India's FDI rules answer two questions for every sector: how much foreign shareholding is allowed (the sector cap) and how much of it can come in without prior approval (the automatic route). Any sector not listed in Schedule I of the FEMA (Non-debt Instruments) Rules allows 100% foreign investment under the automatic route, subject to sectoral laws, but that residual rule does not apply to financial services. This guide covers how caps and routes interact, the government approval route, Press Note 3 for land-border investors and the deadlines after the money arrives.
How do FDI sector caps and the automatic route work together?
Each sector has a cap, the maximum foreign holding, and an automatic limit, the share that needs no prior approval. Below the automatic limit you invest and report afterwards; between the automatic limit and the cap you need government approval first; above the cap the investment is not allowed at all.
Three points from the RBI Master Direction on Foreign Investment (updated up to 15 June 2026) are easy to miss:
- The sector cap is a composite limit. It counts foreign investment on a repatriation basis and indirect foreign investment through Indian companies that are themselves foreign-owned.
- Financial services that are not specifically listed need prior government approval. The 100% automatic residual rule does not cover them.
- The company receiving the investment carries the onus of staying within the cap and its conditions, not the investor.
A company with no operations and no downstream investment can receive FDI under the automatic route for an automatic-route activity without FDI-linked performance conditions. If it later moves into an activity under the government route, it needs approval first.
Worked examples: reading the route for a planned stake
The checker compares your planned foreign holding with the sector's automatic limit and cap. The same sector can give different answers at different stakes, and the investor's links to a land-border country can override the sector route entirely.
| Planned investment | Cap and automatic limit | Result |
|---|---|---|
| 100% in an IT services company, investor from Singapore | 100%, 100% | Automatic route |
| 74% in a defence company | 100%, 74% | Automatic route |
| 80% in a defence company | 100%, 74% | Government approval |
| 60% in a private security agency | 74%, 49% | Government approval |
| 60% in multi-brand retail | 51%, approval only | Not allowed: above the cap |
| 40% in a manufacturing company, investor incorporated in a land-border country | 100%, 100% | Government approval |
Example. A Singapore company plans to hold 80% of an Indian defence manufacturer (both made up). Up to 74% would be automatic, but the full 80% needs government approval before the money comes in. If the parent cut its stake to 74%, it could invest under the automatic route and report to RBI afterwards, subject to the industrial licence and security conditions of the sector.
How to apply under the government approval route
File the proposal online on the Foreign Investment Facilitation Portal, now through the National Single Window System. There is no fee for submitting a proposal, only digital copies of documents are needed, and DPIIT's Standard Operating Procedure dated 4 May 2026 sets a cumulative time limit of 12 weeks for a decision.
- File the application with the documents in Annexure I of the SOP and, where it applies, the security clearance form.
- DPIIT assigns the proposal to the administrative ministry for the sector (the competent authority) and circulates it to RBI and the Ministry of External Affairs.
- Proposals in broadcasting, telecom, space, private security, defence, civil aviation and titanium minerals, and applications under Press Note 2 of 2026, go to the Ministry of Home Affairs for security clearance.
- The ministry raises any queries through the portal. If documents are not given after two reminders of seven days each, it can close the application; closure is not a rejection, and you may apply again.
- The ministry conveys the decision on the portal. Proposals above the limit in para 4.1.5 of the FDI Policy go to the Cabinet Committee on Economic Affairs.
The 12 weeks exclude the time you take to answer queries, so a complete file is the fastest route.
What Press Note 3 means for land-border investors
Under Press Note 3 of 2020, an entity or citizen of a country sharing a land border with India (China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar or Afghanistan), or an investment whose beneficial owner is a citizen of such a country, can invest only through the government route, in every sector. A later transfer that creates such beneficial ownership also needs approval.
Press Note 2 of 2026, dated 15 March 2026 and given effect by the FEMA (Non-debt Instruments) Amendment Rules dated 1 May 2026, narrowed what counts as land-border beneficial ownership. RBI's Master Direction now treats it as vested in a land-border country where a citizen or entity there can hold rights above the thresholds in rule 9(3) of the PML (Maintenance of Records) Rules, 2005 (10% for companies), or can control the investor or the Indian company.
- Below that threshold and non-controlling: the automatic route can apply, but the Indian company (or the resident party to a share transfer) must report the investment to DPIIT on the portal before the money is remitted, in the format in Annexure VII of the SOP.
- Direct investment by a land-border entity or citizen: government approval is still needed in every sector.
- Up to 49% in an activity listed in Schedule II of the SOP (such as capital goods, electronic components, battery components or rare earth magnets), with Indian majority ownership and control: the ministry must decide within 60 days of filing.
- Pakistan: government route only, and not in defence, space, atomic energy or prohibited sectors.
What changed in India's FDI rules in 2026?
In 2026, Press Note 1 opened insurance companies to 100% FDI under the automatic route, Press Note 2 eased the land-border rule for small non-controlling interests, and Press Note 3 of 2026 let e-commerce entities with FDI run an inventory model exclusively for exports of goods made or produced in India from 3 September 2026.
Do not confuse Press Note 3 of 2026 with Press Note 3 of 2020: the 2020 note is the land-border rule; the 2026 note is about e-commerce exports, given effect by the FEMA (Non-debt Instruments) (Fourth Amendment) Rules, 2026, published on 3 September 2026. Inventory-based e-commerce for domestic sales remains closed to FDI. LIC stays capped at 20%. If an export-only inventory model applies to you, the Export Registration Finder lists the registrations the business needs.
Deadlines after the investment arrives
Shares must be allotted within 60 days of receiving the money, or the money refunded within 15 days after those 60 days. The company then reports the allotment in Form FC-GPR on RBI's FIRMS portal within 30 days of allotment.
Example. Bluepeak Software India Private Limited (a made-up company) receives ₹2,00,00,000 from its foreign parent on 10 November 2026. It must allot shares by 9 January 2027, or refund the money by 24 January 2027. It allots on 20 December 2026, so Form FC-GPR is due by 19 January 2027.
If the allotment needs more authorised capital, raise it first: the Authorised Capital Increase Calculator shows the MCA fee and stamp duty. For FC-TRS, LLP forms and the annual FLA return, check the timelines in the current RBI Master Direction before you rely on them.
Common mistakes in FDI route checks
Most errors come from looking only at the direct shareholder. The cap counts indirect foreign investment, and the land-border test looks through the investor to its beneficial owners, so a fund registered in a third country can still need approval.
- Choosing an LLP for a sector with a cap or conditions. An LLP can take FDI only where 100% is automatic with no FDI-linked performance conditions, and not from citizens or entities of Pakistan or Bangladesh. The Business Structure Finder compares the options.
- Assuming the residual 100% rule covers a financial activity. Financial services that are not listed, or not regulated by a financial regulator, need approval.
- Bringing money in before the DPIIT report in a Press Note 2 case.
- Missing the 60-day allotment window, which forces a refund.
How Ofin can help with foreign investment
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