Rule 6 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.
Rule 6 of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 lists the ways a person resident outside India may invest: in equity instruments of an Indian company under Schedule I, in an LLP under Schedule VI, in units of an investment vehicle under Schedule VIII and in depository receipts under Schedule IX. Clause (a) was rewritten in full on 1 May 2026 and now carries the rule for investors from countries sharing a land border with India.
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; rule 6 was read from the 2019 notification with each amendment applied. The press notes of the Department for Promotion of Industry and Internal Trade on this subject are not in the texts consulted and are not used. For a transaction involving such an investor, our FEMA advisory team can map the beneficial-ownership position.
Rule 6(a), as substituted by S.O. 2174(E) of 1 May 2026, lets a person resident outside India subscribe, purchase or sell equity instruments under Schedule I. An entity or citizen of a country sharing a land border with India, or an investment whose beneficial owner is a citizen of, or whose beneficial ownership is vested in, such a country, may invest only under the Government route. A citizen of Pakistan or an entity incorporated in Pakistan may invest only under the Government route and not in defence, space, atomic energy or prohibited sectors. A later change in beneficial ownership into those categories also needs prior Government approval.
What rule 6 provides
Rule 6 says a person resident outside India may make investment as under, in four clauses:
| Clause | Investment | Schedule |
|---|---|---|
| (a) | Subscribe, purchase or sell equity instruments of an Indian company | Schedule I |
| (b) | Capital contribution or acquisition or transfer of profit shares of an LLP, by a person other than a citizen of Bangladesh or Pakistan or an entity incorporated in Bangladesh or Pakistan | Schedule VI |
| (c) | Units of an investment vehicle, by the same class of person as in (b) | Schedule VIII |
| (d) | Depository receipts issued by foreign depositories against eligible securities | Schedule IX |
Clauses (b), (c) and (d) stand as notified on 17 October 2019; none of the nineteen amending notifications changes them. Clauses (b) and (c) still name citizens of Bangladesh or Pakistan and entities incorporated there, in those words. They are explained in our articles on Schedule VI, Schedule VIII and Schedules IX and X. Our article on section 6 of the FEMA, 1999 explains the Act provision under which non-debt instruments are regulated.
How clause (a) developed
Three stages are worth knowing, but only the last is the rule today.
- As notified (17 October 2019). Two provisos: a citizen of Bangladesh or Pakistan, or an entity incorporated in either, could not purchase equity instruments without prior government approval; and a citizen of Pakistan or an entity incorporated in Pakistan could not invest in defence, space, atomic energy and prohibited sectors even through the government route. A Note treated issue or transfer of a "participating interest or right" in oil fields to a non-resident as foreign investment.
- S.O. 1278(E), the Foreign Exchange Management (Non-debt Instruments) Amendment Rules, 2020 (22 April 2020) replaced the provisos with land-border wording, and S.O. 4441(E), the Fourth Amendment Rules, 2020 (8 December 2020) added a proviso on Multilateral Banks and Funds. These are the earlier text.
- S.O. 2174(E), the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2026 (1 May 2026, published 2 May 2026) substituted the whole of clause (a). It is the current text and is what follows.
Clause (a) as it now reads
Clause (a): a person resident outside India "may subscribe, purchase or sell equity instruments of an Indian company in the manner and subject to the terms and conditions as specified in Schedule I". Then two provisos.
First proviso, four items.
- (i) Land border. An entity or a citizen of a country which shares land border with India, or where the beneficial owner of an investment into India is a citizen of any such country, or where the beneficial ownership of an investment is vested in any such country, shall invest only under the Government route specified in sub-clause (ii) of clause (a) of paragraph (3) of Schedule I.
- (ii) Pakistan. A citizen of Pakistan or an entity incorporated in Pakistan shall invest only under the Government route, in sectors or activities other than defence, space, atomic energy and such other sectors or activities prohibited for foreign investment.
- (iii) Transfer of ownership. If the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, brings the beneficial ownership within items (i) and (ii), that change in beneficial ownership also requires prior Government approval.
