FDI in India in 2026 is governed by the Foreign Exchange Management Act, 1999 and the FEMA (Non-Debt Instruments) Rules, 2019, which set sector-wise caps, entry routes and reporting rules for every foreign investor. Most sectors permit 100% foreign ownership through the automatic route, needing only post-facto reporting on the FIRMS portal, while sensitive sectors need prior Central Government approval through the NSWS portal.
Foreign Direct Investment into an Indian company, limited liability partnership (LLP) or startup is not a single, uniform process. It depends on your sector, the percentage of equity you want, and whether your investment originates from a country that shares a land border with India. This guide sets out the legal framework a General Counsel or CFO needs before wiring the first rupee into an Indian entity.
Table 1: Key facts on FDI in India (as at 15 February 2026)
| Parameter | Position | Source |
|---|---|---|
| Primary statute | Foreign Exchange Management Act, 1999 (FEMA) | FEMA, 1999 |
| Operative rules for equity investment | FEMA (Non-Debt Instruments) Rules, 2019 (NDI Rules) | NDI Rules, 2019 |
| Policy compilation | Consolidated FDI Policy, updated by DPIIT Press Notes | DPIIT |
| Default entry route | Automatic route — no prior government approval | NDI Rules, 2019, Schedule I |
| Restricted entry route | Government route — prior approval via NSWS portal | NDI Rules, 2019, Rule 8 |
| Reporting portal | FIRMS portal (Foreign Investment Reporting and Management System) | RBI |
| Reporting form for fresh equity | Form FC-GPR | RBI Master Direction on Reporting under FEMA |
| Regulator for banking channel | Authorised Dealer (AD) Category-I Bank | FEMA, 1999 |
| Land-border country restriction | Prior government approval mandatory regardless of sector | Press Note 3 (2020 Series), DPIIT |
What Changed in 2026
- Insurance Laws (Amendment) Act, 2025 — raised the FDI cap in the insurance sector from 74% to 100%, subject to conditions on premium retention in India and Indian ownership of the board and key management. This took effect from a notified date in 2025 and remains in force through 2026.
- Press Note 3 (2024 Series), DPIIT — introduced a dedicated FDI framework for the space sector, splitting satellite manufacturing, launch vehicles and ground/user segment components into distinct caps and routes.
- NSWS/SWAGAT-FI rollout — the government-route approval workflow has fully migrated to the National Single Window System, replacing the earlier Foreign Investment Facilitation Portal (FIFP) for all fresh applications.
- RBI’s Late Submission Fee (LSF) matrix continues to apply to delayed FIRMS filings, and remains the primary compliance risk for routine automatic-route investments in 2026.
What is FDI and how is it different from other foreign capital?
FDI means a non-resident’s investment in the equity capital of an Indian company or LLP with a lasting interest and control element, distinguished from portfolio investment which is passive and liquid. FDI is governed by the NDI Rules, while portfolio flows sit under the FEMA (Debt Instruments) framework and SEBI’s Foreign Portfolio Investor (FPI) regime.
The distinction matters because FDI instruments — equity shares, fully and mandatorily convertible preference shares, and fully and mandatorily convertible debentures — attract sectoral caps and entry-route conditions. Instruments that do not meet this definition, such as optionally convertible instruments, are treated as debt and regulated separately under the External Commercial Borrowings framework.
A foreign investor structuring an India entry in 2026 must first classify the instrument, then the sector, then the route. Getting this sequence wrong is the single most common cause of delayed bank remittances at the AD Category-I Bank stage.
Automatic route vs government route: which applies to you?
Under the automatic route, a foreign investor can bring in funds and receive shares without prior government approval, subject only to post-investment reporting; under the government route, the investment needs prior approval from the relevant administrative ministry before the funds can be treated as FDI. Roughly 90% of eligible sectors fall under the automatic route in 2026 (NDI Rules, 2019, Schedule I).
Sectors requiring government approval include multi-brand retail trading, print media, satellite communication beyond specified thresholds, and any sector where foreign ownership needs security or public-interest screening. Separately, any investment — regardless of sector or automatic-route eligibility — from an entity based in, or with a beneficial owner situated in, a country sharing a land border with India requires government approval (Press Note 3, 2020 Series, DPIIT). This includes investments routed through third-country intermediaries where the beneficial ownership traces back to a bordering country.
A companion article on this site, “Automatic Route vs Government Route in FDI,” walks through the decision tree sector by sector.
