Schedule I 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.
Paragraph 3(b) of Schedule I to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 holds eight general items that sit above the sectoral Table: what a sectoral cap is, what happens in sectors the Table does not list, how minimum capitalisation is counted, how foreign investment enters investing companies and core investment companies, how a company without operations is treated, who carries the onus of compliance, and when a joint audit is required. The Rules are made under clauses (aa) and (ab) of sub-section (2) of section 46 of the Foreign Exchange Management Act, 1999.
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. Later amendments, press notes and sector regulators' conditions should be checked before acting. Holding structures are where these items bite most, and our FEMA advisory team reviews them regularly.
The sectoral cap is the limit shown against each sector, and total foreign investment shall not exceed the sectoral or statutory cap. In sectors not listed and not prohibited, foreign investment is permitted up to one hundred percent on the automatic route, except financial services outside serial number F, which need prior Government approval. Foreign investment in investing companies not registered as NBFCs and in core investment companies needs prior Government approval; in investing companies registered as NBFCs it is on the automatic route. The onus of compliance is on the company receiving the investment.
The eight items
| Item | Subject | Rule in substance |
|---|---|---|
| (i) | Sectoral cap | The limit indicated against each sector in the Table; total foreign investment shall not exceed the sectoral or statutory cap |
| (ii) | Conditions | Foreign investment in the listed sectors is subject to applicable laws or regulations, security and other conditionalities |
| (iii) | Sectors not listed | Up to one hundred percent on the automatic route, if not prohibited under paragraph (2); proviso for financial services |
| (iv) | Minimum capitalisation | Includes premium received with face value, only when received by the company on issue to the non-resident |
| (v)(A) | Investing companies not registered as NBFCs; core investment companies | Prior approval of the Government |
| (v)(B) | Investing companies registered as NBFCs | Hundred per cent, automatic route |
| (vi) | Company without operations | May receive investment under the automatic route for automatic route activities without FDI linked performance conditions |
| (vii) | Onus | On the company receiving foreign investment |
| (viii) | Joint audit | Where the foreign investor specifies an auditor with an international network |
None of the 19 amending notifications up to 2 September 2026 changes paragraph 3(b). Item (v)(B) prints the cap as a percentage figure; it is written in words here.
Items (i) and (ii): the cap as a composite limit
Item (i) says the sectoral cap for the sectors or activities in the Table is the limit indicated against each sector, and the total foreign investment shall not exceed the sectoral or statutory cap.
Rule 2(am) defines "sectoral cap" as the maximum investment including both foreign investment on a repatriation basis by persons resident outside India in equity instruments of a company or the capital of an LLP, and indirect foreign investment, unless provided otherwise; it "shall be the composite limit for the Indian investee entity". The words "and debt" after "equity" were omitted by the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2019, S.O. 4355(E) dated 5 December 2019. The Explanation to the clause keeps FCCBs and depository receipts with debt underlying outside the cap, and counts equity resulting from conversion of any debt instrument within it. See our article on FDI, foreign portfolio investment and sectoral cap as defined.
Item (ii) adds that foreign investment in the listed sectors is subject to applicable laws or regulations, security and other conditionalities.
Item (iii): sectors the Table does not list
In sectors or activities not listed in the Table and not prohibited under paragraph (2) of Schedule I, foreign investment is permitted up to one hundred percent on the automatic route, subject to applicable laws or regulations, security and other conditionalities.
Proviso. Foreign investment in financial services other than those indicated under serial number "F" would require prior approval of the Government. The Table repeats this under the heading "F Financial Services".
Item (iv): minimum capitalisation
Wherever there is a requirement of minimum capitalisation, it includes premium received along with the face value of the equity instrument, only when it is received by the company upon issue of such instruments to the person resident outside India. The amount paid by a transferee during a post-issue transfer beyond the issue price is not taken into account.
