Written by the Delhi Legal Company India Entry & FDI Advisory team · Last updated August 2026 · Reviewed against Press Note 3 (2020) as amended by Press Note 2 (2026 Series)
Introduction
The March 2026 relaxation of Press Note 3 was widely reported as India opening the door to Chinese investment. For direct Chinese investment, it did nothing of the kind.
The government clarified that these relaxations are not an open invitation for direct Chinese investment. Direct investments from China and other land-border countries continue to require prior government approval. The benefit primarily accrues to multinational companies and global funds with Chinese minority shareholders below 10%, who can now use the automatic route.
That distinction is the whole point, and it is the one most coverage inverts. The amendment does not help a Chinese strategic investor buying into an Indian company. It helps a US venture fund with a Chinese limited partner, a Singapore holding company with a small Chinese shareholder, and a European group whose cap table happens to include a Chinese minority.
Which is to say: it helps the businesses that were never the target and had been caught anyway.
If your group has no obvious connection to a land border country, this still applies to you. Press Note 3 works on beneficial ownership, traced up your ownership chain, and a single investor several layers above you can put an ordinary transaction into a government approval process measured in months.
This guide covers what the rule catches, what the March 2026 amendment actually changed, the definition that has finally been fixed, and what to do when the answer is that approval is required.
About this guide
Delhi Legal Company works exclusively with foreign companies establishing and operating in India. Press Note 3 is the analysis most likely to surprise a group that considered itself unconnected to the issue, because it turns on a chart nobody had drawn.
Where a rule is settled we state it. Where the framework has just moved — and it moved substantially in March 2026 — we set out both positions, because a great deal of published material describes the pre-amendment rule without saying so.
Primary source: the Department for Promotion of Industry and Internal Trade for the Consolidated FDI Policy and the Press Note series, and the Prevention of Money-laundering Rules, 2005 for the beneficial ownership definition.
1. First, the naming
This confuses everyone, so it is worth clearing at the outset.
| Instrument | What it is |
|---|---|
| Press Note 3 (2020 Series) | The original restriction, issued 17 April 2020 |
| Press Note 2 (2026 Series) | The amending instrument, effective from May 2026, which introduced the 10% safe harbour and the 60-day fast track |
So “Press Note 2 of 2026” amends “Press Note 3 of 2020”. The restriction is still universally called Press Note 3, and it is still the right name for the regime — but the current rules are in the 2026 instrument.
2. What Press Note 3 did
Press Note 3 (2020) was issued by DPIIT in April 2020, primarily to curb opportunistic takeovers and acquisitions of Indian companies during the COVID-19 pandemic. It amended Para 3.1.1 of the Consolidated FDI Policy to require all investments from countries sharing a land border with India to be made only under the Government route, that is, with prior approval of the Government of India.
It mandated prior government approval for all foreign direct investment, whether direct or indirect, where the investor or its beneficial owner is situated in or is a citizen of a country sharing a land border with India.
2.1 The seven countries
The rule applied to investments from countries sharing a land border with India: China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan.
Note that the rule is geographic, not political. Nepal and Bhutan are caught on the same terms as China, which produces results nobody designing the policy had in mind.
2.2 Why it caught so much
Three features made the original rule extraordinarily wide.
It applied regardless of sector. A sector open to 100% FDI under the automatic route was still closed to a land border investor without approval.
It applied to indirect investment. The test looked through to beneficial ownership, so an investor three or four layers up could trigger it.
Beneficial ownership was undefined. There was no stated threshold, which meant advisers could not tell clients where the line was and defaulted to caution.
2.3 What it cost
According to CRISIL estimates, investment proposals worth ₹756.91 billion were submitted under Press Note 3 during FY 2020-21 and FY 2021-22. Authorities approved only ₹136.25 billion, underscoring the restrictive nature of the framework. Rejected proposals accounted for nearly five percent of India’s average annual FDI inflows over the past five years.
An approval rate around eighteen per cent, on proposals that were mostly ordinary commercial investments, is the context for the 2026 amendment.
3. Citizenship, not residence
This is the trap that catches individual investors and it survives the amendment.
The test refers to an investor situated in or a citizen of a land border country. Both limbs, either sufficient.
