Rules 12 and 13 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.
Chapter V of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 covers investment by non-resident Indians and Overseas Citizens of India. On 12 June 2026, S.O. 3030(E) widened its scope: the Chapter now speaks of "an individual person resident outside India including a NRI or an OCI" and added a land-border control test to rule 12(1) and rule 13(1). Rule 12 deals with investment, rule 13 with transfer.
This article is based on the Rules as 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. Amendments made after that date should be checked in the Gazette. There is no official consolidated text; the provisions replaced in 2026 were read from the 2026 notification and the rest from the 2019 text. For tax questions of non-resident individuals, see our NRI tax filing service and our income-tax guides.
Rule 12(1), as substituted on 12 June 2026, lets an individual person resident outside India purchase or sell equity instruments of a listed Indian company and other securities on repatriation basis under Schedule III, but a transfer of ownership or control of the listed company to land-border entities or citizens, or to a beneficial owner from such a country, needs prior Government approval. Rule 12(2) (non-repatriation basis, Schedule IV) and 12(3) (IDRs, Schedule X) are as notified. Rule 13(1) now covers any such individual transferring on repatriation basis by sale or gift to a non-resident; rule 13(2) to (5) are as notified.
Chapter V, as headed now
As notified, the Chapter was headed "Investment by non-resident Indian or an overseas citizen of India". S.O. 3030(E), the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026 (12 June 2026) substituted the heading: "Investment by an individual person resident outside India including a non-resident Indian or an overseas citizen of India". It also substituted the sub-heading of rule 12 ("An individual person resident outside India including a NRI or an OCI may make investments as under") and the sub-heading of rule 13 ("Transfer of equity instruments by an individual person resident outside India including a NRI or an OCI").
NRI and OCI remain defined in rule 2(aj) and 2(ak): an individual resident outside India who is a citizen of India, and one registered as an Overseas Citizen of India Cardholder under section 7A of the Citizenship Act, 1955. See our article on Indian company, control, startup and investor classes. Rule 9(1) was changed in the same notification to exclude "an individual" in place of an NRI or OCI; see rule 9(1) to (3).
Rule 12: investment
Rule 12(1) as substituted. An individual person resident outside India may, on repatriation basis, purchase or sell equity instruments of a listed Indian company and other securities in the manner and subject to the terms and conditions specified in Schedule III. The 2019 text was the same for an NRI or an OCI, with "prescribed in Schedule III".
Proviso (new). Investment by an individual person resident outside India which results in transfer of ownership or control of the listed Indian company to entities or citizens of a country which shares land border with India, or where the beneficial owner of such investment is a citizen of any such country, shall require the prior approval of the Government.
Explanation (new). For this rule, "ownership of an Indian Company" has the same meaning as under rule 23 (see our article on the Explanation to rule 23); "beneficial owner" has the meaning in clause (fa) of sub-section (1) of section 2 of the Prevention of Money-laundering Act, 2002, determined by the criteria in sub-rule (3) of rule 9 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005.
Printing slip. The proviso in the notification ends "Government.;" with a full stop and a semicolon. This article reads it as the end of the proviso.
Rule 12(2), as notified. An NRI or an OCI may, on non-repatriation basis, purchase or sell equity instruments of an Indian company or other securities or contribute to the capital of an LLP or a firm or proprietary concern, under Schedule IV. The sub-rule still names "a NRI or an OCI"; the 2026 notification did not change it.
Note, as notified. An NRI or an OCI may trade or invest in all exchange traded derivative contracts approved by SEBI, subject to SEBI's limits and the conditions in Schedule III.
Rule 12(3), as notified. An NRI or an OCI may purchase, hold or sell Indian Depository Receipts of companies resident outside India and issued in the Indian capital market, under Schedule X.
Schedules III and IV are explained in our articles on listed-share purchases on repatriation basis and NRI and OCI investment on non-repatriation basis.
Rule 13: transfer
Opening words as substituted. An individual person resident outside India holding equity instruments of an Indian company or units in accordance with the Rules may transfer them in compliance with the conditions, if any, specified in the Schedules and subject to the terms and conditions provided in the sub-rules.
