Rules 1 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.
Rules 1 to 5 are the opening chapters of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. They give the Rules their name, make the Reserve Bank their administrator, bar any investment in India by a person resident outside India unless the law allows it, bar Indian entities from receiving such investment unless the law allows it, and tie every investment to the entry routes, caps and conditions that follow. This article reads them as the Rules stand today and gives a map of the whole instrument.
This article is based on the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, 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 provision here was read from the 2019 notification with every amending notification applied. Amendments made after 2 September 2026 should be checked in the Gazette. If you want the Rules applied to a live transaction, our FEMA advisory service starts from exactly this reading.
The Rules were made by the Central Government under clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999. Rule 2A (inserted by S.O. 2442(E) of 27 July 2020) makes the Reserve Bank the administrator of the Rules, with power to interpret them and issue directions, circulars, instructions and clarifications. Rule 3 bars any investment in India by a person resident outside India, and rule 4 bars an Indian entity, investment vehicle, venture capital fund, firm, association of persons or proprietary concern from receiving or recording such investment, in each case save as the Act, Rules or Regulations otherwise provide. Rule 5 says every investment is subject to the entry routes, sectoral caps, investment limits and conditions laid down in the Rules.
What the Rules supersede, and who made them
The preamble to S.O. 3732(E) of 17 October 2019 says the Central Government makes the Rules under clauses (aa) and (ab) of sub-section (2) of section 46 of the Act, "in supersession of" two sets of Reserve Bank regulations: the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2017 and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018. The supersession does not reach things done or omitted to be done before it. The preamble prints "Transfer of Issue" for "Transfer or Issue"; it is a printing slip in the notification and is quoted as printed.
The rule-making power is explained in our article on section 46 of the FEMA, 1999, and the capital account power behind non-debt instruments in section 6 of the FEMA, 1999. For the wider statute, see our introduction to FEMA 1999.
Rule 1: short title and commencement
Rule 1(1) names the instrument: the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. Rule 1(2) says that, save as otherwise provided, the Rules came into force on the date of their publication in the Official Gazette, which is 17 October 2019. The Master Direction - Foreign Investment in India (updated up to June 15, 2026) adds, in its paragraph 1.2, that an investment made by a person resident outside India in accordance with the Act, rules or regulations and held on 17 October 2019 is deemed to have been made under these Rules. That is also what the first proviso to rule 3 says.
Rule 2 and rule 2A
Rule 2 holds the definitions. They are explained in our three articles on the definitions: equity instruments, convertible notes and units, FDI, foreign portfolio investment and the sectoral cap, and Indian company, control, startup company and the investor classes. Sub-rule (2) of rule 2 says words used but not defined in the Rules carry the meaning given in the Act, rules and regulations.
Rule 2A is not in the 2019 notification. It was inserted after rule 2 by the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2020, S.O. 2442(E) dated 27 July 2020. The notification prints the number as "2(A)" and the Master Direction calls it "Rule 2(A)"; this article writes rule 2A. Its heading is "Reserve Bank to administer these rules" and it has two sub-rules:
- Sub-rule (1): the Rules shall be administered by the Reserve Bank.
- Sub-rule (2): while administering the Rules, the Reserve Bank may interpret and issue such directions, circulars, instructions and clarifications as it may deem necessary for effective implementation of the provisions of the Rules.
This is why the Rules so often say "as specified by the Reserve Bank". The mode of payment and reporting requirements sit in the Mode of Payment and Reporting of Non-Debt Instruments Regulations, 2019, explained in our article on payment, issue of shares and refund under regulation 3. The Master Direction records that it is issued to Authorised Persons under section 11 of the Act, read with rule 2A(2); see sections 11 and 12 of the FEMA, 1999. Where the Master Direction and a notification differ, the Master Direction itself says the notification prevails (paragraph 1.1).
Rule 3: restriction on investment by a person resident outside India
Rule 3 says that, save as otherwise provided in the Act or the rules or regulations made under it, no person resident outside India shall make any investment in India. It has two provisos:
- An investment made in accordance with the Act, rules or regulations and held on the date of commencement of the Rules is deemed to have been made under the Rules and is governed by them.
- The Reserve Bank may, on an application and for sufficient reasons, permit a person resident outside India to make any investment in India, subject to such conditions as it considers necessary.
As notified, the second proviso read "in consultation with the Central Government". Rule 3 of S.O. 2442(E) (27 July 2020) omitted the words "and in consultation with the Central Government". So today the Reserve Bank's permission under this proviso needs no consultation with the Central Government. "Investment" is defined in rule 2(ac) as to subscribe, acquire, hold or transfer any security or unit issued by a person resident in India.
Rule 4: restriction on receiving investment
Rule 4 is the mirror of rule 3. Save as otherwise provided, an Indian entity, an investment vehicle, a venture capital fund, a firm, an association of persons or a proprietary concern shall not receive any investment in India from a person resident outside India or record such investment in its books. The proviso lets the Reserve Bank, on an application and for sufficient reasons, permit any of them to receive or record such an investment, subject to conditions. Again, the words "and in consultation with the Central Government" were omitted by S.O. 2442(E).
