A comparative analysis of the proposed Foreign Investment Rules, 2026 and the existing Non-Debt Instruments Rules, 2019

Regulatory Updates
July 25, 2026

Issue	Existing NDI Rules, 2019	Draft Foreign Investment Rules, 2026	Legal and practical implications
1. Name and underlying regulatory concept	The existing framework regulates “non-debt instruments”. The expression is linked to the statutory division under FEMA between debt and non-debt capital-account transactions.	The proposed framework is titled the Foreign Exchange Management (Foreign Investment) Rules, 2026 and regulates “foreign investment in equity”.	The focus shifts from identifying whether an instrument is a prescribed non-debt instrument to determining whether the investment constitutes investment in “equity” as defined under the Draft Rules.
2. Status of the new framework	The Existing NDI Rules are presently operative, as amended from time to time.	The 2026 document is a draft circulated for comments. It will come into force only upon publication in the Official Gazette.	No transaction should presently be structured solely on the basis of the Draft Rules. Existing law continues to apply until final notification.
3. Regulatory architecture	The Existing NDI Rules contain detailed definitions, general restrictions, pricing provisions and numerous schedules governing companies, LLPs, investment vehicles, NRIs/OCIs, FPIs, FVCIs, depository receipts and other forms of investment.	The Draft Rules contain nine principal rules and three annexures. They rely heavily on the FDI Policy and future RBI regulations or directions.	The core rules become materially shorter, but compliance may remain distributed across multiple instruments. A shorter rulebook does not necessarily mean that the overall compliance burden will be contained in a single document.
4. Definition of the relevant instrument	“Equity instruments” of an Indian company are identified principally by legal form and include equity shares, fully and mandatorily convertible debentures, fully and mandatorily convertible preference shares and share warrants, subject to the prescribed conditions.	“Equity” means an instrument classified as equity by the eligible investee entity in accordance with the applicable accounting standards. Units and specified participating interests are separately included.	This is potentially the most consequential change. Instrument eligibility may depend upon accounting substance and classification rather than nomenclature alone.
5. Treatment of CCDs and CCPS	Fully, compulsorily and mandatorily convertible debentures and preference shares fall within “equity instruments”, subject to FEMA conditions. Optionally, partially or non-convertible instruments are generally treated as debt, subject to specified historical grandfathering.	The Draft Rules do not separately identify CCDs or CCPS. Their treatment will depend on whether the instrument is classified as equity under the applicable accounting standards.	A CCD or CCPS may not necessarily qualify as FEMA “equity” merely because it is compulsorily convertible. The contractual terms and accounting classification may become determinative.
6. Compound financial instruments	The existing FEMA classification is principally instrument-based. Accounting bifurcation into liability and equity components does not expressly determine whether a prescribed equity instrument qualifies under the NDI Rules.	The Draft Rules do not explain how an instrument classified partly as a financial liability and partly as equity will be treated.	Compound instruments may require closer legal, accounting and valuation analysis. Clarification is needed on whether only the equity component, the entire instrument or neither component would fall under the Draft Rules.
7. Applicable accounting framework	FEMA eligibility is not generally made dependent on whether the investee follows Ind AS or the Companies (Accounting Standards) Rules.	The definition of equity refers to “applicable accounting standards” without prescribing a uniform FEMA classification standard.	Similar instruments may conceivably receive different accounting classifications depending on the framework applicable to the investee entity. The Draft Rules do not presently resolve this issue.
8. Eligible investee entities	Separate schedules and provisions apply to Indian companies, LLPs, investment vehicles, partnership firms, proprietary concerns and other vehicles.	A consolidated definition of “eligible investee entity” includes Indian companies and certain bodies corporate, LLPs, specified SEBI-regulated investment vehicles, registered partnership firms and registered proprietary concerns.	This is principally a consolidation and unification of categories rather than an automatic liberalisation of investment into all such entities. Actual permissibility remains subject to the FDI Policy and other conditions.
9. Societies and trusts	The Existing NDI Rules separately regulate investment vehicles, many of which may be constituted as trusts, but do not generally treat ordinary societies or trusts as Indian companies or LLPs.	The definition of eligible investee entity expressly excludes a society or trust from the company/body-corporate limb. Separately, qualifying SEBI-registered investment vehicles are included.	Ordinary trusts and societies do not become eligible merely by virtue of the new definition. A trust constituted as a qualifying regulated investment vehicle may, however, remain covered through the investment-vehicle limb.
10. Definition of foreign investment	Foreign investment generally means investment by a person resident outside India on a repatriation basis in equity instruments of an Indian company or in the capital of an LLP. Indirect foreign investment is dealt with separately through downstream-investment provisions.	Foreign investment means investment in equity of an eligible investee entity by a person resident outside India, directly or indirectly through an FCE or through specified connected or commonly owned or controlled non-resident persons.	Direct and indirect investment concepts are brought closer together within the principal definition. The precise aggregation and attribution rules require further clarification.
11. Beneficial ownership attribution	The Existing NDI Rules recognise foreign investment where beneficial interest is held by a person resident outside India, even where the registered investor may be resident, and separately regulate indirect foreign investment.	The Draft Rules expressly extend foreign investment to certain indirect holdings through foreign entities owned, controlled or commonly owned or controlled with the foreign investor.	The Draft Rules appear to adopt a broader connected-person and control-based attribution mechanism. Its interaction with beneficial ownership disclosures and downstream-investment rules will need to be clarified.
12. Ownership threshold	For downstream-investment purposes, ownership of an Indian company has generally been linked to beneficial ownership of more than 50% of its equity instruments; corresponding principles apply to LLPs.	For certain non-resident intermediary entities, ownership means beneficial holding of more than 50%.	The numerical ownership threshold is broadly familiar, although the Draft Rules place it within the definition of indirect foreign investment through connected non-resident entities.