Consider an investor who is a Chinese citizen living in Singapore, wishing to invest in an Indian ed-tech startup for a 15% stake in a sector that allows 100% FDI under the automatic route. Press Note 3 applies because the investor is a citizen of a country sharing a land border with India. The investment cannot proceed through the automatic route regardless of the sector, and Singaporean residency does not help.
3.1 Why this matters for foreign groups
A founder, angel investor or executive who holds a land border country passport but has lived elsewhere for twenty years is still caught by the citizenship limb.
Groups running the analysis on where investors are based rather than on nationality reach the wrong answer. The question is passports, not addresses.
4. What the March 2026 amendment changed
On 10 March 2026, India’s Union Cabinet approved amendments to Press Note 3. The revised framework allows investors with non-controlling beneficial ownership of up to 10 percent to invest through the automatic route, where no prior government approval is required at the time of investment, subject to applicable sectoral caps. A sixty-day timeline has also been introduced for processing investment proposals.
| Before | After | |
|---|---|---|
| Minority beneficial ownership | Any level triggered approval | Up to 10%, non-controlling, automatic route |
| Beneficial ownership definition | Undefined | Linked to the thresholds under Rule 9(3) of the PML Rules |
| Processing timeline | Open-ended; 6 to 18 months in practice | 60-day fast track for specified sectors; published SOP targets 8–10 weeks |
| Reporting where the safe harbour applies | — | The Indian investee company reports the investment to DPIIT |
| Direct LBC investment | Approval required | Approval still required |
4.1 The safe harbour has two conditions, not one
Investment may now proceed under the automatic route where an investor from a land-border country holds up to 10% beneficial ownership and does not exercise control over the company.
Both limbs must be satisfied. Nine per cent with a board seat, a veto over budget or a shareholders’ agreement conferring negative control is not within the safe harbour.
Control is the limb groups under-analyse. It is not measured by shareholding — it is assessed on what the investor can actually do, which means reading the shareholders’ agreement rather than the cap table.
4.2 What the safe harbour is for
This revision removes the approval requirement for a class of investors whose connection with a land border country may be incidental or temporary.
That sentence describes the intended beneficiary precisely: the global fund with a small Chinese LP, the multinational with a legacy minority shareholder, the holding company whose cap table picked up a land border investor years ago.
It was never intended to open direct investment, and it does not.
5. Beneficial ownership: the definition that was finally fixed
For six years the central term in the rule had no stated meaning. That has changed.
Press Note 2 now expressly links the determination of “beneficial ownership” to the thresholds under Rule 9(3) of the PML Rules, providing long-awaited clarity on how beneficial ownership should be assessed for investments involving entities from countries sharing a land border with India. Market participants had often relied on the PML Rules thresholds in practice even before the amendment, but the standard is now formally incorporated into the FDI Policy.
The term “beneficial owner” now follows the definition prescribed under the Prevention of Money Laundering Rules, 2005. Aligning the definition with an existing regulatory framework ensures greater clarity and consistency in interpretation.
5.1 Why this is the most useful part of the amendment
Certainty. Under the old rule an adviser could not tell a client where the line fell, so the honest answer to “does this trigger PN3” was frequently “possibly, and we would apply for approval to be safe.”
With a defined threshold, the analysis produces an answer. A transaction either crosses the line or it does not.
5.2 The worked position
Where a Chinese investor does not cross the beneficial ownership threshold and does not cross the control threshold, the investment by a Singapore holding company may not trigger Government approval, and the investment may not be regarded as having beneficial ownership from a land border country.
That is the structure the amendment was written for, and it is now workable where before it was not.
6. One chart, three regimes
This is the practical point that saves foreign groups the most work, and almost nobody makes it.
The PML Rules beneficial ownership thresholds are the same standard your bank applies at KYC. And the significant beneficial ownership regime under the Companies Act works on a 10% threshold traced through the same chain.
| Regime | Asks | Threshold |
|---|---|---|
| Press Note 3 | Is any beneficial owner from a land border country? | 10% safe harbour, PML Rules definition |
| Bank KYC | Who ultimately owns or controls this customer? | More than 10%, PML Rules |
| SBO / Form BEN-2 | Which individuals hold significant beneficial ownership? | 10% |
Three regulators, three filings, one underlying question: who ultimately owns this company, traced to natural persons, with percentages at every level.