Rule 13(1) as substituted. An individual person resident outside India holding equity instruments or units on repatriation basis may transfer the same by way of sale or gift to any person resident outside India. Two provisos:
- prior Government approval shall be obtained for any transfer in case the company is engaged in a sector which requires Government approval;
- a transfer to an individual person resident outside India which results in transfer of ownership or control of the listed Indian company to entities or citizens of a land-border country, or where the beneficial owner of the investment is a citizen of such a country, requires the prior approval of the Government.
The same Explanation on ownership and beneficial owner follows. The 2019 text had a second proviso item (ii) on breach of the aggregate NRI or OCI limit, requiring the holder to sell to an eligible resident within the time stipulated by the Reserve Bank. The substituted sub-rule (1) does not carry it. The Reserve Bank's Master Direction - Foreign Investment in India, updated up to June 15, 2026, states in paragraph 7.3.3 that an individual person resident outside India who breaches an individual, aggregate or sectoral limit must sell within five trading days after settlement to an eligible resident, and that reaching ten per cent re-classifies the holding as FDI; paragraph 7.3.4 repeats the land-border approval. Those are the Master Direction's own statements.
Rule 13(2) to (5), as notified (none changed).
| Sub-rule | What it says |
|---|---|
| (2) | An NRI, OCI or eligible investor under Schedule IV holding on non-repatriation basis may sell to a person resident outside India, subject to entry routes, caps, pricing, documentation and reporting; these do not apply where the transferee is an NRI, OCI or Schedule IV investor |
| (3) | Gift on non-repatriation basis to a person resident outside India needs prior Reserve Bank approval and six conditions: donee eligible, five percent cumulative, sectoral cap, "relatives" under section 2(77) of the Companies Act, 2013, USD 50000 per financial year, other conditions in public interest |
| (4) | Gift between NRIs, OCIs or Schedule IV investors on non-repatriation basis, held on non-repatriable basis |
| (5) | An erstwhile OCB may transfer subject to Reserve Bank directions; "OCB" means an entity de-recognised through the 2003 Withdrawal of General Permission regulations |
Sub-rules (2) to (4) mirror the sale and gift rules in rule 9(4); see our article on gift of shares, optionality, deferred payment and escrow. Section 6(5) of the Act keeps shares acquired while resident in India on a non-repatriable basis; see our article on section 6(4) to (6) of the FEMA, 1999. For background on NRI investments, see our NRI investment guide and the older guide to NRI investment in shares, mutual funds, bonds and property.
A worked example
Anita, an NRI, buys shares of Lakshya Components Limited, a listed company, on the stock exchange on repatriation basis under Schedule III. Later she sells a block to Mr. Chen, an individual resident outside India, and the sale would move control of Lakshya to Mr. Chen's company, which is incorporated in a land-border country. Rule 13(1), second proviso, requires prior Government approval for that transfer. If Anita holds other shares on non-repatriation basis, she may sell them to a resident abroad under rule 13(2), and gift a small stake to her sister within the limits of rule 13(3).
Need help with NRI or OCI investment?
Whether a holding sits on repatriation or non-repatriation basis decides pricing, reporting and what can later be remitted. Our NRI tax filing team works with NRI clients on the Indian-side filings that follow.
Key takeaways
- Chapter V now covers an individual person resident outside India including a NRI or an OCI (S.O. 3030(E), 12 June 2026).
- Rule 12(1) adds prior Government approval for transfer of ownership or control of a listed company to land-border entities or citizens.
- Rule 12(2) and (3), the Note and rule 13(2) to (5) are as notified.
- The 2019 breach proviso in rule 13(1) is not in the substituted text; the Master Direction states the five trading day rule.
- Gifts on non-repatriation basis need prior Reserve Bank approval and six conditions.
Read next
- Schedule III to the FEM (Non-debt Instruments) Rules, 2019: listed-share purchases on repatriation basis
- Schedule IV to the FEM (Non-debt Instruments) Rules, 2019: NRI and OCI investment on non-repatriation basis
- Rule 6 of the FEM (Non-debt Instruments) Rules, 2019: who may invest and the land-border countries
- NRI accounts: NRE, NRO and FCNR
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.