13. Control	“Control” generally includes the right to appoint a majority of directors or control management or policy decisions, directly or indirectly, including through shareholding, management rights, shareholders’ agreements or voting agreements.	Control includes similar rights but additionally refers to agreements that entitle a person to 10% or more of voting rights, or control “in any other manner”.	The express reference to voting rights of 10% or more could materially broaden the circumstances in which control may be alleged. The drafting may also create uncertainty because a 10% voting entitlement does not ordinarily, by itself, constitute control.
14. Foreign-controlled entity	The Existing NDI Rules use ownership-and-control concepts to determine whether an Indian entity is foreign owned or controlled and whether its investment constitutes downstream foreign investment.	The Draft Rules define a “foreign controlled entity” or “FCE” as a resident company, LLP or investment vehicle owned or controlled by a person resident outside India.	The FCE concept replaces or consolidates elements of the existing downstream-investment framework. However, the Draft Rules defer the ownership-and-control test to sectoral regulators or, in their absence, applicable Indian law.
15. Role of sectoral regulators	Ownership and control are principally determined under the NDI Rules and sector-specific policy conditions.	Ownership and control of an FCE are to be governed by stipulations of the relevant sectoral regulator in consultation with the Central Government. In the absence of such stipulations, applicable Indian law will govern.	Different tests could potentially apply across regulated sectors. The framework may become more sector-sensitive but less uniform.
16. FDI in unlisted companies	Any foreign investment through equity instruments in an unlisted Indian company constitutes FDI, irrespective of whether the holding is below 10%.	FDI is defined as foreign investment of 10% or more in the equity of a company or LLP. The Draft Rules do not separately state that all foreign investment in an unlisted company is FDI.	On a literal reading, a foreign holding below 10% in an unlisted company could fall within the definition of foreign portfolio investment. This would be a substantial departure and requires express clarification. It may be a drafting simplification rather than an intended policy change.
17. FDI threshold for listed companies	FDI includes a holding of 10% or more of the post-issue paid-up equity capital of a listed Indian company on a fully diluted basis. A subsequent fall below 10% does not ordinarily change its character as FDI.	FDI is defined as foreign investment of 10% or more in the equity of a company or LLP. The Draft Rules do not expressly reproduce the fully diluted basis or the “once FDI, always FDI” principle.	It is unclear whether these principles are intended to be preserved through RBI or SEBI directions. Their omission from the Draft Rules should not yet be treated as a confirmed policy reversal.
18. Foreign portfolio investment	FPI is investment below 10% in the equity instruments of a listed Indian company, subject to the SEBI FPI framework and prescribed individual and aggregate limits.	Foreign portfolio investment is defined as foreign investment below 10% in the equity of a company or LLP.	The draft language is considerably broader and does not expressly limit FPI to listed companies or SEBI-registered FPIs. This provision requires clarification, particularly for unlisted companies and LLPs.
19. Application of the 10% test to LLPs	The FDI/FPI distinction is primarily relevant to listed Indian companies. Investment in an LLP is governed as foreign investment in capital contribution or profit share, rather than portfolio investment.	The 10% FDI/FPI distinction expressly refers to a company or an LLP.	The commercial and regulatory meaning of “foreign portfolio investment” in an LLP is unclear because an LLP interest is ordinarily not exchange-traded. Clarificatory drafting is required.
20. Entry routes and sectoral caps	The Existing NDI Rules contain detailed schedules setting out prohibited sectors, automatic and Government routes, sectoral caps and sector-specific conditions.	Foreign investment must comply with the FDI Policy contained or referred to in Annexure II. The Draft Rules do not reproduce the detailed sectoral matrix.	Policy content is separated from FEMA procedure. This could permit quicker policy amendments, but users will need to review the Rules and the prevailing FDI Policy together.
21. Interpretative authority	The Central Government frames the NDI Rules, DPIIT administers the FDI Policy and RBI issues regulations, directions and clarifications on operational FEMA matters.	RBI may interpret and administer the Draft Rules and issue regulations, directions, circulars and clarifications. DPIIT retains authority over interpretation of the FDI Policy.	The division is made more explicit. Questions concerning the Rules would lie primarily with RBI, while questions concerning sectoral policy would lie with DPIIT.
22. General permission and RBI approval	Transactions are permissible where authorised under the Rules, schedules, regulations or directions. Specific approvals may be required depending on the transaction and sector.	No person may make, transfer or receive foreign investment except as permitted. RBI may, on application and for sufficient reasons, permit an investment or transfer subject to conditions.	The Draft Rules preserve a residual RBI approval power. This may provide flexibility for transactions not squarely covered by the general framework.
23. Modes of acquisition	Different schedules permit subscription, purchase, rights or bonus issues, merger, demerger, ESOPs, sweat equity, swaps, gifts, inheritance, pledge and other transactions, subject to specific conditions.	The principal rule expressly identifies subscription, purchase, gift, pledge and specified other investments. An eligible investee entity may issue equity subject to Annexures I and II.	The Draft Rules consolidate the principal modes of investment. Detailed conditions are likely to be dealt with in the annexures or RBI directions.
24. Gift transactions	Gifts between residents and non-residents are permitted only in specified circumstances and subject to conditions, including relationship, sectoral cap, eligibility, value and RBI approval requirements in certain cases.	A gift between natural persons is recognised. A gift on a repatriation basis from a person holding on a non-repatriation basis requires the parties to be close relatives and the value to remain within the applicable LRS limit.	The proposed treatment is shorter and appears to simplify one category of gift. However, the complete treatment of resident-to-non-resident and non-resident-to-resident gifts is not comprehensively stated in the Draft Rules.
25. Pledge	Pledge of equity instruments is permitted subject to specified conditions, including the identity of the pledgee and compliance upon invocation.	Pledge is expressly recognised, provided that the transaction consequent to invocation complies with Rule 8.	The focus moves from detailed upfront pledge conditions in the core rules to compliance at the time of invocation, subject to future directions.