Rule 5: entry routes, caps and conditions
Rule 5 says that, unless otherwise specified in the Rules or the Schedules, any investment by a person resident outside India shall be subject to the entry routes, sectoral caps or investment limits, as the case may be, and the attendant conditionalities laid down in the Rules. The next chapters supply those limits for each class of investor.
Map of the Rules
| Part of the Rules | What it covers | Read our article |
|---|---|---|
| Chapter I, rules 1 and 2; Chapter II, rules 3 to 5 | Title, definitions, administration, general conditions | This article and the three definition articles above |
| Chapter III, rules 6 to 9A | Investment by a person resident outside India | Rule 6, rules 7 and 7A, rule 8, rule 9(1) to (3) |
| Chapter IV, rules 10 and 11 | Foreign portfolio investors | Rules 10 and 11 |
| Chapter V, rules 12 and 13 | Individuals resident outside India, including NRIs and OCIs | Rules 12 and 13 |
| Chapters VI and VII, rules 14 to 17 | Other non-resident investors; foreign venture capital investors | Schedules V and VII |
| Chapter VIII, rules 18 to 23 | Convertible notes, mergers, reporting, pricing, downstream investment | Rule 18, rule 19, pricing under rule 21, downstream investment |
| Chapter IX, rules 24 to 33 | Immovable property in India | Rules 24 and 25 onwards |
| Chapter X, rule 34 | Direct listing on international exchanges | Rule 34 and Schedule XI |
| Schedules I to XI | Sector caps, FPI, NRI, LLP, funds, depository receipts, direct listing | Schedule I and the Schedule articles |
The nineteen amending notifications
The Note at the end of S.O. 4870(E) lists the notifications that amended the Rules before it. Counting S.O. 4870(E) itself, the chain consulted has nineteen:
| Notification | Date | Main subject |
|---|---|---|
| S.O. 4355(E), 1278(E), 1374(E), 2442(E), 4441(E) | 5 Dec 2019; 22 Apr, 27 Apr, 27 Jul, 8 Dec 2020 | Rules 2, 3, 4, 6, 7, 7A, 9(4), 11, 21; early Schedule changes |
| S.O. 3206(E), 3411(E), 4091(E), 4242(E) | 6 Aug 2021 (cited later as 9 Aug 2021); 19 Aug, 5 Oct, 12 Oct 2021 | Rule 23 Explanation; private banks, insurance, petroleum, telecom |
| S.O. 1802(E) | 12 Apr 2022 | Rule 2 definitions; rules 8 and 19 |
| S.O. 332(E), 1361(E), 1722(E), 3492(E) | 24 Jan, 14 Mar, 16 Apr, 16 Aug 2024 | Rule 34 and Schedule XI; partly paid units; space; control, startup, rule 9A |
| S.O. 2549(E) | 11 Jun 2025 | Rule 7(2) |
| S.O. 2174(E), 2186(E), 3030(E), 4870(E) | 1 May (published 2 May), 2 May, 12 Jun, 2 Sep 2026 | Rule 6(a); insurance; individuals resident outside India; e-commerce exports |
Three printing slips appear in the notifications. The Notes of S.O. 332(E), 1361(E), 1722(E) and 3492(E) cite the April 2022 amendment as "S.O. 1202 (E)"; its own heading and the later Notes print S.O. 1802(E), which this article uses. The Note of S.O. 4870(E) dates S.O. 3206(E) as 9 August 2021 while its own heading is dated 6 August 2021. And rule 2A is printed "2(A)".
For example, when Nordvik Holdings, a company incorporated abroad, sends money to Lakshya Components Private Limited for new shares, rule 3 asks whether a provision allows Nordvik to invest, rule 4 asks the same of Lakshya's receipt, and rule 5 sends both to the entry route and cap for Lakshya's activity.
Need help with foreign investment compliance?
If you are planning to bring foreign money into an Indian company or LLP and want the route, cap and conditions checked before funds move, our FEMA advisory team can review the structure under these Rules with you.
Key takeaways
- The Rules were made on 17 October 2019 under section 46(2)(aa) and (ab) of the Act and superseded the 2017 and 2018 regulations on security issue and immovable property.
- Rule 2A, inserted on 27 July 2020, makes the Reserve Bank the administrator of the Rules with power to interpret and issue directions.
- Rules 3 and 4 bar investment by, and receipt from, a person resident outside India unless a provision permits it; the Reserve Bank may permit on application, and the consultation with the Central Government was omitted in 2020.
- Rule 5 ties every investment to the entry route, sectoral cap and conditions of the Rules.
- Nineteen notifications, the last being S.O. 4870(E) of 2 September 2026, make up the amended text.
Read next
- Rule 2 of the FEM (Non-debt Instruments) Rules, 2019: equity instruments, convertible notes, non-debt instruments and units
- Rule 6 of the FEM (Non-debt Instruments) Rules, 2019: who may invest and the land-border countries
- Section 46 of the FEMA, 1999: the power of the Central Government to make rules
- Section 6 of the FEMA, 1999: capital account transactions, debt and non-debt instruments
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.