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FEMA Export and Import Regulations 2026 complete compliance guide for Indian businesses

FEMA Export and Import Regulations 2026: Ultimate Positive Guide to Successful Compliance

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Introduction FEMA Export and Import Regulations 2026 will govern a new compliance framework for Indian businesses involved in cross-border trade. From 1 October 2026, every export and import transaction of an Indian business will be governed by a single new rulebook. On 13 January 2026, the Reserve Bank of India notified the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 (Notification No. FEMA 23(R)/2026-RB), followed by consolidated Directions to Authorised Dealer banks. Together, they replace the 2015 Export Regulations, the separate Master Directions on export and import, the merchandising trade guidelines, and dozens of circulars. For businesses, this is both a relief and a warning. The new framework is simpler, more digital, and gives banks the power to solve routine problems quickly. But the same digital consolidation means that unfilled declarations, overdue receivables and unmatched remittances are now visible to your bank and the RBI almost in real time. This article explains who the Regulations apply to, what changes in payments and reporting, what non-compliance costs, and exactly how to prepare before the 1 October 2026 deadline. Understanding the FEMA Export and Import Regulations 2026 is essential for Indian businesses to manage export transactions, import payments and cross-border compliance effectively. Legal Framework for FEMA Export and Import Regulations 2026 The 2026 Regulations are issued under the Foreign Exchange Management Act, 1999. The key building blocks of the framework are: FEMA, 1999: Section 7 governs exports, Section 13 prescribes penalties, and Section 15 allows compounding of contraventions. FEM (Export and Import of Goods and Services) Regulations, 2026, notified on 13 January 2026 and effective 1 October 2026. RBI Directions to Authorized Dealers on Export and Import of Goods and Services, dated 16 January 2026, which operationalize the Regulations for banks. Superseded framework: the FEM (Export of Goods and Services) Regulations, 2015, the Master Directions on Export (2016) and Import (2016), the Merchandising Trade Guidelines (2020) and the circulars listed in the Directions. The regulatory design is principle-based: RBI sets outcomes, while Authorized Dealer (AD) banks handle approvals, timeline extensions, write-offs and set-offs within delegated powers. Your bank, not the RBI, is now the first and usually final checkpoint for most trade transactions. Applicability: Who Is Covered? Exporters of goods: Every person resident in India exporting goods from the Domestic Tariff Area or an SEZ. Exporters of services and software: IT/ITES companies, consultants, agencies, and freelancers billing foreign clients. Service and software exports come under a unified declaration requirement, ending the earlier grey zone. Importers: Any business remitting foreign exchange for goods or services, including advance payments. Merchandising traders: Buying goods in one foreign country and selling them to another without the goods entering India is covered by the same consolidated framework. INR-settled trade: Exports invoiced or settled in Indian Rupees under permitted arrangements are covered, with an extended realization timeline. In short: if foreign exchange (or trade-linked INR settlement) moves in or out of your business, these Regulations apply to you. Key Compliance Requirements Understanding the FEMA Export and Import Regulations 2026 is essential for businesses to maintain proper export and import compliance under the updated regulatory framework. 1. One Export Declaration Form (EDF) for Everything The unified EDF replaces the old patchwork where goods used EDF, software used SOFTEX and many service exports went undeclared. Goods exporters furnish the EDF to the specified authority (Commissioner of Customs for DTA shipments; Development Commissioner for SEZ units) at the time of shipment. Service and software exporters file the EDF with their AD bank on a periodic basis. For IT companies and freelancers, this is the single biggest operational change: unreported service income is no longer a grey area but a visible default. 2. Export Payment Timelines Standard window: Export proceeds must be realised and repatriated within 15 months of shipment (goods) or invoice (services). INR-settled exports: Exports invoiced and/or settled in Indian Rupees get an additional 3 months, i.e., 18 months in total. Extensions: AD banks can grant further extensions within delegated powers; routine cases no longer go to the RBI. Set-off: Set-off of export receivables against import payables with the same counterparty is now expressly recognised as valid realisation, provided it is routed through the AD bank. 3. Import Payment Rules Contract-linked timelines: Import remittance timelines follow the underlying contract rather than a rigid uniform deadline. Advance payments: For advance remittances, AD banks may require safeguards such as bank guarantees or letters of credit, particularly for high-value payments. Evidence of import: Every remittance must be closed with evidence of import (for example, the Bill of Entry) in the bank’s systems; unmatched entries trigger follow-up and can block future remittances. 4. RBI Reporting: EDPMS, IDPMS and FETERS Three systems drive monitoring under the new framework. EDPMS tracks every export shipment until proceeds are realised; overdue entries flag the exporter across the banking system and can lead to caution-listing. IDPMS matches every import remittance against proof of import. FETERS carries transaction-level data from banks to the RBI, where wrong purpose codes and invoice mismatches surface quickly. Businesses should obtain and reconcile their EDPMS/IDPMS statements with their AD bank at least quarterly, because restrictions operate off this data automatically. Common Violations and Mistakes Service exporters not filing EDFs, a legacy habit that becomes a clear, detectable default under the unified system. Export receivables crossing the 15/18-month window without an AD bank extension, leading to open EDPMS entries and caution-listing. Advance import payments with no shipment and no refund, leaving IDPMS entries permanently unmatched. Wrong purpose codes on remittances, creating mismatches across FETERS, invoices and GST data. Informal set-offs with counterparties or group companies without routing them through the AD bank. Treating merchanting trade as outside FEMA because goods never touch India. Continuing to follow the superseded 2015/2016 framework after 1 October 2026. Businesses should regularly review the FEMA Export and Import Regulations 2026 to identify and address potential reporting, payment and documentation issues. Penalties for Non-Compliance Monetary penalties: Section 13 of FEMA: penalty up to three times the amount

