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Membership No. 250054 · DISA (ICAI)
Published · Last updated
Short answer: most sectors take 100% foreign ownership through the automatic route, with no prior approval. What actually delays an India entry is rarely the investment approval — it is the resident director requirement, and for investors connected to a land-bordering country, Press Note 3, which was amended in 2026 — in force since 2 May 2026.
This page sets out the order of decisions. Each step has its own detailed note, linked where it comes up.
Two routes exist, and which one applies decides whether entry takes weeks or months.
Automatic route. No prior approval from the government or the RBI. In most sectors — IT and software, most manufacturing, B2B e-commerce and much else — a foreign parent may hold 100% of an Indian company as a wholly owned subsidiary, with no Indian partner required.
Approval route. A minority of sectors, plus anything caught by Press Note 3. Prior government approval, on its own timetable.
Establishing which route the proposed activity falls into is the first task on any entry, before a name is reserved or a structure chosen. Sectoral caps and conditions apply in a smaller number of sectors and can change the shareholding you were planning.
Press Note 3 of 2020 required prior government approval for any foreign investment from an entity of a country sharing a land border with India — China, Pakistan, Nepal, Bhutan, Bangladesh, Myanmar and Afghanistan — or where the beneficial owner of the investment sits in, or is a citizen of, one of them.
That beneficial-owner limb is the one that catches people. An investment routed through Singapore or Mauritius is not outside Press Note 3 merely because the immediate investor is elsewhere; the test looks through to who ultimately owns it.
The Union Cabinet approved the amendment on 10 March 2026. DPIIT issued Press Note 2 (2026 Series) on 15 March 2026, amending Para 3.1.1 of the FDI Policy — but that press note carried its own condition: it would take effect "from the date of FEMA notification." That notification is the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2026, S.O. 2174(E), dated 1 May 2026 and published in the Gazette on 2 May 2026. The rules came into force on publication, so the operative date is 2 May. A revised DPIIT standard operating procedure (SOP) followed on 4 May 2026.
So the amendment is in force, and has been since 2 May 2026. The distinction matters, because for roughly seven weeks it was announced but not yet law — and a good deal of the commentary written in that window still reads as though the Cabinet decision were itself the change.
The government route in Para 3.1.1(a) is unchanged, word for word: an entity or citizen of a land-bordering country, or an investment whose beneficial owner is one, invests only under the government route. There is no new rate band and no standalone "10% rule."
What changed is the definition of beneficial owner. It now takes its meaning from Section 2(1)(fa) of the PMLA and is determined on the criteria in Rule 9(3) of the PML Rules, where the threshold is 10%. A land-bordering shareholding therefore only makes the investment a land-bordering one once it exceeds that threshold — or, regardless of size, where the holder can exercise control over the investor entity, or ultimate effective control over the Indian company. That last limb is deliberately wide, and catches arrangements carrying no shareholding at all.
| Land-bordering ownership in the investing entity | Route |
|---|---|
| Up to 10% (all land-bordering holders counted together), no control | Automatic, subject to sectoral caps — but reportable |
| Above 10% | Government approval |
| Any level conferring control over the investor, or ultimate effective control over the Indian company | Government approval |
Para 3.1.1(d) has no floor. Where the investing entity has any direct or indirect ownership by a land-bordering citizen or entity, and the investment does not require approval, it must still be reported. The SOP puts the obligation on the Indian company (or the resident party to a share transfer), requires it on the DPIIT portal in a prescribed format, and requires it before the money is remitted. Automatic route here does not mean nothing to do — and this sits on top of the sectoral cap, the entry route and the FC-GPR filing, not instead of them.
One loose end: the gazetted rule describes this as reporting "specified by the Reserve Bank", while the press note and SOP route it to DPIIT. The SOP says the reporting is governed by the RBI's reporting regulations and visible to the RBI, and we have not found a separate RBI prescription. Confirm the current mechanics with your authorised dealer (AD) bank before the funds move.
