FEMA Non-Debt Third Amendment 2026: What Changed for Foreign Investors in India

FEMA Non-Debt Third Amendment 2026: What Changed for Foreign Investors in India

The Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026 introduced targeted changes to how foreign investment is structured, priced, and reported for certain categories of Indian companies. This article covers the substantive changes and their operational impact on foreign investors, Indian companies receiving FDI, and the CA and CS practitioners managing compliance.

Background: The Non-Debt Instruments Rules Framework

Foreign investment in Indian equity, compulsorily convertible instruments, and other non-debt instruments is governed by the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (NDI Rules), notified under Section 46 of the Foreign Exchange Management Act, 1999 (FEMA). These rules have been amended periodically — this is the Third Amendment in 2026.

The NDI Rules replaced the old FEMA (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, and consolidated foreign investment rules across sectors.

What the Third Amendment Changes

Amendment 1 — Pricing methodology for unlisted shares: clarification on fair value.

The NDI Rules require that foreign investment in unlisted Indian companies be made at a price not less than the fair value computed by a SEBI-registered Merchant Banker (for equity shares) or a Chartered Accountant (for instruments other than equity). The Third Amendment clarifies:

• The fair value determination must use the Discounted Cash Flow (DCF) method as the primary method, with other methods (Net Asset Value, comparable company analysis) permissible as supplementary or cross-check methods
• The valuation report must be dated not more than 90 days before the allotment date (tightened from 180 days under prior practice)
• For Series A and later rounds with a lead investor, the lead investor's negotiated price can serve as the "fair value" if: (a) the lead investor is an arm's-length foreign investor, and (b) the Indian company files a CA certificate confirming the price is not less than the DCF-computed value

This is significant because it reduces the friction for follow-on investors in a round to rely on the lead investor's price rather than commissioning separate valuations.

Amendment 2 — FC-GPR timeline: extended from 30 to 60 days.

Under the NDI Rules, a company receiving foreign investment must file Form FC-GPR (Foreign Currency - Gross Provisional Return) with the Reserve Bank of India within 30 days of the allotment of shares. The Third Amendment extends this to 60 days.

This is a meaningful practical relief. The 30-day window had been consistently violated by startups and early-stage companies that received investment but delayed share allotment formalities (board resolution, share certificate issuance, ROC filings) — triggering compounding liability under FEMA for late FC-GPR filing. 60 days provides adequate time for completing the post-allotment workflow.

Amendment 3 — Downstream investment reporting: simplified for Category I FVCIs.

Foreign Venture Capital Investors (FVCIs) registered with SEBI are permitted to invest in VCFs and VCUs (venture capital undertakings) across specified sectors. Under the prior rules, FVCIs making downstream investments through Indian holding companies had to report each downstream investment separately under Form DI.

The Third Amendment simplifies this for Category I FVCIs (those registered with SEBI as FVCIs, distinct from Category I FPIs): downstream investment reporting can now be consolidated into a quarterly aggregate report to the RBI rather than per-transaction Form DI filings. The quarterly report must still name each investee company and the amount.

Amendment 4 — Sectoral cap clarification for e-commerce.

The amendment reaffirms the existing position that 100% FDI is permitted in e-commerce marketplace entities under the automatic route, but continues the prohibition on inventory-based e-commerce by foreign-invested entities. A new clarification: for marketplace entities that also provide logistics services incidentally to their marketplace operations, those logistics revenues are treated as part of the marketplace activity and do not require a separate sectoral analysis.

Operational Impact for Indian Companies Receiving FDI

Pre-allotment:

• Get a fresh valuation report (DCF primary, ≤90 days old) before the allotment board meeting


• If piggybacking on a lead investor's price, obtain the CA certificate confirming DCF parity


• Verify the investor's FEMA classification: FPI, FVCI, or general foreign investor — the reporting path differs

Post-allotment (within 60 days):

• Issue shares, update register of members, file PAS-3 with ROC


• File FC-GPR on the RBI's FIRMS portal (Foreign Investment Reporting and Management System)


• If the investment is by an FVCI, confirm downstream investment reporting obligations

Annual compliance:

• File Form FC-TRS for any secondary transfer of shares between a resident and non-resident


• FVCIs making downstream investments should move to quarterly consolidated DI reporting per the amendment

What Has Not Changed

• The prohibition on FDI in certain sectors (lottery, gambling, chit funds, Nidhi companies, TDR, real estate business except specific categories) remains unchanged
• The pricing floor for secondary transfers (FC-TRS): price to a non-resident must not exceed the fair value; price from a non-resident to a resident must not be less than the fair value
• The 20% FPI single-investor limit in listed companies and the aggregate FPI sectoral limits remain under SEBI's FPI Regulations, not the NDI Rules

Compounding Implications for Prior Non-Compliance

The extended FC-GPR timeline (30 → 60 days) is not retrospective. Companies that violated the 30-day window before the Third Amendment are not automatically regularised. Prior violations must still be compounded with the RBI under the FEMA Compounding Rules, 2024 (see the companion article on FEMA compounding).

The practical implication: if your company received foreign investment in FY 2024-25 or earlier and filed FC-GPR late, the compounding application should be filed proactively — particularly given RBI's increased scrutiny of FEMA non-compliance during audit and due diligence processes.

I'm CA Harun Raaj, Visakhapatnam. If your company has received or is about to receive foreign investment and the FC-GPR, FC-TRS, or valuation workflow needs review under the Third Amendment framework, reach out.

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