of Hydrocarbons (DGH) or the Ministry of New and Renewable Energy may require a parallel security clearance. Deal teams should factor in an additional 30–45 days for DGH referral.
• Telecom. FDI up to 100% is permitted (automatic up to 49%; government approval above 49% regardless of investor nationality). Where a land-border-country nexus exists, the entire investment requires DPIIT approval, and TRAI and the Department of Telecommunications (DoT) conduct separate security vetting. Expect combined timelines of 90–120 days. Investors with exposure to telecom should review the RBI’s new banking rules for implications on financing structures.
• Insurance. FDI up to 74% is permitted on the automatic route. Land-border-country investors trigger DPIIT approval, and IRDAI independently evaluates the “fit-and-proper” criteria for every proposed shareholder above a prescribed threshold. Allow 45–60 days for IRDAI’s parallel process.

For organisations setting up vehicles in India, including LLPs or subsidiaries, the choice of entity type affects both FDI-route eligibility and labour-code compliance obligations for the Indian operations.

Conclusion

The 2026 FDI amendments India introduced through Press Note 2 and Press Note 3 represent the most significant recalibration of the land-border-country investment framework since 2020. For deal teams, the operational imperative is clear: screen every investor chain against the updated beneficial-ownership test, build realistic DPIIT approval timelines into transaction mechanics and collect documentation early. Practitioners who treat compliance as a closing-stage afterthought risk deal delays, regulatory push-back and, in worst cases, unwinding of completed transactions. A proactive, structured approach to beneficial-ownership evidencing and multi-authority clearance sequencing is now essential for every inbound investment into India with any potential land-border-country nexus.

Sources

1. Press Information Bureau, Cabinet Press Release (10 March 2026)
2. DPIIT, Amended FDI Policy PDF (March 2026)
3. The Hindu, Finance Ministry / RBI FDI Easing Notification (2 May 2026)
4. Reserve Bank of India, Foreign Exchange Management (Non-debt Instruments) Directions
5. Maheshwari & Co., India FDI Policy Amendment: Key Changes
6. LiveLaw, India’s FDI Security Regime Analysis
7. Make in India, FDI Policy Overview
8. Global Trade Alert, India FDI Policy Amendments for Land-Border Countries