Director Disqualification in India: Causes, Consequences and Remedies

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Director Disqualification in India: Causes, Consequences & Remedies

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Director disqualification in India can arise from personal grounds under Section 164(1) or company default grounds under Section 164(2), and the applicable remedy depends on the nature of the disqualification. What Is Director Disqualification? Disqualification under the Companies Act, 2013 means that a person is legally barred from being appointed or continuing as a director of any company under section 164. Once a person is disqualified, they cannot accept a new directorship, cannot continue existing directorships (other than in the defaulting company itself in some circumstances), and cannot sign board resolutions or company filings in a director capacity. Disqualification is different from removal. Removal under Section 169 is an act of the shareholders — they vote a director out. Disqualification under Section 164 is a legal status that attaches to the individual automatically or by order, regardless of what the shareholders want. A disqualified director who is not removed is still legally disqualified; their signature on any board document after the date of disqualification is the signature of an unauthorised person. Two Tracks: Section 164(1) and Section 164(2) Section 164 creates two completely different disqualification tracks. Confusing them leads to wrong advice about remedies, because the cause and the cure are different in each track. Section 164(1) lists personal grounds — things the individual director did or had done to them. These include being of unsound mind as declared by a court, being an undischarged insolvent, having applied to be adjudicated as insolvent, having been convicted of an offence involving moral turpitude and sentenced to imprisonment of six months or more, having been convicted of an offence under the Companies Act and sentenced to seven years or more, having an order disqualifying them from being a director passed by a court or tribunal, not paid calls in respect of shares held in a company for six months, having been convicted of an offence dealing with related-party transactions under Section 188 in the last five years, and not complying with Section 152(3) (failure to file DIR-12 for DIN). Section 164(2) is the company default ground. A director is disqualified under this provision if they are, or have been, a director of a company that has not filed its financial statements or annual returns for any continuous period of three years. This provision applies to the director personally, regardless of whether they were responsible for the filing failure. The disqualification attaches to the individual because they held the directorship during the period of default. ⚠ The most important distinction: Section 164(1) disqualification arises from personal conduct and can sometimes be challenged on factual grounds. Section 164(2) disqualification arises from the company’s filing default — the director’s personal innocence is not a statutory defence. High Courts have accepted natural justice arguments (no notice before deactivation) but have not accepted “I did not know” as a ground to set aside the disqualification itself. Section 164(1) — Individual Grounds The most practically significant grounds under Section 164(1) for most directors are conviction for an offence involving moral turpitude with a sentence of six months or more, and insolvency. These are the grounds that typically arise in criminal prosecution or personal financial failure. A director convicted under the Companies Act itself for fraud under Section 447 and sentenced to seven years or more is disqualified. This is the criminal fraud track discussed in our article on director liability in financial fraud cases. A director who has an order of disqualification passed against them by the NCLT — for example, in connection with oppression and mismanagement proceedings under Section 241 — is also disqualified under Section 164(1)(f). The IBC connection: Section 29A of the Insolvency and Bankruptcy Code creates a separate disqualification regime for resolution applicants. A person who is a promoter or director of a company undergoing insolvency resolution, or who is an undischarged insolvent, or who has been convicted of any offence with imprisonment of two years or more, cannot be a resolution applicant. This is not a Companies Act disqualification but it operates alongside Section 164 in practice. Disqualification under Section 164(1) lasts for the period specified in the relevant sub-clause — for conviction-based grounds, typically five years from the date of conviction or from release from imprisonment. The director can apply for removal of the disqualification when the specified period expires. Section 164(2) — Company Default Grounds This is the provision that has affected the largest number of directors in India and is the most misunderstood. Section 164(2) provides that no person who is, or has been, a director of a company that has not filed its financial statements or annual returns for any continuous period of three financial years shall be eligible to be re-appointed as a director of that company or appointed as a director of any other company for a period of five years from the date on which the said company fails to do so. Three things about this provision that directors frequently get wrong. First, it is automatic — no court order, no notice, no hearing is required for the disqualification to take effect. The moment the three-year continuous default period is completed, the director is disqualified by operation of law. Second, it applies to every director who was on the board during the default period — not just the director responsible for compliance. A non-executive independent director who attended every meeting, raised concerns and was overruled on compliance matters is disqualified on the same basis as the MD who refused to file. Third, it affects all other companies on which the director sits, not just the defaulting company. A disqualified director cannot continue as a director of any other company — including fully compliant companies with which they have no compliance issues. The five-year disqualification runs from the date on which the company failed to file — not from the date the director found out, not from the date the MCA deactivated the DIN, and not from the date a court confirmed the disqualification. The filing history