26. Share swaps	Swaps of equity instruments are permitted in specified transactions, subject to valuation, entry-route and other conditions. The 2024 amendments expanded the framework for swaps involving foreign equity capital.	A non-resident may transfer equity to a resident through a swap of equity of an Indian company or equity capital of a foreign company. Investment vehicles may issue units against a swap of equity of an SPV proposed to be acquired.	The Draft Rules retain and consolidate the expanded swap framework. This is not wholly new, but the drafting is more direct.
27. General pricing standard	Pricing varies by transaction direction. Broadly, issue or transfer from a resident to a non-resident cannot be below the prescribed fair value, while transfer from a non-resident to a resident cannot ordinarily exceed the prescribed fair value. Listed-company pricing follows SEBI norms.	Foreign investment and transfers must be at a price determined under SEBI regulations, international-listing requirements or an internationally accepted pricing methodology on an arm’s-length basis.	The Draft Rules do not expressly reproduce the existing floor-and-ceiling language. It is unclear whether the directional pricing safeguards have been removed or will be prescribed separately through RBI directions.
28. Unlisted-company valuation methodology	The price must be determined using an internationally accepted pricing methodology on an arm’s-length basis.	The same broad arm’s-length and internationally accepted methodology standard is retained for cases not governed by SEBI or international-listing pricing.	There is no material change in the basic valuation methodology standard.
29. Permitted valuation certifiers	Depending upon the applicable provision, certification is undertaken by a Chartered Accountant, SEBI-registered Merchant Banker or practising Cost Accountant.	The Draft Rules expressly permit certification by a Chartered Accountant, SEBI-registered Merchant Banker or Cost Accountant.	This is broadly a continuation of the existing FEMA position. The non-inclusion of an IBBI Registered Valuer acting solely in that capacity is not a newly created exclusion, although stakeholders may seek express recognition in the final rules.
30. Role of an IBBI Registered Valuer	An IBBI Registered Valuer may be required under the Companies Act or may support the valuation exercise, but FEMA certification must be issued by a professional falling within the categories specified under FEMA.	The Draft Rules do not independently include a Registered Valuer under Section 247 of the Companies Act as an authorised FEMA certifier.	The position appears substantially unchanged. Separate reports may continue to be required under Companies Act and FEMA where the prescribed professional eligibility differs.
31. Rights issues-pricing	Rights issues are governed by a special pricing regime. For an unlisted company, the price offered to a non-resident generally cannot be lower than the price offered to a resident shareholder. Listed-company rights pricing is determined by the company, subject to applicable law.	The general pricing guidelines expressly do not apply to subscription to equity issued on a rights basis.	The Draft Rules simplify the provision by excluding rights subscriptions from Rule 8 pricing. It remains to be seen whether minimum parity or other safeguards will be prescribed through RBI directions or the FDI Policy.
32. Rights and bonus issues-sectoral conditions	Rights and bonus issues remain subject to applicable sectoral caps, eligibility and conditions attached to the original holding.	Entry-route, sectoral-cap and sectoral-condition requirements do not apply where equity is issued on a rights or bonus basis and the shareholding pattern of the foreign investors does not change.	This is a potentially wider express exemption. The meaning of “shareholding pattern does not change” will need to be applied carefully where shareholders do not subscribe proportionately.
33. Non-repatriation basis	Investments by NRIs and OCIs on a non-repatriation basis are generally treated at par with domestic investment, subject to prescribed exceptions and prohibited activities.	Foreign investment on a non-repatriation basis is exempt from the conditions in Rule 8, but remains prohibited in sectors identified as prohibited for such investment.	The Draft Rules articulate the exemption in a concise, general form. The detailed eligibility of investors and permitted accounts will likely remain in RBI directions.
34. Stock-exchange investments	FPIs, NRIs, OCIs and other eligible investors may invest through recognised stock exchanges subject to SEBI registration, individual and aggregate limits and the applicable schedules.	Non-individual foreign investors, other than specified exempt persons, must obtain necessary SEBI registration unless exempted under SEBI regulations. Separate provision is made for investors using rupee vostro accounts.	The Draft Rules retain regulatory coordination with SEBI but state the registration requirement in broader terms. Investor-specific limits are not contained in the principal Draft Rules.
35. FPI crossing the 10% threshold	An FPI crossing the prescribed threshold may be required to divest or reclassify the investment as FDI within the prescribed time and subject to compliance.	FPI on an Indian recognised stock exchange that reaches 10% or more may be reclassified as FDI by complying with applicable FDI conditions and RBI/SEBI directions.	The reclassification route is expressly preserved, but detailed timelines and procedures are deferred.
36. Downstream investment conditions	Detailed provisions determine whether an investment by an Indian entity is indirect foreign investment, the sectoral conditions applicable, the source of funds and reporting obligations.	Foreign investment by an FCE is required to comply with sectoral conditions only for sectors specifically identified in the FDI Policy for that purpose.	The proposed formulation may narrow or simplify the blanket application of downstream-investment conditions. The substantive result cannot be assessed without the final FDI Policy and RBI directions.
37. Source of funds for downstream investment	Existing rules contain specific requirements relating to internal accruals and permitted funding sources for downstream investment.	The Draft Rules do not set out equivalent funding-source provisions.	Their omission should not be treated as a confirmed removal. Such requirements may be relocated to RBI regulations, directions or the FDI Policy.
38. Reporting and payment	Detailed payment and reporting requirements are prescribed under the FEMA Mode of Payment and Reporting of Non-Debt Instruments Regulations, 2019, including forms such as FC-GPR, FC-TRS and downstream-investment reporting.	RBI is authorised to prescribe payment modes, reporting requirements and other operational conditions separately.	The Draft Rules do not themselves eliminate existing reporting. A new or amended operational regulation will be necessary if the Draft Rules are notified.