Draw the chart once. It answers the bank’s onboarding queries, the BEN-2 analysis and the Press Note 3 assessment. Groups that treat these as three separate exercises do the work three times and usually produce three slightly different charts.
See significant beneficial ownership and Form BEN-2 and opening a bank account for your Indian subsidiary.
7. The 60-day fast track
The March 2026 amendment opened specific manufacturing sectors to FDI from land-border countries with an expedited 60-day processing timeline.
The sectors targeted are manufacturing of capital goods, electronic components, polysilicon, ingot-wafers, and deep-tech start-ups, with investments to be cleared within 60 days for specified sectors.
7.1 What the fast track is and is not
It is a processing commitment, not an exemption. Investments in those sectors above the 10% threshold still go through government approval — they simply go through it faster.
Full government approval still applies above that threshold or where control changes hands.
7.2 The timeline in context
The published SOP targets 8 to 10 weeks. Land-border-country filings have historically taken considerably longer, which the 2026 fast track is designed to address for priority sectors.
Against a historical range of six to eighteen months, a sixty-day commitment is a substantial change — if it holds. For transaction planning, treat the SOP target as an objective rather than a guarantee, and build the long-stop date accordingly.
8. What still requires approval
Worth stating plainly, because the reporting has muddied it.
- Any direct investment from a land border country entity or citizen
- Beneficial ownership above 10% from a land border country, in any sector
- Any level of beneficial ownership where control is exercised — the safe harbour requires both conditions
- Transfers of existing shares to a buyer who is, or whose beneficial owner is, from a land border country
- Changes of control resulting in land border beneficial ownership crossing the threshold
8.1 The secondary transfer point
Selling shares to a buyer from a bordering country, or to a buyer whose beneficial owner is from a bordering country, also requires government approval — even on secondary markets.
This catches exits. A foreign group selling its Indian subsidiary, or a founder selling a stake, has to run the Press Note 3 analysis on the buyer. A buyer who fails it turns a share purchase agreement into a conditional transaction with an approval timeline attached.
Run the analysis on prospective buyers during the process, not after heads of terms.
8.2 The subsequent-round problem
A company that cleared Press Note 3 at Series A can fail at Series B if the new investor’s chain includes land border beneficial ownership above the threshold.
The analysis is transaction-specific, not a status the company holds. Each round needs its own assessment.
9. The approval process
| Step | Detail |
|---|---|
| Application | Filed on the Foreign Investment Facilitation Portal |
| Administrative ministry | Routed to the ministry for the relevant sector |
| Security clearance | Ministry of Home Affairs input |
| Decision | Approval, approval with conditions, or rejection |
| Reporting | Where the safe harbour applies, the investee company reports to DPIIT |
| Appeal | There is no dedicated appellate tribunal |
9.1 The absence of an appeal route
This deserves emphasis because it shapes how the application should be prepared.
With no dedicated appellate tribunal, a rejected application does not have a straightforward route to review. The application is effectively the one opportunity to present the case.
Which means the ownership chart, the control analysis and the commercial rationale need to be complete and coherent at filing — not developed in response to queries.
9.2 The reporting obligation is new
Where the 10% safe harbour applies, the investment proceeds automatically but the Indian investee company reports it to DPIIT.
That is a new compliance step and it belongs on the post-closing checklist alongside FC-GPR. A group that relies on the safe harbour and files nothing has used a relaxation without meeting its condition.
10. Pakistan is different
Pakistan already had separate FDI restrictions predating Press Note 3. The press note added an extra layer for all border countries, but Pakistan’s specific prohibitions, such as no FDI in defence, remain independently applicable.
So for Pakistan the analysis is two-layered: the pre-existing sectoral prohibitions, and Press Note 3 on top. Relaxation of the latter does not touch the former.
11. Structuring: what works and what does not
Given the complexity of Press Note 3, foreign investors with Chinese stakeholders employ several structuring strategies, each carrying regulatory considerations that must be carefully evaluated.