FEMA Notice Received: Steps to Review and Respond

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FEMA Notice Received What Should You Do?

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FEMA Notice Received What Should You Do? If you have received a FEMA notice from the ED, RBI, or another regulatory authority, it is important to understand the notice and respond within the prescribed time. A proper review of the allegations, supporting documents, and applicable FEMA provisions can help you prepare an appropriate response. The first thing to remember is: do not panic, but do not ignore the notice either. A FEMA notice does not automatically mean that you have committed a serious violation. In many situations, the authorities may simply require an explanation, additional documents, clarification about a transaction, or correction of a compliance issue. The right response depends on the authority that issued the notice, the allegations or questions mentioned in it, the transaction involved, and the documents available in your case. What Is FEMA? FEMA stands for the Foreign Exchange Management Act, 1999. FEMA provides the legal framework for regulating foreign exchange transactions in India. It covers various matters involving foreign exchange and cross-border transactions, including certain foreign investments, remittances, overseas assets, foreign accounts, imports, exports, and other transactions. For example, FEMA-related questions may arise when a person or company: Sends money outside India Receives money from abroad Makes an overseas investment Holds certain foreign assets or accounts Purchases property outside India Receives foreign investment Makes cross-border business payments Has reporting or documentation gaps Undertakes a transaction that may require regulatory approval Under FEMA, Section 3 restricts certain dealings in foreign exchange except as permitted under the law and applicable regulations. Section 13 provides for penalties for contraventions. What Does It Mean If You Receive a FEMA Notice? Question: Does receiving a FEMA notice mean I have violated the law? Answer: Not necessarily. A FEMA notice may be issued because an authority wants more information or an explanation about a particular transaction. For example, the authority may want to understand: Where the money came from Where the money was transferred Why the transaction was made Whether the required reporting was completed Whether supporting documents are available Whether the transaction complied with FEMA and applicable regulations Therefore, receiving a notice should be treated seriously, but it should not automatically be viewed as proof that you have committed a violation. Which Authorities Can Send a FEMA Notice? A FEMA-related communication may come from different authorities or institutions depending on the nature of the issue. You may receive communication from or in relation to: Enforcement Directorate (ED) Reserve Bank of India (RBI) An authorised dealer bank Other competent authorities Regulatory or investigating authorities dealing with the transaction The authority and type of communication matter because the appropriate response can differ from case to case. FEMA Notice Received: What Should You Do? If you have received a FEMA notice, follow these steps. 1. Read the Notice Carefully Do not immediately start writing a reply. First, read the entire notice carefully. Look for: Name of the issuing authority Date of the notice Reference or case number Transaction involved Questions or allegations Documents requested Date of appearance, if any Deadline for submitting a response Consequences mentioned for non-compliance Understanding exactly what the authority is asking is the first step toward preparing an appropriate response. 2. Do Not Ignore the Deadline One of the biggest mistakes you can make after receiving a FEMA notice is simply doing nothing. Your notice may provide a specific period within which you must: Submit a written reply Provide documents Attend a hearing Appear before an authority Provide additional information Your response should be prepared and submitted within the applicable deadline unless an extension or other relief is appropriately sought. ELT Law Partners also notes that FEMA notices commonly require a response within a specified period and may require supporting transaction and compliance documents. 3. Identify the Transaction Mentioned in the Notice Question: Why is identifying the transaction important? Answer: Because your response needs to explain the facts accurately. Try to identify: Date of the transaction Amount involved Sender Recipient Bank used Purpose of payment Source of funds Documents connected with the transaction Applicable filings or approvals Do not rely only on memory. Bank statements, invoices, agreements, tax documents, investment records and other financial records can help you understand what actually happened. 4. Collect All Relevant Documents A strong FEMA notice response is usually supported by documents. Depending on your case, you may need documents such as: Bank statements Foreign bank statements Remittance records Invoices Contracts Investment documents Shareholding documents Loan agreements Property documents Tax returns Form filings RBI-related correspondence FEMA compliance documents Foreign investment records Proof of source of funds Correspondence with banks Earlier regulatory approvals or permissions Your documents should tell a clear and consistent story. 5. Understand Why the Notice Was Issued Question: What are common reasons for receiving a FEMA notice? Answer: The reason can vary significantly. Some common issues include: Foreign Investment Issues A company or individual may face questions about foreign investment, ownership, reporting, valuation, or related documentation. Overseas Investment Issues Questions may arise regarding investments or transactions involving an overseas company or asset. Foreign Bank Accounts An authority may ask for information regarding certain foreign accounts, transactions or balances. Cross-Border Payments A payment to or from another country may require clarification regarding its purpose, source, recipient or documentation. Reporting Delays A transaction may have been completed, but a required filing or reporting obligation may have been delayed or missed. Documentation Problems Sometimes the underlying transaction may be explainable, but the supporting records may be incomplete. This is why it is important to examine the specific facts of your case rather than assuming that every FEMA notice involves the same issue. 6. Prepare a Clear FEMA Notice Reply Your reply should be: Accurate Clear Fact-based Properly documented Consistent with your financial records Limited to relevant information Submitted within the applicable timeline Avoid emotional explanations or unnecessary statements. A FEMA notice response should directly address the questions or allegations raised by the authority. A well-prepared reply may explain: What happened → Why it