39. Onus of compliance	Compliance obligations are distributed among the Indian investee entity, resident and non-resident parties, authorised dealer banks and other intermediaries under different provisions.	The onus of compliance is expressly placed on the foreign investor, eligible investee entity, transferor and transferee.	The Draft Rules codify shared responsibility. Parties may not be able to rely solely on the authorised dealer bank to identify or cure non-compliance.
40. Investment vehicles	Separate provisions govern foreign investment in units of investment vehicles, including AIFs, REITs and InvITs.	Investment vehicles are included within the definition of eligible investee entity. Units classified under applicable SEBI regulations form part of “equity”.	The framework is consolidated. However, the Draft Rules also appear to include mutual funds and ETFs investing more than 50% in equity, which is broader than the conventional core definition of investment vehicle under the Existing NDI Rules.
41. Partnership firms and proprietary concerns	Investment by NRIs/OCIs in partnership firms and proprietary concerns is separately regulated, principally on a non-repatriation basis, subject to prohibited activities and other conditions. Other non-resident investment may require approval.	Registered partnership firms and proprietary concerns are included as eligible investee entities.	Their inclusion in the common definition may permit a more unified framework, but does not, by itself, establish automatic-route eligibility. The FDI Policy must specify the permissible investors, basis of investment and sectoral limitations.
42. Direct listing on international exchanges	A direct-listing framework was inserted into the Existing NDI Rules in 2024, permitting eligible Indian public companies to issue or list equity on specified international exchanges.	Annexure I substantially sets out the direct-listing framework, including eligibility, beneficial ownership, pricing, voting and transfer provisions.	Direct listing is not newly introduced by the Draft Rules. The Draft Rules consolidate and recast an existing framework.
43. International-listing eligibility	Existing direct-listing provisions prescribe eligibility conditions relating to debarment, wilful default, investigation and fugitive-economic-offender status.	Similar restrictions are expressly reproduced in Annexure I.	The core disqualification framework is broadly continued.
44. International-listing pricing	Pricing is governed by the existing direct-listing scheme and applicable international-exchange requirements.	For an unlisted public company, initial international listing price is determined by book building as permitted by the international exchange. For an Indian-listed company, the issue price cannot be lower than the corresponding domestic-issuance price.	The Draft Rules largely retain the existing structure while placing it within a consolidated annexure.
45. International transfers to residents	The direct-listing framework restricts transfers from non-residents to residents on the international exchange to permitted circumstances.	Transfers to residents are permitted only in specified events such as delisting, an IBC resolution plan, buy-back, merger or amalgamation, and succession or inheritance.	The closed-list approach continues to prevent unrestricted resident acquisition of internationally listed equity outside the permitted events.
46. International voting rights	Voting rights on internationally listed equity are subject to the applicable direct-listing framework and depository arrangements.	Voting must be exercised directly by the non-resident holder or through a custodian acting only on the holder’s instructions.	The Draft Rules expressly reinforce that the beneficial non-resident holder must retain substantive voting control.
47. Existing transactions and grandfathering	The Existing NDI Rules contain savings and grandfathering provisions for investments and instruments made under earlier FEMA regimes.	The supersession clause saves things already done or omitted before the supersession. However, the Draft Rules do not contain detailed transitional provisions for existing instruments.	It remains unclear how existing CCDs, CCPS, warrants, convertible notes and partly paid instruments will be treated if their accounting classification does not satisfy the new definition of equity.
48. Convertible notes issued by startups	Convertible notes issued by eligible startup companies are expressly recognised and regulated, subject to minimum investment and conversion or repayment conditions.	Convertible notes are not expressly referred to in the principal Draft Rules.	Their omission is material. It is unclear whether they will be regulated through separate debt or borrowing rules, the FDI Policy or RBI directions.
49. ESOPs, sweat equity and employee-benefit issuances	Detailed provisions permit eligible Indian entities to issue ESOPs, sweat equity and similar benefits to non-resident employees or directors, subject to conditions.	The Draft Rules do not expressly set out equivalent provisions.	These issuances may still be covered as an “issue of equity”, but detailed eligibility and pricing exemptions will require separate prescription.
50. Optionality and assured returns	Equity instruments may contain optionality clauses, but an investor cannot be guaranteed an assured exit price. Exit must occur at the prevailing value subject to applicable pricing rules.	The Draft Rules do not expressly reproduce the prohibition on assured returns or guaranteed exit pricing.	The omission should not be read as permitting assured returns. Such restrictions may continue under RBI directions, the accounting classification test, borrowing rules or general FEMA principles.
51. Deferred consideration and escrow	Existing rules permit deferred consideration, escrow arrangements and indemnity in eligible share transfers within prescribed limits and timelines.	The Draft Rules are silent on these mechanisms.	The relevant mechanics are likely to remain operational matters for RBI directions. Until final instruments are issued, no conclusion should be drawn that such arrangements have been liberalised or prohibited.
52. Partly paid shares and warrants	Partly paid equity shares and share warrants are expressly recognised as equity instruments, subject to payment and other conditions.	The Draft Rules do not separately refer to partly paid shares or warrants.	Their eligibility may depend on accounting classification and future RBI directions. Specific payment timelines and upfront-contribution requirements are not contained in the Draft Rules.
53. Prohibited sectors	The Existing NDI Rules contain an express list of prohibited sectors and activities.	Prohibited sectors are to be prescribed through the FDI Policy in Annexure II.	The policy is relocated rather than necessarily removed. Any sectoral assessment must be made only after reviewing the final Annexure II.
54. Residual matters	The Existing NDI Rules contain detailed investor-specific schedules covering FPIs, NRIs/OCIs, FVCIs, depository receipts and investment vehicles.	Most investor-specific provisions are not reproduced in the principal Draft Rules.	The complete legal impact cannot be assessed until the accompanying FDI Policy, annexures and RBI operational directions are available.

