Schedule II explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Schedule II to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 lets a foreign portfolio investor (FPI) buy and sell equity instruments of an Indian company on a recognised stock exchange, but only inside two ceilings: a limit for each FPI or investor group and a limit for all FPIs put together. This article goes through the opening conditions, items (i) to (iv) of paragraph 1(a), which fix those limits, the way the aggregate limit moves, what happens on a breach and how an "investor group" is formed.
The Rules are made by the Central Government under clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999; see our article on section 46 of the Act. This article states the position as per the Rules notified on 17 October 2019 (S.O. 3732(E)) as amended by the notifications named in this article; the latest amendment consulted is S.O. 4870(E) dated 2 September 2026. There is no official consolidated text, so each item was read from the 2019 notification with the amendments applied. Amendments after 2 September 2026 should be checked in the Gazette. Companies and FPIs that need a position on a specific holding can use our FEMA advisory service.
Schedule II is headed "(See rule 10(1))". An FPI may buy or sell equity instruments of an Indian company listed or to be listed on a recognised stock exchange. The holding of each FPI or investor group must stay less than 10 percent of the paid-up equity capital on a fully diluted basis, and the holdings of all FPIs together, with other foreign investment permitted under the Rules, must not exceed 24 per cent, unless the aggregate limit has moved to the sectoral cap from 1 April 2020. An FPI that breaches may divest within five trading days of settlement of the trades causing the breach; otherwise the whole investment is treated as FDI and further portfolio investment is barred.
Which amendments apply
Item (i) was amended by S.O. 4355(E) of 5 December 2019 and S.O. 3030(E) of 12 June 2026; item (ii) has its Explanation substituted by S.O. 3492(E) of 16 August 2024; item (iii) was substituted by S.O. 1374(E) of 27 April 2020; item (iv) stands as notified. The Master Direction - Foreign Investment in India, updated up to June 15, 2026, restates the Schedule in its Annex 2 (paragraphs 1.1 to 1.5 for this part); it covers amendments only up to the Third Amendment Rules, 2026 of 12 June 2026, and S.O. 4870(E) does not touch Schedule II.
Item (i): the individual limit and the aggregate limit
As notified, item (i) says the total holding by each FPI or an investor group shall be less than 10 percent of the total paid-up equity capital on a fully diluted basis, or less than 10 percent of the paid-up value of each series of debentures, preference shares or share warrants issued by an Indian company. The total holdings of all FPIs put together, including any other direct and indirect foreign investments in the Indian company permitted under the Rules, shall not exceed 24 per cent of paid-up equity capital on a fully diluted basis, or of the paid-up value of each series of debentures, preference shares or share warrants. The limit of 10 percent and 24 percent "shall be called the individual and aggregate limit, respectively". S.O. 4355(E) of 5 December 2019 inserted the words "by FPIs" after the words "Indian company" in item (i). The phrase "Indian company" appears more than once in the item and the notification does not say which place it means, so confirm the placing against the official text.
The proviso as it now stands
S.O. 4355(E) added a proviso that the aggregate limit of 24 per cent may be increased by the Indian company, up to the sectoral cap or statutory ceiling as applicable, with the approval of its Board of Directors and its General Body through a resolution and a special resolution, respectively. That proviso was replaced as a whole by S.O. 3030(E) of 12 June 2026. The substituted proviso reads, in substance: the total holding of an FPI under Schedule II, III or any other schedule of the Rules, including through an investor group under this Schedule, in a listed Indian company, shall be less than the individual limit; and where the investment is ten per cent or more, the provisions of clause (iii) of sub-paragraph (a) of paragraph 1 of the Schedule apply. In plain terms, FPI holdings are counted together across schedules, and crossing ten per cent sends the case to the breach rule in item (iii).
S.O. 3030(E) also added an Explanation: for the purposes of this Schedule, "investor group" has the meaning given in the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, as amended from time to time. The Master Direction repeats both in paragraph 1.3 of Annex 2. Item (i) also uses the 2014 SEBI regulations by name in the Master Direction's paragraph 1.2; the Rules do not, so check the current SEBI instrument.
Item (ii): the aggregate limit from 1 April 2020
Item (ii) says that with effect from the 1st April, 2020, the aggregate limit shall be the sectoral caps applicable to the Indian company as laid out in sub-paragraph (b) of paragraph 3 of Schedule I, with respect to its paid-up equity capital on a fully diluted basis, or the same sectoral cap percentage of the paid-up value of each series of debentures, preference shares or share warrants. Sectoral caps are explained in our article on sectoral caps and investing companies.
Four provisos follow, all as notified:
- The company could lower the aggregate limit to 24% or 49% or 74%, as it deemed fit, with Board approval and a special resolution of the General Body, "before 31st March, 2020".
- A company that had lowered the limit to 24% or 49% or 74% may raise it to 49% or 74% or the sectoral cap or statutory ceiling, as the case may be, with Board approval and a special resolution of the General Body.
