The policy permits overseas companies with Chinese shareholding of up to 10% to invest in India under the automatic route, according to a press note issued by the department. These investments will be subject to sectoral FDI limits and conditions.
However, the relaxed FDI norms will not apply to entities registered in China/Hong Kong or other countries sharing land borders with India.
While a non-resident entity can invest in India, except in those sectors prohibited, under the automatic route, 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, can invest only under the government route.
The government defined the meaning of ‘beneficial owner’ as an entity that controls the investment, in line with the Prevention of Money Laundering Act (PMLA).
As per PMLA, controlling ownership interest means ownership of or entitlement to more than 10% of shares or capital or profits of the company. In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership, such subsequent change in beneficial ownership will also require prior government approval, according to Press Note 2 of 2026.
“Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment,” DPIIT said.Government approval for inbound investment will also be needed if an Indian company with existing foreign investment goes through transfer of ownership in the future and the new beneficial owner is from a land border country.
Countries that share land borders with India include China, Bangladesh, Afghanistan, Nepal, Myanmar, Pakistan and Bhutan.
The changes have been made by modifying a paragraph in the Press Note 3 (2020) that was introduced six years ago to prevent opportunistic takeovers of Indian companies during the pandemic.
“The investments into India from an investor entity having any direct or indirect ownership by a citizen or an entity of a country sharing land border with India; and not requiring prior government approval…shall be subject to reporting requirement in the format as per the standard operating procedure laid down by DPIIT,” the notification said.
These requirements will be in addition to compliance with the applicable sectoral cap, entry route and attendant conditions.
The changes will come into effect from the date of Foreign Exchange Management Act (Fema) notification.
Earlier, the department said there would be a mechanism for expedited clearance of FDI proposals of companies from China and other countries sharing land borders with India, across specified sectors.