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A comparative analysis of the proposed Foreign Investment Rules, 2026 and the existing Non-Debt Instruments Rules, 2019

Regulatory Updates
July 25, 2026

Issue	Existing NDI Rules, 2019	Draft Foreign Investment Rules, 2026	Legal and practical implications
1. Name and underlying regulatory concept	The existing framework regulates “non-debt instruments”. The expression is linked to the statutory division under FEMA between debt and non-debt capital-account transactions.	The proposed framework is titled the Foreign Exchange Management (Foreign Investment) Rules, 2026 and regulates “foreign investment in equity”.	The focus shifts from identifying whether an instrument is a prescribed non-debt instrument to determining whether the investment constitutes investment in “equity” as defined under the Draft Rules.
2. Status of the new framework	The Existing NDI Rules are presently operative, as amended from time to time.	The 2026 document is a draft circulated for comments. It will come into force only upon publication in the Official Gazette.	No transaction should presently be structured solely on the basis of the Draft Rules. Existing law continues to apply until final notification.
3. Regulatory architecture	The Existing NDI Rules contain detailed definitions, general restrictions, pricing provisions and numerous schedules governing companies, LLPs, investment vehicles, NRIs/OCIs, FPIs, FVCIs, depository receipts and other forms of investment.	The Draft Rules contain nine principal rules and three annexures. They rely heavily on the FDI Policy and future RBI regulations or directions.	The core rules become materially shorter, but compliance may remain distributed across multiple instruments. A shorter rulebook does not necessarily mean that the overall compliance burden will be contained in a single document.
4. Definition of the relevant instrument	“Equity instruments” of an Indian company are identified principally by legal form and include equity shares, fully and mandatorily convertible debentures, fully and mandatorily convertible preference shares and share warrants, subject to the prescribed conditions.	“Equity” means an instrument classified as equity by the eligible investee entity in accordance with the applicable accounting standards. Units and specified participating interests are separately included.	This is potentially the most consequential change. Instrument eligibility may depend upon accounting substance and classification rather than nomenclature alone.
5. Treatment of CCDs and CCPS	Fully, compulsorily and mandatorily convertible debentures and preference shares fall within “equity instruments”, subject to FEMA conditions. Optionally, partially or non-convertible instruments are generally treated as debt, subject to specified historical grandfathering.	The Draft Rules do not separately identify CCDs or CCPS. Their treatment will depend on whether the instrument is classified as equity under the applicable accounting standards.	A CCD or CCPS may not necessarily qualify as FEMA “equity” merely because it is compulsorily convertible. The contractual terms and accounting classification may become determinative.
6. Compound financial instruments	The existing FEMA classification is principally instrument-based. Accounting bifurcation into liability and equity components does not expressly determine whether a prescribed equity instrument qualifies under the NDI Rules.	The Draft Rules do not explain how an instrument classified partly as a financial liability and partly as equity will be treated.	Compound instruments may require closer legal, accounting and valuation analysis. Clarification is needed on whether only the equity component, the entire instrument or neither component would fall under the Draft Rules.
7. Applicable accounting framework	FEMA eligibility is not generally made dependent on whether the investee follows Ind AS or the Companies (Accounting Standards) Rules.	The definition of equity refers to “applicable accounting standards” without prescribing a uniform FEMA classification standard.	Similar instruments may conceivably receive different accounting classifications depending on the framework applicable to the investee entity. The Draft Rules do not presently resolve this issue.
8. Eligible investee entities	Separate schedules and provisions apply to Indian companies, LLPs, investment vehicles, partnership firms, proprietary concerns and other vehicles.	A consolidated definition of “eligible investee entity” includes Indian companies and certain bodies corporate, LLPs, specified SEBI-regulated investment vehicles, registered partnership firms and registered proprietary concerns.	This is principally a consolidation and unification of categories rather than an automatic liberalisation of investment into all such entities. Actual permissibility remains subject to the FDI Policy and other conditions.
9. Societies and trusts	The Existing NDI Rules separately regulate investment vehicles, many of which may be constituted as trusts, but do not generally treat ordinary societies or trusts as Indian companies or LLPs.	The definition of eligible investee entity expressly excludes a society or trust from the company/body-corporate limb. Separately, qualifying SEBI-registered investment vehicles are included.	Ordinary trusts and societies do not become eligible merely by virtue of the new definition. A trust constituted as a qualifying regulated investment vehicle may, however, remain covered through the investment-vehicle limb.
10. Definition of foreign investment	Foreign investment generally means investment by a person resident outside India on a repatriation basis in equity instruments of an Indian company or in the capital of an LLP. Indirect foreign investment is dealt with separately through downstream-investment provisions.	Foreign investment means investment in equity of an eligible investee entity by a person resident outside India, directly or indirectly through an FCE or through specified connected or commonly owned or controlled non-resident persons.	Direct and indirect investment concepts are brought closer together within the principal definition. The precise aggregation and attribution rules require further clarification.
11. Beneficial ownership attribution	The Existing NDI Rules recognise foreign investment where beneficial interest is held by a person resident outside India, even where the registered investor may be resident, and separately regulate indirect foreign investment.	The Draft Rules expressly extend foreign investment to certain indirect holdings through foreign entities owned, controlled or commonly owned or controlled with the foreign investor.	The Draft Rules appear to adopt a broader connected-person and control-based attribution mechanism. Its interaction with beneficial ownership disclosures and downstream-investment rules will need to be clarified.
12. Ownership threshold	For downstream-investment purposes, ownership of an Indian company has generally been linked to beneficial ownership of more than 50% of its equity instruments; corresponding principles apply to LLPs.	For certain non-resident intermediary entities, ownership means beneficial holding of more than 50%.	The numerical ownership threshold is broadly familiar, although the Draft Rules place it within the definition of indirect foreign investment through connected non-resident entities.