Table 2: Illustrative sectoral caps and entry routes for FDI in India (as at 15 February 2026)
How to read this table: “Automatic” means no prior approval is needed up to the stated cap; “Government” means prior approval is mandatory for that slice of the investment.
| Sector | Cap | Route | Source |
|---|---|---|---|
| Manufacturing (most goods) | 100% | Automatic | NDI Rules, 2019, Schedule I |
| Insurance company | 100% | Automatic (with conditions) | Insurance Laws (Amendment) Act, 2025 |
| Defence industry | 74% automatic; up to 100% beyond | Automatic up to 74%; Government beyond | Press Note 4 (2020 Series), DPIIT |
| Telecom services | 100% | Automatic up to 49%; Government beyond 49% | NDI Rules, 2019 |
| Single-brand retail trading | 100% | Automatic | Press Note 5 (2019 Series), DPIIT |
| Multi-brand retail trading | 51% | Government | Consolidated FDI Policy |
| Print media (news and current affairs) | 26% | Government | Consolidated FDI Policy |
| E-commerce (marketplace model) | 100% | Automatic | Press Note 2 (2018 Series), DPIIT |
| Space sector — satellite manufacturing | 74% automatic; up to 100% beyond | Automatic up to 74%; Government beyond | Press Note 3 (2024 Series), DPIIT |
| Agriculture (permitted activities only) | 100% | Automatic | NDI Rules, 2019, Schedule I |
Detailed, sector-specific articles on insurance, defence, space, e-commerce, retail, fintech, real estate and agriculture are published separately on this site and linked below in this guide.
What structure should a foreign investor use to enter India?
A foreign investor can enter India by incorporating a wholly owned subsidiary as a private limited company, forming an LLP, setting up a joint venture, or registering a branch, liaison or project office; the private limited company route is the most common because it permits 100% foreign ownership in most sectors with limited liability. Each structure carries different FEMA reporting and tax consequences.
A wholly owned subsidiary is incorporated under the Companies Act, 2013 and reports its foreign shareholding through Form FC-GPR after allotment of shares. An LLP structure is permitted for FDI only in sectors where 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions; LLP investments are reported through Form LLP-I and LLP-II. Branch and liaison offices are governed separately under the NDI Rules and require RBI approval through the AD Category-I Bank, and they do not constitute equity FDI in the conventional sense since no share capital is issued.
Joint ventures with an Indian resident partner are common in regulated sectors such as insurance and defence, where the sectoral cap effectively mandates Indian co-ownership above a threshold. The joint venture agreement should align board composition, reserved matters and exit rights with the FDI conditions attached to the sector, since a shareholder arrangement that contradicts the sectoral conditions can itself become a compliance breach.
How does an automatic-route FDI transaction actually get reported?
An automatic-route FDI transaction is completed by remitting funds through an AD Category-I Bank, allotting shares within 60 days, and filing Form FC-GPR on the FIRMS portal within 30 days of allotment. Late filing attracts a Late Submission Fee (LSF) computed under the RBI’s reporting framework, not a criminal penalty, provided the transaction itself was otherwise compliant.
Table 3: Process for automatic-route FDI in India
| Step | Action | Responsible party | Statutory deadline | Form/Portal | Typical TAT |
|---|---|---|---|---|---|
| 1 | Incorporate Indian entity or identify existing entity | Foreign investor / Indian entity | Not applicable | MCA portal (SPICe+) | 5-10 working days (indicative) |
| 2 | Open bank account and remit share subscription money | Foreign investor via AD Category-I Bank | Not applicable | Banking channel / SWIFT | 2-5 working days (indicative) |
| 3 | Obtain KYC of remitter and issue FIRC/bank advice | AD Category-I Bank | Not applicable | Bank-issued advice | 1-3 working days (indicative) |
| 4 | Allot equity shares or convertible instruments | Indian company board | Within 60 days of receipt of funds | Board resolution, Form PAS-3 | Within 60 days |
| 5 | File Form FC-GPR on FIRMS portal | Indian company | Within 30 days of allotment | FIRMS portal | 30 days |
| 6 | AD Bank certification and RBI acknowledgement | AD Category-I Bank | As per bank processing | FIRMS portal | 5-15 working days (indicative) |
When does government approval apply, and how is it obtained?
Government-route approval is required where the sector cap mandates it, or where the investor is based in or beneficially owned from a country bordering India, and the application is now filed through the NSWS portal under the SWAGAT-FI mechanism rather than the discontinued FIFP. The concerned administrative ministry examines the application with inputs from DPIIT and other departments before granting or rejecting approval.
Two companion articles cover this in depth: “Government Route Process on the NSWS/SWAGAT-FI” explains the filing mechanics, and “How Long Does Government-Route FDI Approval Take?” sets out realistic timelines by proposal size and sector sensitivity.
What are the pricing guidelines for FDI transactions?
Shares issued to a non-resident under FDI must be priced at or above fair value determined by an internationally accepted pricing methodology, certified by a SEBI-registered merchant banker or a chartered accountant, and shares transferred from a resident to a non-resident cannot be priced below this fair value. These pricing guidelines exist under the NDI Rules to prevent undervaluation that could be used to route capital in ways inconsistent with declared investment terms.