Under Para 3.1.1(b), a transfer of existing or future FDI — direct or indirect — that results in beneficial ownership falling into the restricted category requires prior government approval at that point. A clean incorporation does not settle the question permanently: a later secondary sale, or a change further up the chain in a foreign shareholder, can reopen it without anything happening at the Indian company at all.
The SOP gives a 60-day decision window, counted from filing, for land-bordering investors holding up to 49% of an Indian company in a listed set of manufacturing sectors — capital goods, electronic capital goods and components, polysilicon and ingot-wafers, advanced battery components, and rare-earth magnets and processing. It is conditional: majority shareholding and control of the Indian company must stay with resident Indian citizens, or resident Indian entities they own and control, at all times. Every other approval case runs on the SOP's general 12-week outer timeline, which excludes the time the applicant takes to answer queries.
This is a genuine liberalisation for small minority and financial investors, and no change at all for anyone taking a controlling stake. If you are working from guidance written before 2026 — which is much of what is online — it will tell you approval is required in every case. The detail, including what counts as control and what the approval file must contain, is in Press Note 3 and the 2026 changes.
The FEMA (Non-debt Instruments) (Third Amendment) Rules, 2026, notified on 12 June 2026, are sometimes described as a further Press Note 3 change. They are not, for a company being set up. They open investment in listed Indian companies on the stock exchange to all non-resident individuals, not only NRIs and OCIs, within individual and aggregate limits. The RBI amended its reporting regulations to match in mid-June. The land-border language in the June rules attaches to that listed-company route. They do not amend the rule that governs an unlisted subsidiary, which remains the May 2026 text described above.
Section 149(3): every company must have at least one director who stays in India for a total of at least 182 days during the financial year.
The test has been the financial year (April to March) since 7 May 2018; before that it was the previous calendar year, which is why older guidance still says so. It is a test of physical presence, not citizenship.
This applies to every company. A wholly owned subsidiary of a foreign parent is not exempt. Nor is a joint venture, nor a dormant company.
For a founder intending to run the entity from abroad, this is the real constraint, and it has to be solved before incorporation rather than discovered during it. The days need not be continuous — they are aggregated across the year. For a newly incorporated company the Act says the requirement applies proportionately at the end of the incorporation year; it does not set out the arithmetic, so the figure for your incorporation date is worth recording. How groups actually meet the requirement, and what a director takes on, is in the resident director requirement.
The penalty is a continuing one, so it does not wait:
| Suits | |
|---|---|
| Private limited company | Outside investment, employee equity, an eventual exit — the share structure supports all three |
| LLP | Simpler to run, lighter compliance; foreign investment only in sectors open to 100% under the automatic route with no FDI-linked performance conditions, and equity instruments do not fit |
| Liaison office | Representing the parent; cannot earn income in India |
| Branch office | Defined activities, on approval |
| Project office | Tied to one contract |
The last three are not incorporations and each needs its own approval route. They suit a parent testing the market or executing a single project — not a business that intends to trade and grow here. The five are compared side by side — activities, approvals, tax rate, repatriation and exit — in subsidiary, branch or liaison office.
They also carry a different permanent establishment profile, which is a tax question rather than a company-law one and is better answered before the structure is chosen than after. For a group setting up a captive or in-house centre specifically, the tax architecture is covered in GCC and captive unit taxation and the exposure in permanent establishment risk for a foreign parent.
The gap between "the company exists" and "normal compliance has started" is where most first-year defaults live.
FC-GPR, within 30 days of allotting the shares, on the RBI's FIRMS portal. This is the filing that reports the issue of shares to a non-resident, and it is missed more often than any other because it belongs to neither the incorporation agent nor the accountant by default. The order in which the money arrives, the shares are allotted and each filing falls due is in capital infusion and the FC-GPR sequence.