A word on the boundary here. Legitimate structuring means arranging genuine commercial affairs so that a threshold is not crossed. What does not work is arranging the appearance of a position while the substance is otherwise.
| Approach | Assessment |
|---|---|
| Genuinely keeping land border beneficial ownership below 10% with no control rights | Within the safe harbour by design |
| Interposing a holding company in a third country | Does not work — the test looks through to beneficial ownership |
| Relying on the investor’s non-Indian residence | Does not work — citizenship is an independent limb |
| Removing a formal board seat while retaining veto rights | Does not work — control is assessed substantively |
| An investor genuinely exiting before the transaction | Effective if real and complete |
| Applying for approval and building the timeline in | Often the honest answer |
11.1 The interposed holding company
This is the structure people reach for first and it is the one the rule was written to defeat.
Press Note 3 applies to investment “whether direct or indirect” and tests beneficial ownership. A Singapore or Mauritius layer above a Chinese shareholder changes the immediate investor and not the beneficial owner.
What has changed is that the beneficial ownership analysis now has a defined threshold, so a Singapore holding company with a genuinely small Chinese shareholding can be assessed rather than assumed to be caught. That is a real improvement — but it works because the numbers work, not because the layer exists.
12. Two situations, worked through
Scenario A — The fund with an LP nobody had traced
A US venture fund leads a Series B into an Indian SaaS company. The fund’s limited partners include a Chinese family office holding a small percentage of committed capital. Nobody had run the chain.
Before March 2026. Any level of land border beneficial ownership triggered approval. The round would have gone to the government route, with a six-to-eighteen-month timeline attached to a funding round the company needed in weeks.
Now. If the traced beneficial ownership is at or below 10% under the PML Rules thresholds and no control is exercised, the investment proceeds under the automatic route, with the investee company reporting to DPIIT.
What still has to happen. The chain must actually be traced and documented, because the safe harbour is a position the company has to be able to evidence, not an assumption.
Scenario B — The exit that found the problem late
A European group agrees to sell its Indian subsidiary. Heads of terms are signed. The buyer is an Asian strategic with a holding structure the seller had not analysed.
The problem. A transfer to a buyer whose beneficial owner is from a land border country requires government approval, even on a secondary transaction. The share purchase agreement becomes conditional on an approval nobody had budgeted time for.
The consequence. A long-stop date renegotiation, a materially changed risk allocation, and a buyer who may walk.
What would have prevented it. Running the Press Note 3 analysis on prospective buyers during the process, alongside the usual financial and legal screening.
13. Twelve mistakes
- Reading the March 2026 amendment as opening direct Chinese investment. Direct investment from land border countries still requires approval.
- Assuming the rule only affects groups with obvious China exposure. It tests beneficial ownership traced up the chain.
- Running the analysis on residence rather than citizenship. Both limbs apply independently.
- Treating the 10% safe harbour as a single condition. Non-control is the second, and it is assessed substantively.
- Reading the cap table instead of the shareholders’ agreement when assessing control.
- Interposing a third-country holding company and expecting the beneficial ownership test not to look through it.
- Not tracing the chain to natural persons, so a small LP or minority shareholder is discovered late.
- Building three separate ownership charts for Press Note 3, bank KYC and BEN-2 when one serves all three.
- Not reporting to DPIIT where the safe harbour is relied on.
- Treating clearance as a status. The analysis is transaction-specific and each round needs its own.
- Not screening prospective buyers on exit, so a secondary transfer becomes conditional after heads of terms.
- Filing a thin application where there is no dedicated appellate route if it is refused.
