> **Legal basis:** Foreign Exchange Management Act, 1999 — Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026, amending Schedule III (and Rules 12 and 13) of the FEM(NDI) Rules, 2019 — Effective: June 12, 2026 (date of notification). Source: Ministry of Finance, Department of Economic Affairs gazette notification. Last updated: September 2026.

The Ministry of Finance notified the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026 on June 12, 2026, amending Schedule III of the FEM(NDI) Rules, 2019 — the provision governing portfolio-style investment in Indian listed companies by persons resident outside India (PROIs). Until this amendment, Schedule III was available only to Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs). From June 12, 2026, it is open to any individual person resident outside India, regardless of nationality or Indian origin.

## What Changed

Before this amendment, a foreign national with no Indian origin who wanted a stake in a listed Indian company had only one practical route: Schedule II, the Foreign Portfolio Investor (FPI) route. That route requires SEBI FPI registration, a custodian, a depository participant, and anti-money-laundering compliance layered on top. Schedule III — the comparatively simpler NRI/OCI route — was closed to non-Indian-origin individuals.

Under the amended Rules, that same investor, now classified as an "individual PROI," may purchase listed Indian equity directly under Schedule III through an Authorised Dealer (AD) bank, subject to the thresholds set out below.

> **Key point:** Individual non-resident investors who are not NRIs or OCIs can now access Indian listed equity through the Schedule III AD-bank route instead of the SEBI FPI route, provided they stay under the 10% individual holding threshold.

## Who Is Affected

This change is relevant to Gulf-resident professionals of non-Indian origin, Singapore- and UK-based individual investors, diaspora investors without Indian citizenship or OCI status, and foreign family offices investing below the 10% threshold as individuals. NRIs and OCIs are unaffected — their existing rights and thresholds under Schedule III continue unchanged.

## Old Route vs New Route for a Non-Indian-Origin Individual

| Aspect | Before June 12, 2026 | From June 12, 2026 |
| --- | --- | --- |
| Eligible Schedule III investors | NRIs and OCIs only | Any individual PROI, regardless of nationality or Indian origin |
| Access route for other foreign individuals | Schedule II (FPI registration required) | Schedule III via an Authorised Dealer bank |
| Infrastructure needed | SEBI FPI registration, custodian, depository participant, AML compliance | Designated bank account with an AD bank |
| Individual holding cap | Not applicable under Schedule III (route closed) | Below 10% of total paid-up equity, fully diluted |

## Investment Thresholds Under Amended Schedule III

| Limit | Threshold |
| --- | --- |
| Individual PROI holding | Below 10% of total paid-up equity (fully diluted) |
| All individual PROIs in aggregate | Up to 24% of total paid-up equity |
| Cross-schedule cap | The 10% individual cap applies across all NDI schedules combined |

If an individual PROI's holding touches or crosses 10%, divestment within 5 trading days is mandatory. Failure to divest triggers automatic reclassification of the entire holding as FDI, pulling in the downstream reporting obligations that come with that status — including FC-GPR filing within 30 days and applicable sectoral approval requirements.

<!-- ORIGINAL_GRAPHIC
url: /graphics/fem-ndi-schedule-iii-thresholds-2026.png
alt: A simple flow diagram showing an individual PROI investing through an Authorised Dealer bank under Schedule III, with the 10% individual cap and 24% aggregate cap marked as decision points leading either to continued Schedule III status or FDI reclassification.
caption: Schedule III thresholds for individual PROI investment in Indian listed companies under the FEM(NDI) Third Amendment Rules, 2026.
brief: Depict a single individual investor icon routed through an "Authorised Dealer Bank" node into a listed Indian company node. Show two labelled thresholds on the path: "Below 10% individual holding" (continues under Schedule III) and "24% aggregate PROI holding" (aggregate cap, board special resolution needed to raise). Add a branch showing "10% or more → FDI reclassification, FC-GPR within 30 days." Do not depict named companies, real share prices, or any individual's identity. Keep composition to three or four nodes maximum, in HRA's navy-and-gold palette, no stock photography.
-->

## National Security Safeguards

Rules 12 and 13 were tightened alongside the Schedule III expansion. Prior Government approval through the DPIIT route is now required when the investor is a national of, or an entity from, a country sharing a land border with India — China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, or Afghanistan — or when the beneficial owner of the investment is from such a country, even if the direct investor is routed through a third country. This safeguard applies across all NDI schedules, including the newly widened Schedule III, so the liberalisation does not extend to investors from, or beneficially owned from, these jurisdictions without prior approval.

## Illustrative Example

A Singaporean national with no Indian background wants to buy 5 lakh shares representing a 3% equity stake in an NSE-listed Indian company. Before June 12, 2026, this required SEBI FPI registration. From June 12, 2026, the same investor may invest through an NRO or foreign currency account via an Authorised Dealer bank under Schedule III — provided the aggregate individual-PROI holding in that company stays under 24% and the beneficial ownership is not traced to a bordering country.

## What Indian Listed Companies Need to Do Now

The expansion of Schedule III means a listed company's PROI register must now track non-NRI, non-OCI individual foreign shareholders, not just the NRI/OCI universe it monitored earlier. A breach of the 24% aggregate cap, or the 10% individual cap by any single PROI, can push part of the share register into FDI territory and trigger the reporting consequences that follow. Companies approaching either threshold should have their PROI monitoring process, and any board resolution to raise the aggregate limit, reviewed against the amended Schedule III before the cap is breached rather than after.

*This is a general summary of the FEM(NDI) Third Amendment Rules, 2026, for information purposes. FEMA compliance is fact-specific — the correct treatment depends on the investor's residency status, beneficial ownership, and the company's sector — and should be reviewed against the full text of the notification before you act on it.*

I'm CA Harun Raaj, Visakhapatnam. If you're an NRI, OCI, or foreign individual investor navigating this route, or a listed company that needs its PROI register reviewed against the amended thresholds, reach out.

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## See Also

- [FEMA Export-Import Rules 2026: What Changes for Exporters on 1 October](https://www.harunraaj.com/blog/fema-export-import-regulations-2026-exporters)
- [RNOR Tax Break: What Returning NRIs Must Do Before 30 Sept](https://www.harunraaj.com/blog/rnor-returning-nri-30-september-deadline)
- [RBI Draft KYC Amendment Directions 2026: NRI Action Points](https://www.harunraaj.com/blog/rbi-draft-kyc-amendment-directions-2026-nri-accounts)

Canonical: https://www.harunraaj.com/blog/fem-ndi-third-amendment-rules-2026-non-resident-investment