- (iv) Multilateral Bank or Fund. A Multilateral Bank or Fund, of which India is a member, shall not be treated as an entity of a particular country, nor shall any country be treated as the beneficial owner of the investments of such Bank or Fund in India.
Further proviso (reporting). Investments into India from an investor entity (i) having any direct or indirect ownership by a citizen or an entity of a country sharing land border with India, and (ii) not requiring prior Government approval under this clause, are subject to reporting requirements specified by the Reserve Bank. The reporting forms are not in this rule; see our article on reporting under the Mode of Payment and Reporting Regulations.
Explanation 1. "Beneficial owner of an investment into India" means the beneficial owner of the investor entity incorporated or registered in a country other than a country which shares land border with India. "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.
Explanation 2. Beneficial ownership of the investment is vested in a country sharing land border with India where a citizen of such a country, or an entity incorporated or registered there, can directly or indirectly, individually or cumulatively with another citizen or entity, independently or collectively, whether acting together or otherwise, hold rights or entitlements: (A) in excess of the applicable thresholds in rule 9(3) of those 2005 Rules over an investor entity incorporated or registered in another country; or (B) enabling it to exercise control over that investor entity; or (C) enabling it to exercise ultimate effective control over the investee entity in any manner.
Explanation 3. Issue or transfer of "participating interest or right" in oil fields by Indian companies to a person resident outside India is treated as foreign investment and must comply with Schedule I. This is the old Note, now an Explanation.
Which countries share a land border with India is not listed in the Rules; the texts consulted do not name them in this clause. The Government route itself is described in our article on the automatic route and Government route. The sectors in which Pakistan-linked investment is barred are those in Schedule I paragraph 2.
The Master Direction's version
The Master Direction - Foreign Investment in India, updated up to June 15, 2026, restates the rule in paragraphs 3.2 to 3.4, with the same Explanations 1 and 2, the reporting requirement (paragraph 3.2.1), the Pakistan sentence (paragraph 3.3), the change of beneficial ownership (paragraph 3.4) and the Multilateral Bank proviso. It phrases paragraph 3.3 as "can, only with the prior Government approval, invest" in sectors other than defence, space, atomic energy and prohibited sectors; rule 6(a), second item, says "shall invest only under the Government route" in those sectors. The two say the same thing in different words.
A worked example
Nordvik Holdings, incorporated in a country that does not share a land border with India, proposes to subscribe to shares of Lakshya Components Private Limited. Nordvik's ultimate beneficial owner is a citizen of a land-border country. Under item (i) of the first proviso, the investment can only come in under the Government route. If Nordvik's beneficial owner is not a citizen of such a country but a holder from there will hold rights above the thresholds Explanation 2 cites, the same conclusion follows. If Nordvik's shares later change hands so that beneficial ownership moves within items (i) or (ii), item (iii) requires prior Government approval for the change.
Need help with an investor from a land-border country?
Tracing beneficial ownership through layered holding companies is the hard part of this rule. Our FEMA advisory team can review the chain and the route before funds are received.
Key takeaways
- Rule 6(a) was substituted on 1 May 2026 (S.O. 2174(E)); S.O. 1278(E) and S.O. 4441(E) of 2020 are the earlier text.
- Land-border entities, citizens and beneficial owners may invest only under the Government route.
- Pakistan citizens and entities are also barred from defence, space, atomic energy and prohibited sectors.
- A change of beneficial ownership into these categories needs prior Government approval.
- Investor entities with land-border ownership that need no approval are subject to Reserve Bank reporting.
Read next
- Schedule I paragraph 3 of the FEM (Non-debt Instruments) Rules, 2019: the automatic route and the Government route
- Schedule I paragraph 2 of the FEM (Non-debt Instruments) Rules, 2019: sectors prohibited for foreign investment
- Rules 7 and 7A of the FEM (Non-debt Instruments) Rules, 2019: rights issue, bonus issue and renounced rights
- Rule 2 of the FEM (Non-debt Instruments) Rules, 2019: Indian company, control, startup and investor classes
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.