14. Checklist
The analysis
- Full ownership chart drawn to natural persons, with percentages at every level
- Nationality established for every individual in the chain, not just residence
- Land border country connection identified anywhere in the chain: China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar or Afghanistan
- Beneficial ownership assessed against the PML Rules Rule 9(3) thresholds
- Control assessed substantively — board rights, veto rights, shareholders’ agreement, not shareholding alone
- Sector identified and checked against the fast track list
- Pakistan-specific sectoral prohibitions checked separately where relevant
Where the safe harbour applies
- Both conditions documented: at or below 10% beneficial ownership and no control
- Sectoral cap confirmed
- Investment proceeds under the automatic route
- Report filed with DPIIT by the Indian investee company
- Chart and analysis retained as evidence of the position taken
- FC-GPR filed within 30 days of allotment — see share valuation for FDI
Where approval is required
- Application prepared for the Foreign Investment Facilitation Portal
- Ownership chart, control analysis and commercial rationale complete at filing, given the absence of an appellate route
- Fast track eligibility assessed against the specified sectors
- Transaction timeline built to the SOP target as an objective rather than a guarantee
- Long-stop date and conditionality reflected in the transaction documents
Ongoing
- Chart refreshed on every funding round, secondary transfer or change at parent level
- Prospective buyers screened during any exit process
- The same chart maintained for bank KYC refresh and BEN-2 — see statutory registers
Raising a round, or selling, and unsure what your chain looks like?
Press Note 3 is a chart problem before it is a legal one, and most groups have never drawn theirs to natural persons. Send us your ownership structure and your investor list and we will tell you whether the safe harbour is available, whether control is an issue, and if approval is needed, what the realistic timeline looks like.
15. Frequently asked questions
Q1. What is Press Note 3?
A 2020 amendment to India’s FDI policy, issued by DPIIT on 17 April 2020, requiring prior government approval for all foreign direct investment — direct or indirect — where the investor or its beneficial owner is situated in or is a citizen of a country sharing a land border with India. It amended Para 3.1.1 of the Consolidated FDI Policy.
Q2. Which countries does it cover?
China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan. The test is geographic rather than political, so Nepal and Bhutan are caught on the same terms as China even though the policy was aimed principally at Chinese investment.
Q3. What changed in March 2026?
The Union Cabinet approved amendments on 10 March 2026, given effect by Press Note 2 of 2026 from May 2026. The changes introduced a 10% non-controlling safe harbour allowing automatic route investment, linked beneficial ownership to the PML Rules thresholds, and introduced a 60-day processing timeline for specified sectors.
Q4. Does the relaxation open the door to Chinese investment?
Not for direct investment. The government clarified that the relaxations are not an open invitation, and direct investments from China and other land-border countries continue to require prior government approval. The benefit accrues principally to multinationals and global funds with Chinese minority shareholders below 10%.
Q5. Why is Press Note 3 amended by Press Note 2?
Because the numbering restarts each year. Press Note 3 of the 2020 series is the original restriction; Press Note 2 of the 2026 series is the amending instrument. The regime is still universally referred to as Press Note 3, but the current rules sit in the 2026 instrument.
Q6. What does the 10% safe harbour require?
Two conditions, both of which must be satisfied: beneficial ownership from a land border country of up to 10%, and no exercise of control over the company. Nine per cent with a board seat, a budget veto or negative control under a shareholders’ agreement falls outside the safe harbour.
Q7. How is control assessed?
Substantively, on what the investor can actually do, rather than by shareholding alone. That means reading the shareholders’ agreement — board nomination rights, reserved matters, veto rights, affirmative vote provisions — not just the cap table. Control is the limb groups most often under-analyse.
Q8. How is beneficial ownership now defined?
By reference to the thresholds under Rule 9(3) of the Prevention of Money-laundering Rules, 2005. Press Note 2 formally incorporated this standard into the FDI Policy, providing clarity that had been absent for six years — market participants had often relied on those thresholds in practice even before the amendment.
Q9. Why does that definition matter so much?
Certainty. Under the old rule the central term was undefined, so advisers could not tell clients where the line fell and frequently recommended applying for approval to be safe. With a defined threshold, the analysis produces an answer: a transaction either crosses the line or it does not.
Q10. Does residence outside a land border country help?
No. The test refers to an investor situated in or a citizen of a land border country, and either limb is sufficient. A Chinese citizen resident in Singapore for twenty years is still caught by the citizenship limb, and running the analysis on where investors are based produces the wrong answer.
Q11. Does interposing a holding company in a third country work?