For unlisted companies, valuation is typically done using the discounted cash flow method or another internationally accepted methodology; for listed companies, the price cannot be lower than that prescribed under SEBI regulations. A downstream investment — where an Indian company that itself has foreign investment further invests in another Indian company — must also comply with these pricing norms and is treated as indirect foreign investment for the purpose of computing sectoral caps.
How is downstream investment treated under Indian FDI rules?
Downstream investment occurs when an Indian company owned or controlled by non-residents invests in the equity of another Indian company, and this indirect foreign investment is added to any direct foreign investment in the second company for sectoral cap computation. The NDI Rules define “ownership” as more than 50% of capital and “control” as the right to appoint a majority of directors or control management decisions.
An Indian company making a downstream investment must notify the fact through Form DI on the FIRMS portal within 30 days of the investment, and the investment must comply with the entry route, sectoral cap and pricing guidelines applicable to the sector of the investee company as if it were direct foreign investment. This rule prevents layering of Indian holding structures to circumvent sectoral caps in restricted sectors such as defence or multi-brand retail.
What are the repatriation rules for dividends, capital and proceeds?
Dividends on FDI holdings are freely repatriable after payment of applicable dividend distribution tax obligations borne by the shareholder, and sale proceeds of shares are repatriable if the original investment was made on a repatriation basis and the transaction complies with pricing guidelines. Capital gains tax under the Income-tax Act, 1961 applies separately and is not displaced by FEMA compliance.
Repatriation of sale proceeds is typically routed through Form FC-TRS filed on the FIRMS portal, evidencing the transfer between a resident seller and non-resident buyer, or vice versa, within 60 days of the transaction. Where the transferee is a person resident outside India and the transferor is a person resident in India, the AD Category-I Bank verifies compliance with pricing guidelines before permitting the outward remittance.
What happens if FDI reporting is delayed or non-compliant?
A delayed or missed FDI reporting filing is a contravention under FEMA and is regularised through the Late Submission Fee mechanism for delayed reporting, or through compounding by the Reserve Bank of India for more serious contraventions such as pricing breaches or route violations. The LSF is a compliance cost, not a criminal sanction, calculated based on the amount of investment and the period of delay.
Table 4: Penalties and cure routes for FDI reporting defaults in India
| Default | Provision | Exposure | Regularisation route |
|---|---|---|---|
| Delayed filing of Form FC-GPR | FEMA, 1999, read with Master Direction on Reporting | Late Submission Fee based on amount and delay | Pay LSF through FIRMS portal |
| Delayed filing of Form FC-TRS | FEMA, 1999, read with Master Direction on Reporting | Late Submission Fee based on amount and delay | Pay LSF through FIRMS portal |
| Investment routed without required government approval | NDI Rules, 2019, Rule 8 | Contravention; may require unwinding or compounding | Compounding application to RBI |
| Undervaluation or breach of pricing guidelines | NDI Rules, 2019 | Contravention of FEMA | Compounding application to RBI |
| Non-filing of downstream investment (Form DI) | NDI Rules, 2019 | Late Submission Fee / compounding depending on facts | File belated Form DI with LSF, or compounding |
Illustrative example: a Singapore-based manufacturer entering India
Assume a Singapore-incorporated electronics component manufacturer, Meridian Circuits Pte Ltd, wants to set up a wholly owned subsidiary in Tamil Nadu to manufacture components, with an initial equity infusion of USD 5 million (approximately ₹43.5 crore, assuming ₹87/USD as at February 2026). Electronics manufacturing sits under the 100% automatic route, and Singapore is not a bordering country, so no government approval is needed.
Meridian incorporates an Indian private limited company, opens a current account with an AD Category-I Bank, and remits the USD 5 million in tranches against share subscription. The Indian subsidiary allots equity shares within 60 days of each tranche and files Form FC-GPR on the FIRMS portal within 30 days of each allotment, attaching the fair valuation certificate from a chartered accountant. Once reporting is complete, the AD Bank closes out the reporting obligation, and Meridian’s Indian subsidiary can commence manufacturing operations, later repatriating dividends once profits are declared and applicable taxes are paid.
This is a simplified illustration for orientation only; actual structuring depends on the investor’s group tax position, the state incentive package, and any sector-specific conditions.
Automatic route vs government route: a quick comparison
Choose the automatic route if your sector allows up to 100% foreign ownership without conditions, your investor base does not include a bordering-country entity, and you want the fastest path to closing.
Choose (or prepare for) the government route if your sector is defence, multi-brand retail, print media, or space beyond automatic thresholds, or if any investor in the chain is based in or beneficially owned from a bordering country.
Frequently Asked Questions
What is the current FDI policy in India for 2026?