After that the entity carries a FEMA calendar of its own, running alongside its ROC obligations and independent of them — FC-GPR on allotment, the annual FLA return, and APR where there is outbound investment. Those are set out in the FEMA filings companies miss.
The ROC side has its own first-year deadlines, computed differently from later years — see first-year ROC deadlines, and thereafter the annual AOC-4 and MGT-7 cycle.
What has to be in place in the first three months — bank account, registrations, the first board meeting, the auditor — is in the first 90 days of a foreign-owned company. Every recurring date after that, across company law, FEMA, income tax, transfer pricing and GST, is in the annual compliance calendar for an Indian subsidiary.
Steps two and three are the ones that move timetables. Doing them fourth is how an entry that was quoted at three weeks takes three months.
This note is a working reference to the entry sequence as at 23 September 2026, not the statute and not advice on a particular structure. FDI policy, sectoral caps and the land-border rules have all changed during 2026, and the reporting mechanics under the May 2026 amendment are still settling. Confirm the current position for your sector, your investor's full ownership chain and your incorporation date before committing to a structure.
In most sectors, yes — through the automatic route, with no prior approval from the government or the RBI, held as a wholly owned subsidiary with no requirement for an Indian partner. Sectoral caps and conditions apply in a minority of sectors, and a smaller set requires prior approval. The first question on any entry is therefore which route the proposed activity falls into, because it decides the timetable more than anything else.
The resident director. Section 149(3) requires every company to have at least one director who stays in India for a total of at least 182 days during the financial year. It applies to every company without exception — wholly owned subsidiaries, joint ventures, even dormant ones. The test is physical presence, not citizenship. A founder who intends to run the entity from abroad has to solve this before incorporation, not after.
The company can be penalised ₹50,000 plus ₹500 for each day the default continues, up to ₹3,00,000, and every officer in default — which includes the directors — ₹50,000 plus ₹500 per day up to ₹1,00,000. It is a continuing default, so it does not sit still while you look for someone.
No. The days are added across the financial year rather than served in one block. For a newly incorporated company, the proviso to Section 149(3) says the requirement applies proportionately at the end of the financial year in which it is incorporated. The Act does not set out the arithmetic, so the figure for a specific incorporation date is worth working out and recording rather than assumed.
Press Note 3 of 2020 requires prior government approval for investment by an entity or citizen of a land-bordering country, or where the beneficial owner is one. Since 2 May 2026, beneficial ownership through an investor based elsewhere is tested on Rule 9(3) of the PML Rules: land-bordering ownership of up to 10% of the investor, with no control over it and no ultimate effective control of the Indian company, can take the automatic route. Above that, or with control, approval is still needed. Any land-bordering ownership at all must be reported on the DPIIT portal before the money arrives, and a later transfer that crosses the line needs approval at that point.
A private limited company is the usual answer where outside investment, employee equity or an eventual exit are in contemplation, because the share capital structure supports all three. An LLP is simpler to run and lighter on compliance, but foreign investment into it is permitted only in sectors open to 100% foreign investment under the automatic route with no FDI-linked performance conditions, and it does not accommodate equity instruments in the way a company does. The choice should follow the funding plan rather than the setup cost.
Different animals, and each needs its own approval route rather than being an incorporation. A liaison office cannot earn income in India and exists to represent the parent; a branch office can carry on defined activities; a project office is tied to a specific contract. They suit a parent testing the market or executing one project — not a business that intends to trade and grow here. The permanent establishment consequences also differ, and that is a tax question worth answering before the structure is chosen.
FC-GPR, on the RBI's FIRMS portal, within 30 days of allotment. It is the filing that most often slips, because it falls in the gap between incorporation being finished and normal compliance beginning. After that the entity carries an annual FEMA calendar of its own, separate from its ROC filings.
Send the proposed activity, the shareholding and where the investing entity sits. Which structure fits, whether approval is needed, and who will satisfy the resident director requirement are established before incorporation begins rather than midway through it.
Related service: Foreign Companies in India