India’s 2026 FDI Rule Sets Approval Above 10% Ownership

India’s 2026 foreign direct investment (FDI) rule requires prior government approval where land-border-country citizens or entities own more than 10% of an investor’s shares, capital or profits, or exercise specified control. German Green Steel and Power Limited disclosed that the revised beneficial-ownership test took effect on May 2, 2026.

When does India’s 2026 FDI approval requirement apply?

India’s 2026 FDI approval requirement applies when citizens or entities of a country sharing a land border with India hold more than 10% of an investor entity’s shares, capital or profits, or exercise control over that investor entity or ultimate effective control over the Indian investee. German Green Steel says the test applies directly or indirectly, individually or cumulatively, and independently or collectively with other citizens or entities of land-border countries.

The revised standard was set out in Press Note No. 2 (2026 Series), dated March 15, 2026, issued by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, Government of India. German Green Steel states that the amendments to the FDI Policy and Foreign Exchange Management (Non-debt Instruments) Rules, or NDI Rules, took effect when the Foreign Exchange Management (Non-debt Instruments) Rules, 2026 were published in the official gazette on May 2, 2026.

The ownership limb covers three measures: shares, capital and profits. Approval can therefore be required without an interest above 10% where a relevant person exercises control over the investor entity, or ultimate effective control over the Indian investee. The source does not define the practical evidence of control beyond those stated tests, so the disclosed rule requires an assessment of ownership and control.

How did the 2026 rule change the 2020 land-border test?

The 2026 rule introduced a stated more-than-10% beneficial-ownership threshold and specified control tests, whereas the 2020 framework described in the prospectus did not state that percentage. Press Note No. 3 (2020 Series), dated April 17, 2020, and the 2020 NDI amendment effective April 22, 2020 required approval for investments in Indian equity instruments by land-border-country entities or where the beneficial owner was situated in, or a citizen of, such a country.

Both the 2020 and 2026 descriptions cover changes after an initial investment. Under the 2026 disclosure, a direct or indirect transfer of ownership of an existing or future FDI investment requires approval if the resulting beneficial ownership falls within the restriction. This means a later transfer can alter the approval position even where the original investment did not require approval.

A country is not attributed to a multilateral bank or fund of which India is a member under the Foreign Exchange Management (Non-debt Instruments) (Fourth Amendment) Rules, 2020, issued on December 8, 2020. German Green Steel says neither that multilateral institution nor its investments in India are treated as belonging beneficially to a particular country for this purpose.

Do holdings of 10% or less still create obligations?

Yes, holdings that do not require approval can still be subject to reporting when the investor has any direct or indirect ownership by a citizen or entity of a land-border country. German Green Steel says the reporting applies to investments into India that do not require prior government approval but meet that ownership condition. The prospectus does not state the reporting format, timing or contents.

The ownership trigger is more than 10%, rather than 10% or more. On the disclosed wording, exactly 10% does not satisfy the ownership limb alone, but control over the investor entity or ultimate effective control over the Indian investee can independently require approval. A sub-threshold ownership percentage therefore remains relevant if it is accompanied by the stated control rights or arrangements.

The calculation can aggregate relevant ownership positions because the rule applies cumulatively and collectively as well as individually. The source consequently distinguishes between a single investor’s percentage and combined direct or indirect interests held by citizens or entities of land-border countries. A later transfer can also change that combined beneficial-ownership position and trigger approval.

How does the rule apply to German Green Steel’s offer?

German Green Steel says FDI of up to 100% is permitted in the company under the automatic route of the Consolidated FDI Policy. The automatic route permits investment without prior approval when applicable conditions are met, but German Green Steel separately requires a bidder that needs Government of India or Reserve Bank of India (RBI) approval to notify the company and registrar in writing, with a copy of the approval, during the bid or offer period.

A transfer between an Indian resident and a non-resident does not require prior RBI approval if three stated conditions are met: the investee’s activities are under the automatic route and the transfer does not attract Securities and Exchange Board of India (SEBI) Takeover Regulations; non-resident shareholding remains within sectoral limits; and pricing follows SEBI and RBI guidelines. These conditions do not remove the separate 2026 approval requirement where the revised land-border beneficial-ownership test applies.

German Green Steel also discloses separate ceilings for non-resident Indians (NRIs) and overseas citizens of India (OCIs) investing on a repatriation basis. An individual NRI or OCI cannot hold more than 5% of fully diluted paid-up equity capital, while all NRIs and OCIs together cannot exceed 10%; the aggregate ceiling may rise to 24% after a special resolution by the company’s general body. Those limits are distinct from the more-than-10% beneficial-ownership test for land-border investors.

Overseas corporate bodies cannot participate in the offer under the Government of India’s existing policy, according to German Green Steel. The company also states that its equity shares have not been and will not be registered under the U.S. Securities Act and are proposed to be offered and sold outside the United States in offshore transactions under Regulation S, subject to applicable local laws.

Conclusion

India’s 2026 FDI rule changes the disclosed land-border assessment by establishing a more-than-10% beneficial-ownership threshold alongside control tests. The rule reaches direct, indirect, individual, cumulative and collective interests, while the reporting provision means that an investment below the approval threshold can still carry a stated compliance obligation.

The next point to watch is the company reporting required for investments that do not need approval, because German Green Steel identifies that obligation but does not describe its procedure. The prospectus also makes future ownership transfers material: approval can become necessary if a transfer changes beneficial ownership so that it falls within the 2026 restriction.