No. Press Note 3 applies to investment whether direct or indirect and tests beneficial ownership, so a Singapore or Mauritius layer above a Chinese shareholder changes the immediate investor without changing the beneficial owner. What has changed is that the analysis now has a defined threshold, so a genuinely small holding can be assessed rather than assumed to be caught.
Q12. What is the 60-day fast track?
A processing commitment for specified sectors — manufacturing of capital goods, electronic components, polysilicon, ingot-wafers and deep-tech start-ups — under which investments are to be cleared within 60 days. It is a timeline commitment, not an exemption: approval is still required above the threshold.
Q13. How long did approvals previously take?
Historically six to eighteen months. The published standard operating procedure now targets eight to ten weeks, with the 60-day commitment for priority sectors. For transaction planning, treat the target as an objective rather than a guarantee and build the long-stop date accordingly.
Q14. How restrictive was the original framework in practice?
CRISIL estimated that proposals worth ₹756.91 billion were submitted under Press Note 3 during FY 2020-21 and FY 2021-22, of which only ₹136.25 billion were approved — an approval rate around eighteen per cent. Rejected proposals accounted for nearly five per cent of India’s average annual FDI inflows over five years.
Q15. Does Press Note 3 apply to share transfers as well as new investment?
Yes. Selling shares to a buyer from a bordering country, or to a buyer whose beneficial owner is from one, requires government approval even on a secondary transaction. This catches exits, and prospective buyers should be screened during the process rather than after heads of terms.
Q16. If we cleared Press Note 3 once, are we cleared permanently?
No. The analysis is transaction-specific rather than a status the company holds. A company that cleared at Series A can fail at Series B if the new investor’s chain includes land border beneficial ownership above the threshold, so each round needs its own assessment.
Q17. What is the approval process?
An application on the Foreign Investment Facilitation Portal, routed to the administrative ministry for the relevant sector, with security clearance input from the Ministry of Home Affairs, leading to approval, conditional approval or rejection.
Q18. Is there an appeal if the application is refused?
There is no dedicated appellate tribunal. That shapes how the application should be prepared — the ownership chart, control analysis and commercial rationale need to be complete and coherent at filing rather than developed in response to queries, because the application is effectively the one opportunity to present the case.
Q19. Do we have to report anything if the safe harbour applies?
Yes. Where the 10% safe harbour applies the investment proceeds under the automatic route, but the Indian investee company reports it to DPIIT. That is a new compliance step belonging on the post-closing checklist alongside FC-GPR, and relying on the relaxation without filing means the condition has not been met.
Q20. Are the rules for Pakistan the same as for China?
No. Pakistan had separate FDI restrictions predating Press Note 3, including sectoral prohibitions such as no FDI in defence, and those remain independently applicable. The analysis for Pakistan is two-layered, and relaxation of Press Note 3 does not touch the pre-existing prohibitions.
Q21. Can we use the same ownership chart for other Indian compliance?
Yes, and this is the most useful efficiency available. The PML Rules beneficial ownership thresholds are the same standard your bank applies at KYC, and the significant beneficial ownership regime under the Companies Act works on a 10% threshold traced through the same chain. Draw the chart once for all three.
Q22. What should we do first?
Draw the chart. Press Note 3 is a chart problem before it is a legal one — the ownership structure traced to natural persons, with percentages at every level and nationality for each individual. Most groups have never drawn theirs that far, which is why the issue surfaces during a transaction rather than before one.
Related reading
- Significant beneficial ownership and Form BEN-2 — the same chart, for the Companies Act
- Opening a bank account for your Indian subsidiary — the same chart, for your AD bank
- Best business structures in India for foreign companies — FDI routes and sectoral caps
- Share valuation for FDI — the pricing and reporting that follows once the route is clear
Talk to us before the term sheet
Delhi Legal Company works exclusively with foreign companies establishing and operating in India. Beneficial ownership mapping, Press Note 3 assessment, government approval applications, DPIIT reporting where the safe harbour applies, and the FEMA reporting that follows — run as one workstream, because the same chart answers three regulators.
How we usually start. Send us your ownership structure, your investor list with nationalities, and your shareholders’ agreement. We come back with whether the safe harbour is available, whether control is an issue, whether your sector qualifies for the fast track, and if approval is needed, what to build into the transaction timeline.