13. Control	“Control” generally includes the right to appoint a majority of directors or control management or policy decisions, directly or indirectly, including through shareholding, management rights, shareholders’ agreements or voting agreements.	Control includes similar rights but additionally refers to agreements that entitle a person to 10% or more of voting rights, or control “in any other manner”.	The express reference to voting rights of 10% or more could materially broaden the circumstances in which control may be alleged. The drafting may also create uncertainty because a 10% voting entitlement does not ordinarily, by itself, constitute control.
14. Foreign-controlled entity	The Existing NDI Rules use ownership-and-control concepts to determine whether an Indian entity is foreign owned or controlled and whether its investment constitutes downstream foreign investment.	The Draft Rules define a “foreign controlled entity” or “FCE” as a resident company, LLP or investment vehicle owned or controlled by a person resident outside India.	The FCE concept replaces or consolidates elements of the existing downstream-investment framework. However, the Draft Rules defer the ownership-and-control test to sectoral regulators or, in their absence, applicable Indian law.
15. Role of sectoral regulators	Ownership and control are principally determined under the NDI Rules and sector-specific policy conditions.	Ownership and control of an FCE are to be governed by stipulations of the relevant sectoral regulator in consultation with the Central Government. In the absence of such stipulations, applicable Indian law will govern.	Different tests could potentially apply across regulated sectors. The framework may become more sector-sensitive but less uniform.
16. FDI in unlisted companies	Any foreign investment through equity instruments in an unlisted Indian company constitutes FDI, irrespective of whether the holding is below 10%.	FDI is defined as foreign investment of 10% or more in the equity of a company or LLP. The Draft Rules do not separately state that all foreign investment in an unlisted company is FDI.	On a literal reading, a foreign holding below 10% in an unlisted company could fall within the definition of foreign portfolio investment. This would be a substantial departure and requires express clarification. It may be a drafting simplification rather than an intended policy change.
17. FDI threshold for listed companies	FDI includes a holding of 10% or more of the post-issue paid-up equity capital of a listed Indian company on a fully diluted basis. A subsequent fall below 10% does not ordinarily change its character as FDI.	FDI is defined as foreign investment of 10% or more in the equity of a company or LLP. The Draft Rules do not expressly reproduce the fully diluted basis or the “once FDI, always FDI” principle.	It is unclear whether these principles are intended to be preserved through RBI or SEBI directions. Their omission from the Draft Rules should not yet be treated as a confirmed policy reversal.
18. Foreign portfolio investment	FPI is investment below 10% in the equity instruments of a listed Indian company, subject to the SEBI FPI framework and prescribed individual and aggregate limits.	Foreign portfolio investment is defined as foreign investment below 10% in the equity of a company or LLP.	The draft language is considerably broader and does not expressly limit FPI to listed companies or SEBI-registered FPIs. This provision requires clarification, particularly for unlisted companies and LLPs.
19. Application of the 10% test to LLPs	The FDI/FPI distinction is primarily relevant to listed Indian companies. Investment in an LLP is governed as foreign investment in capital contribution or profit share, rather than portfolio investment.	The 10% FDI/FPI distinction expressly refers to a company or an LLP.	The commercial and regulatory meaning of “foreign portfolio investment” in an LLP is unclear because an LLP interest is ordinarily not exchange-traded. Clarificatory drafting is required.
20. Entry routes and sectoral caps	The Existing NDI Rules contain detailed schedules setting out prohibited sectors, automatic and Government routes, sectoral caps and sector-specific conditions.	Foreign investment must comply with the FDI Policy contained or referred to in Annexure II. The Draft Rules do not reproduce the detailed sectoral matrix.	Policy content is separated from FEMA procedure. This could permit quicker policy amendments, but users will need to review the Rules and the prevailing FDI Policy together.
21. Interpretative authority	The Central Government frames the NDI Rules, DPIIT administers the FDI Policy and RBI issues regulations, directions and clarifications on operational FEMA matters.	RBI may interpret and administer the Draft Rules and issue regulations, directions, circulars and clarifications. DPIIT retains authority over interpretation of the FDI Policy.	The division is made more explicit. Questions concerning the Rules would lie primarily with RBI, while questions concerning sectoral policy would lie with DPIIT.
22. General permission and RBI approval	Transactions are permissible where authorised under the Rules, schedules, regulations or directions. Specific approvals may be required depending on the transaction and sector.	No person may make, transfer or receive foreign investment except as permitted. RBI may, on application and for sufficient reasons, permit an investment or transfer subject to conditions.	The Draft Rules preserve a residual RBI approval power. This may provide flexibility for transactions not squarely covered by the general framework.
23. Modes of acquisition	Different schedules permit subscription, purchase, rights or bonus issues, merger, demerger, ESOPs, sweat equity, swaps, gifts, inheritance, pledge and other transactions, subject to specific conditions.	The principal rule expressly identifies subscription, purchase, gift, pledge and specified other investments. An eligible investee entity may issue equity subject to Annexures I and II.	The Draft Rules consolidate the principal modes of investment. Detailed conditions are likely to be dealt with in the annexures or RBI directions.
24. Gift transactions	Gifts between residents and non-residents are permitted only in specified circumstances and subject to conditions, including relationship, sectoral cap, eligibility, value and RBI approval requirements in certain cases.	A gift between natural persons is recognised. A gift on a repatriation basis from a person holding on a non-repatriation basis requires the parties to be close relatives and the value to remain within the applicable LRS limit.	The proposed treatment is shorter and appears to simplify one category of gift. However, the complete treatment of resident-to-non-resident and non-resident-to-resident gifts is not comprehensively stated in the Draft Rules.
25. Pledge	Pledge of equity instruments is permitted subject to specified conditions, including the identity of the pledgee and compliance upon invocation.	Pledge is expressly recognised, provided that the transaction consequent to invocation complies with Rule 8.	The focus moves from detailed upfront pledge conditions in the core rules to compliance at the time of invocation, subject to future directions.