The FDI policy in India for 2026 is set out in the Consolidated FDI Policy as amended by subsequent DPIIT Press Notes, operating alongside the FEMA (Non-Debt Instruments) Rules, 2019. Most sectors allow 100% foreign ownership under the automatic route, while defence, insurance, telecom, retail and space carry specific caps and conditions.
Can a foreign company own 100% of an Indian company?
Yes, a foreign company can own 100% of an Indian private limited company in most sectors, including manufacturing, IT services and most of e-commerce marketplace activity, under the automatic route. Certain sectors like multi-brand retail and print media cap foreign ownership below 100% and require government approval.
Is RBI approval required for every FDI transaction?
No, RBI approval is not required for automatic-route transactions; only post-facto reporting through the FIRMS portal is needed. Government-route sectors need approval from the concerned administrative ministry, not RBI directly, though the AD Category-I Bank still processes the actual remittance.
How long does it take to receive FDI approval in India?
Automatic-route FDI needs no prior approval and can be completed within the time it takes to remit funds and file Form FC-GPR, typically a few weeks. Government-route approval timelines vary by sector and proposal size, and are discussed in detail in our dedicated article on government-route approval timelines.
What happens if my country shares a land border with India?
If your investing entity, or any beneficial owner in your investment chain, is based in a country sharing a land border with India, your investment needs prior government approval regardless of the sector’s automatic-route status. This applies even to sectors that are otherwise 100% automatic for other investors.
Can a foreign investor set up an LLP instead of a private limited company?
Yes, a foreign investor can invest in an Indian LLP, but only in sectors where 100% FDI is permitted under the automatic route with no FDI-linked performance conditions. LLP investments are reported through Form LLP-I and LLP-II rather than Form FC-GPR.
What is the difference between FDI and FPI in India?
FDI involves equity investment with a lasting interest and management involvement, governed by the NDI Rules, while Foreign Portfolio Investment (FPI) is a more liquid, passive holding in listed securities regulated by SEBI. The two regimes have different registration, reporting and caps.
Does FDI in India require a local Indian director?
Yes, every Indian private limited company, including a wholly foreign-owned subsidiary, must have at least one director who is a resident of India for more than 182 days in the previous calendar year under the Companies Act, 2013. This is a company law requirement, separate from FEMA’s FDI conditions.
What is the Late Submission Fee under FEMA?
The Late Submission Fee (LSF) is a monetary charge payable when FDI-related reporting forms such as FC-GPR, FC-TRS or Form DI are filed after the statutory deadline, calculated under the RBI’s reporting framework based on the amount involved and the period of delay. It is a compliance-cost mechanism, not a criminal penalty.
Can FDI be repatriated fully out of India?
Yes, dividends and sale proceeds from FDI are generally repatriable if the original investment was made on a repatriation basis and all pricing and reporting conditions were met. Applicable income tax, including capital gains tax, must be paid before remittance and evidenced through a chartered accountant’s certificate.
Is there a minimum capital requirement for FDI in an Indian company?
No, there is no general minimum capital requirement for FDI under the NDI Rules for most sectors, since sector-specific minimum capitalisation norms for activities like non-banking financial companies were withdrawn in earlier policy reforms. Some regulated sectors, such as insurance, continue to prescribe minimum capital under their own statutes.
How is FDI different for a foreign national investing individually versus a foreign company?
A foreign national and a foreign company are both treated as “persons resident outside India” under FEMA and follow the same NDI Rules framework for sectoral caps and routes. The practical difference lies in KYC documentation, since individual investors submit passport-based identification while corporate investors submit constitutional and beneficial ownership documents.
Sources
- Foreign Exchange Management Act, 1999 — Ministry of Finance, Government of India.
- Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 — Department of Economic Affairs.
- Consolidated FDI Policy — Department for Promotion of Industry and Internal Trade (DPIIT).
- Press Note 3 (2020 Series) — DPIIT, on land-border country investment restrictions.
- Press Note 4 (2020 Series) — DPIIT, on defence sector FDI.
- Press Note 2 (2018 Series) — DPIIT, on e-commerce FDI guidelines.
- Press Note 5 (2019 Series) — DPIIT, on single-brand retail trading.
- Press Note 3 (2024 Series) — DPIIT, on space sector FDI.
- Insurance Laws (Amendment) Act, 2025 — Ministry of Finance / IRDAI.
- RBI Master Direction on Reporting under FEMA, 1999 — Reserve Bank of India.
Disclaimer: This article is for general informational purposes only and does not constitute legal, tax or investment advice. Rules, thresholds and portal names referenced here are subject to periodic amendment by the Government of India and the Reserve Bank of India. Foreign investors should consult a qualified professional before acting on any information in this article. CompanyIN and its contributors accept no liability for decisions made on the basis of this content.