- Once the aggregate limit has been raised to a higher threshold, the company cannot reduce it to a lower threshold.
- The aggregate limit for an Indian company in a sector where FDI is prohibited shall be 24 per cent.
The Master Direction's Annex 2 does not reproduce item (ii) or its provisos; it states the 24 per cent aggregate figure in paragraph 1.2. The Gazette text of the Rules is followed here; confirm against the official text.
The Explanation on investor group
S.O. 3492(E) of 16 August 2024 substituted the Explanation under item (ii). As substituted it says: where two or more FPIs, including foreign Governments or their related entities, have common ownership, directly or indirectly, of more than fifty percent or common control, all of them are treated as forming part of an investor group. The 2019 Explanation also defined "control" as the right to appoint a majority of the directors or to control management or policy decisions; that sentence is not in the substituted Explanation. The result is two statements on "investor group" in the Schedule: this ownership-or-control test under item (ii) and the Explanation added by S.O. 3030(E) that points to the SEBI regulations. The Master Direction prints both (paragraphs 1.1 and 1.3 of Annex 2). Read together, and check the current SEBI instrument when a group is being tested.
Item (iii): breach of the limit
Item (iii) was substituted by S.O. 1374(E) of 27 April 2020. As substituted:
- An FPI that invests in breach of the prescribed limit has the option of divesting within five trading days from the date of settlement of the trades causing the breach.
- If the FPI chooses not to divest, the entire investment in the company by that FPI and its investor group is considered investment under foreign direct investment (FDI), and the FPI and its investor group shall not make further portfolio investment in that company.
- The FPI, through its designated custodian, shall bring this to the notice of the depositories and the company for changes in their records within seven trading days from the date of settlement of the trades causing the breach.
- Divestment, and reclassification of FPI investment as FDI, are subject to further conditions, if any, specified by the Securities and Exchange Board of India and the Reserve Bank.
- The breach of the aggregate or sectoral limit for the period between the acquisition and the sale or conversion to FDI within the prescribed time is not reckoned as a contravention under the Rules.
The Master Direction adds, as its own statement, that on reaching ten per cent or more the investment is re-classified as FDI subject to SEBI conditions and the reporting requirements of the Mode of Payment and Reporting Regulations, and that reclassification follows the framework the Reserve Bank issued by A.P. (DIR Series) Circular dated November 11, 2024 (paragraph 1.4). That circular is not in the texts consulted. For the reporting side see our article on Form FC-GPR, ESOP, DRR and the LLP returns.
Item (iv): foreign Government agencies
Item (iv), as notified and not amended, says investment by foreign Government agencies is clubbed with the investment by the foreign Government or its related entities when calculating the 10 percent limit for FPI investments in a single company, if they form part of an investor group. Certain foreign Government agencies and their related entities may be exempt from the clubbing requirement and other investment conditions, by an agreement or treaty with other sovereign governments or by an order of the Central Government. The Rules name no such agency or order.
A worked example
Verma Overseas Fund, an FPI, and Kapoor Sovereign Trust, a related entity of a foreign Government, have common ownership of more than fifty percent and form an investor group. Together they hold 7 per cent of Alder Packaging Limited, a listed Indian company, and a further purchase takes the group to 10.4 per cent. It may divest within five trading days from the settlement date of the trades causing the breach; if not, all its holding becomes FDI and no further portfolio investment can be made. The names are invented.
Need help with FPI and foreign investment compliance?
If a foreign portfolio investor is close to a limit, or an Indian company is deciding whether to move its aggregate limit by resolution, a written review of the Schedule against the company's records saves rework later. Our FEMA advisory team can review the holding structure and the resolutions.
Key takeaways
- The individual limit is less than 10 percent for each FPI or investor group; the aggregate limit started at 24 per cent and, from 1 April 2020, is the sectoral cap unless the company lowered or raised it as the provisos allow.
- The proviso to item (i) now counts an FPI's holding across Schedule II, III and any other schedule, and sends investments of ten per cent or more to item (iii).
- Breach: divest within five trading days or the whole holding is treated as FDI; the custodian informs depositories and the company within seven trading days.
- Once the aggregate limit goes up, the company cannot bring it down again.
- Two statements define "investor group"; read both and the current SEBI instrument.
Read next
- FPI investment and transfer: rules 10 and 11
- FPI public offers, short selling and fund units: Schedule II
- Listed share purchases on repatriation basis: Schedule III
- SEBI FPI regulations: foreign portfolio investors
Disclaimer: Based on the Gazette text of the instrument this article names, as notified and as amended by the notifications named in the article (for the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 the latest amendment consulted is S.O. 4870(E) dated 2 September 2026), as consulted on 2 October 2026. There is no official consolidated text; the provisions were read with each amendment applied. Sectoral caps, entry routes, conditions, forms and time limits change by notification, press note and circular; later changes should be checked on the Gazette, DPIIT and Reserve Bank sites. This article is general information, not legal advice; check the official text before acting.