26. Share swaps	Swaps of equity instruments are permitted in specified transactions, subject to valuation, entry-route and other conditions. The 2024 amendments expanded the framework for swaps involving foreign equity capital.	A non-resident may transfer equity to a resident through a swap of equity of an Indian company or equity capital of a foreign company. Investment vehicles may issue units against a swap of equity of an SPV proposed to be acquired.	The Draft Rules retain and consolidate the expanded swap framework. This is not wholly new, but the drafting is more direct.
27. General pricing standard	Pricing varies by transaction direction. Broadly, issue or transfer from a resident to a non-resident cannot be below the prescribed fair value, while transfer from a non-resident to a resident cannot ordinarily exceed the prescribed fair value. Listed-company pricing follows SEBI norms.	Foreign investment and transfers must be at a price determined under SEBI regulations, international-listing requirements or an internationally accepted pricing methodology on an arm’s-length basis.	The Draft Rules do not expressly reproduce the existing floor-and-ceiling language. It is unclear whether the directional pricing safeguards have been removed or will be prescribed separately through RBI directions.
28. Unlisted-company valuation methodology	The price must be determined using an internationally accepted pricing methodology on an arm’s-length basis.	The same broad arm’s-length and internationally accepted methodology standard is retained for cases not governed by SEBI or international-listing pricing.	There is no material change in the basic valuation methodology standard.
29. Permitted valuation certifiers	Depending upon the applicable provision, certification is undertaken by a Chartered Accountant, SEBI-registered Merchant Banker or practising Cost Accountant.	The Draft Rules expressly permit certification by a Chartered Accountant, SEBI-registered Merchant Banker or Cost Accountant.	This is broadly a continuation of the existing FEMA position. The non-inclusion of an IBBI Registered Valuer acting solely in that capacity is not a newly created exclusion, although stakeholders may seek express recognition in the final rules.
30. Role of an IBBI Registered Valuer	An IBBI Registered Valuer may be required under the Companies Act or may support the valuation exercise, but FEMA certification must be issued by a professional falling within the categories specified under FEMA.	The Draft Rules do not independently include a Registered Valuer under Section 247 of the Companies Act as an authorised FEMA certifier.	The position appears substantially unchanged. Separate reports may continue to be required under Companies Act and FEMA where the prescribed professional eligibility differs.
31. Rights issues-pricing	Rights issues are governed by a special pricing regime. For an unlisted company, the price offered to a non-resident generally cannot be lower than the price offered to a resident shareholder. Listed-company rights pricing is determined by the company, subject to applicable law.	The general pricing guidelines expressly do not apply to subscription to equity issued on a rights basis.	The Draft Rules simplify the provision by excluding rights subscriptions from Rule 8 pricing. It remains to be seen whether minimum parity or other safeguards will be prescribed through RBI directions or the FDI Policy.
32. Rights and bonus issues-sectoral conditions	Rights and bonus issues remain subject to applicable sectoral caps, eligibility and conditions attached to the original holding.	Entry-route, sectoral-cap and sectoral-condition requirements do not apply where equity is issued on a rights or bonus basis and the shareholding pattern of the foreign investors does not change.	This is a potentially wider express exemption. The meaning of “shareholding pattern does not change” will need to be applied carefully where shareholders do not subscribe proportionately.
33. Non-repatriation basis	Investments by NRIs and OCIs on a non-repatriation basis are generally treated at par with domestic investment, subject to prescribed exceptions and prohibited activities.	Foreign investment on a non-repatriation basis is exempt from the conditions in Rule 8, but remains prohibited in sectors identified as prohibited for such investment.	The Draft Rules articulate the exemption in a concise, general form. The detailed eligibility of investors and permitted accounts will likely remain in RBI directions.
34. Stock-exchange investments	FPIs, NRIs, OCIs and other eligible investors may invest through recognised stock exchanges subject to SEBI registration, individual and aggregate limits and the applicable schedules.	Non-individual foreign investors, other than specified exempt persons, must obtain necessary SEBI registration unless exempted under SEBI regulations. Separate provision is made for investors using rupee vostro accounts.	The Draft Rules retain regulatory coordination with SEBI but state the registration requirement in broader terms. Investor-specific limits are not contained in the principal Draft Rules.
35. FPI crossing the 10% threshold	An FPI crossing the prescribed threshold may be required to divest or reclassify the investment as FDI within the prescribed time and subject to compliance.	FPI on an Indian recognised stock exchange that reaches 10% or more may be reclassified as FDI by complying with applicable FDI conditions and RBI/SEBI directions.	The reclassification route is expressly preserved, but detailed timelines and procedures are deferred.
36. Downstream investment conditions	Detailed provisions determine whether an investment by an Indian entity is indirect foreign investment, the sectoral conditions applicable, the source of funds and reporting obligations.	Foreign investment by an FCE is required to comply with sectoral conditions only for sectors specifically identified in the FDI Policy for that purpose.	The proposed formulation may narrow or simplify the blanket application of downstream-investment conditions. The substantive result cannot be assessed without the final FDI Policy and RBI directions.
37. Source of funds for downstream investment	Existing rules contain specific requirements relating to internal accruals and permitted funding sources for downstream investment.	The Draft Rules do not set out equivalent funding-source provisions.	Their omission should not be treated as a confirmed removal. Such requirements may be relocated to RBI regulations, directions or the FDI Policy.
38. Reporting and payment	Detailed payment and reporting requirements are prescribed under the FEMA Mode of Payment and Reporting of Non-Debt Instruments Regulations, 2019, including forms such as FC-GPR, FC-TRS and downstream-investment reporting.	RBI is authorised to prescribe payment modes, reporting requirements and other operational conditions separately.	The Draft Rules do not themselves eliminate existing reporting. A new or amended operational regulation will be necessary if the Draft Rules are notified.