Item (v): investing companies and core investment companies
(A) Foreign investment in investing companies not registered as Non-Banking Financial Companies with the Reserve Bank, and in core investment companies (CICs), both engaged in the activity of investing in the capital of other Indian entities, requires prior approval of the Government. The Note adds that compliance with the Rules by core investment companies is in addition to compliance with the regulatory framework prescribed for such companies as NBFCs under the Reserve Bank of India Act, 1934 and regulations under it.
(B) Foreign investment in investing companies registered as NBFCs with the Reserve Bank is under the hundred per cent automatic route.
"Investing company" is defined in rule 2(ab) as an Indian company holding only investments in other Indian companies, directly or indirectly, other than for trading of such holdings or securities.
Item (vi): a company without operations
For undertaking activities which are under the automatic route and without FDI linked performance conditions, an Indian company which does not have any operations and has not made any downstream investment that is treated as indirect foreign investment for the investee entity may receive investment in its equity instruments from persons resident outside India under the automatic route.
Two riders follow. Government approval is required for such companies for undertaking activities under the Government route. And as and when such a company commences business or makes such downstream investment, it has to comply with the relevant sectoral conditions on entry route, conditionalities and caps. Downstream investment is explained in our article on rule 23(1) to (4).
Items (vii) and (viii): onus and joint audit
(vii) The onus of compliance with the sectoral or statutory caps on such foreign investment and attendant conditions, if any, is on the company receiving foreign investment.
(viii) Wherever the person resident outside India who has made foreign investment specifies a particular auditor or audit firm having an international network for the audit of the Indian investee company, the audit shall be carried out as a joint audit wherein one of the auditors is not part of the same network.
What the Master Direction adds
The Reserve Bank's Master Direction - Foreign Investment in India, updated up to June 15, 2026, restates these items in paragraph 5.2. It adds two Notes that Schedule I does not print: that a request for clarification on a sector or its conditions may be made to the Department for Promotion of Industry and Internal Trade; and that an Indian investee company whose proposed activities are regulated by a financial sector regulator may receive foreign investment to meet the minimum net owned funds prescribed by that regulator, to be used only for that purpose, and to be repatriated, or brought within the rule for companies without operations, if the registration or licence is not granted.
A worked example
Brightwater Partners LP, a foreign fund, wants to invest in two Indian companies. Ishaan Holdings Private Limited holds only shares of other Indian companies and is not registered with the Reserve Bank as an NBFC: item (v)(A) requires prior Government approval. Ridhi Finvest Limited is an investing company registered as an NBFC: item (v)(B) puts it on the automatic route.
Brightwater also asks that a firm from a named international network audit Ishaan. Item (viii) then requires a joint audit, with one auditor from outside that network. Whatever Brightwater's undertakings, item (vii) places the onus of staying within the cap on the two Indian companies.
Need help with a holding company that takes foreign money?
Whether a company is an "investing company", whether it is registered as an NBFC and whether it has operations decide the route. Our FEMA advisory service checks each point against paragraph 3(b) before the term sheet is signed.
Key takeaways
- Total foreign investment cannot exceed the sectoral or statutory cap; the cap is a composite limit that counts indirect foreign investment.
- Unlisted, non-prohibited sectors are open up to one hundred percent on the automatic route, except financial services outside serial number F.
- Premium counts towards minimum capitalisation only when the company receives it on issue to the non-resident.
- Investing companies not registered as NBFCs and core investment companies need prior Government approval.
- A company without operations may take automatic route investment for automatic route activities, and must meet sectoral conditions once it starts business or invests downstream.
- The investee company carries the onus of compliance; a joint audit applies where the foreign investor names a network auditor.
Read next
- Schedule I paragraph 3(a): automatic route and Government route
- Serial numbers F.9 to F.11 of the Table: pension, other financial services and white label ATMs
- Explanation to rule 23: indirect foreign investment and ownership tests
- NBFC regulations: the Reserve Bank framework
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.