39. Onus of compliance	Compliance obligations are distributed among the Indian investee entity, resident and non-resident parties, authorised dealer banks and other intermediaries under different provisions.	The onus of compliance is expressly placed on the foreign investor, eligible investee entity, transferor and transferee.	The Draft Rules codify shared responsibility. Parties may not be able to rely solely on the authorised dealer bank to identify or cure non-compliance.
40. Investment vehicles	Separate provisions govern foreign investment in units of investment vehicles, including AIFs, REITs and InvITs.	Investment vehicles are included within the definition of eligible investee entity. Units classified under applicable SEBI regulations form part of “equity”.	The framework is consolidated. However, the Draft Rules also appear to include mutual funds and ETFs investing more than 50% in equity, which is broader than the conventional core definition of investment vehicle under the Existing NDI Rules.
41. Partnership firms and proprietary concerns	Investment by NRIs/OCIs in partnership firms and proprietary concerns is separately regulated, principally on a non-repatriation basis, subject to prohibited activities and other conditions. Other non-resident investment may require approval.	Registered partnership firms and proprietary concerns are included as eligible investee entities.	Their inclusion in the common definition may permit a more unified framework, but does not, by itself, establish automatic-route eligibility. The FDI Policy must specify the permissible investors, basis of investment and sectoral limitations.
42. Direct listing on international exchanges	A direct-listing framework was inserted into the Existing NDI Rules in 2024, permitting eligible Indian public companies to issue or list equity on specified international exchanges.	Annexure I substantially sets out the direct-listing framework, including eligibility, beneficial ownership, pricing, voting and transfer provisions.	Direct listing is not newly introduced by the Draft Rules. The Draft Rules consolidate and recast an existing framework.
43. International-listing eligibility	Existing direct-listing provisions prescribe eligibility conditions relating to debarment, wilful default, investigation and fugitive-economic-offender status.	Similar restrictions are expressly reproduced in Annexure I.	The core disqualification framework is broadly continued.
44. International-listing pricing	Pricing is governed by the existing direct-listing scheme and applicable international-exchange requirements.	For an unlisted public company, initial international listing price is determined by book building as permitted by the international exchange. For an Indian-listed company, the issue price cannot be lower than the corresponding domestic-issuance price.	The Draft Rules largely retain the existing structure while placing it within a consolidated annexure.
45. International transfers to residents	The direct-listing framework restricts transfers from non-residents to residents on the international exchange to permitted circumstances.	Transfers to residents are permitted only in specified events such as delisting, an IBC resolution plan, buy-back, merger or amalgamation, and succession or inheritance.	The closed-list approach continues to prevent unrestricted resident acquisition of internationally listed equity outside the permitted events.
46. International voting rights	Voting rights on internationally listed equity are subject to the applicable direct-listing framework and depository arrangements.	Voting must be exercised directly by the non-resident holder or through a custodian acting only on the holder’s instructions.	The Draft Rules expressly reinforce that the beneficial non-resident holder must retain substantive voting control.
47. Existing transactions and grandfathering	The Existing NDI Rules contain savings and grandfathering provisions for investments and instruments made under earlier FEMA regimes.	The supersession clause saves things already done or omitted before the supersession. However, the Draft Rules do not contain detailed transitional provisions for existing instruments.	It remains unclear how existing CCDs, CCPS, warrants, convertible notes and partly paid instruments will be treated if their accounting classification does not satisfy the new definition of equity.
48. Convertible notes issued by startups	Convertible notes issued by eligible startup companies are expressly recognised and regulated, subject to minimum investment and conversion or repayment conditions.	Convertible notes are not expressly referred to in the principal Draft Rules.	Their omission is material. It is unclear whether they will be regulated through separate debt or borrowing rules, the FDI Policy or RBI directions.
49. ESOPs, sweat equity and employee-benefit issuances	Detailed provisions permit eligible Indian entities to issue ESOPs, sweat equity and similar benefits to non-resident employees or directors, subject to conditions.	The Draft Rules do not expressly set out equivalent provisions.	These issuances may still be covered as an “issue of equity”, but detailed eligibility and pricing exemptions will require separate prescription.
50. Optionality and assured returns	Equity instruments may contain optionality clauses, but an investor cannot be guaranteed an assured exit price. Exit must occur at the prevailing value subject to applicable pricing rules.	The Draft Rules do not expressly reproduce the prohibition on assured returns or guaranteed exit pricing.	The omission should not be read as permitting assured returns. Such restrictions may continue under RBI directions, the accounting classification test, borrowing rules or general FEMA principles.
51. Deferred consideration and escrow	Existing rules permit deferred consideration, escrow arrangements and indemnity in eligible share transfers within prescribed limits and timelines.	The Draft Rules are silent on these mechanisms.	The relevant mechanics are likely to remain operational matters for RBI directions. Until final instruments are issued, no conclusion should be drawn that such arrangements have been liberalised or prohibited.
52. Partly paid shares and warrants	Partly paid equity shares and share warrants are expressly recognised as equity instruments, subject to payment and other conditions.	The Draft Rules do not separately refer to partly paid shares or warrants.	Their eligibility may depend on accounting classification and future RBI directions. Specific payment timelines and upfront-contribution requirements are not contained in the Draft Rules.
53. Prohibited sectors	The Existing NDI Rules contain an express list of prohibited sectors and activities.	Prohibited sectors are to be prescribed through the FDI Policy in Annexure II.	The policy is relocated rather than necessarily removed. Any sectoral assessment must be made only after reviewing the final Annexure II.
54. Residual matters	The Existing NDI Rules contain detailed investor-specific schedules covering FPIs, NRIs/OCIs, FVCIs, depository receipts and investment vehicles.	Most investor-specific provisions are not reproduced in the principal Draft Rules.	The complete legal impact cannot be assessed until the accompanying FDI Policy, annexures and RBI operational directions are available.