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Corporate Laws Amendment Bill, 2026: Key Changes Every Company Should Know

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Introduction On 23 March 2026, the Corporate Laws (Amendment) Bill, 2026 was introduced in the Lok Sabha, proposing one of the most extensive updates to the Companies Act, 2013 and the Limited Liability Partnership Act, 2008 in over a decade. With more than a hundred clauses, the Bill touches almost every part of corporate life in India: how offences are punished, how small companies are defined, when CSR applies, how shareholder meetings are held, how mergers are approved, and how auditors and valuers are regulated. The Bill has been referred to a Joint Parliamentary Committee and may change before enactment. Even so, boards, company secretaries, CFOs and investors should understand its direction now, because several changes will require updates to compliance calendars, board processes and transaction planning soon after notification. This article breaks down the key changes for directors, shareholders, ROC compliance and private companies, and ends with a practical compliance checklist. What is the Corporate Laws (Amendment) Bill, 2026? The Corporate Laws (Amendment) Bill, 2026 is a single legislative package that amends two central statutes together: the Companies Act, 2013 and the LLP Act, 2008. It carries forward the recommendations of the Company Law Committee Report, 2022 and the High-Level Committee on Non-Financial Regulatory Reforms, 2025. In simple terms, the Bill does four things: Decriminalises minor and procedural offences by replacing imprisonment with monetary penalties imposed through electronic adjudication. Simplifies compliance by raising small company and CSR thresholds and rationalising filings. Digitises corporate functioning through virtual and hybrid general meetings, electronic service of documents and mandatory digital presence for prescribed companies. Strengthens accountability where public interest is highest, by empowering the National Financial Reporting Authority (NFRA), designating a single Valuation Authority and tightening auditor independence and board disclosures. Legal Framework: Applicable Acts, Rules and Authorities Companies Act, 2013: Being amended across incorporation, meetings, buy-backs, charges, CSR, audit, mergers (Sections 230–233) and penalties. LLP Act, 2008: Amended mainly for IFSC LLPs, valuation, trust-to-LLP conversion and penalty adjudication. Ministry of Corporate Affairs (MCA): Administers both Acts, notifies rules and prescribed thresholds, and operates the ROC and e-adjudication system. ROC and Regional Directors: Registrar of Companies for filings and adjudication of penalties; Regional Directors receive statutory recognition under the Bill. NFRA: Restructured as a statutory body corporate with registration, investigation, direction and penalty powers over prescribed auditors. Insolvency and Bankruptcy Board of India (IBBI): Proposed as the single Valuation Authority for registered valuers. NCLT, SEBI and IFSCA: NCLT for schemes of arrangement and disputes; SEBI and IFSCA for regulated entities that get filing relief under the Bill. Applicability: Who Needs to Pay Attention? Private limited and small companies: Gain the most from higher small-company thresholds, CSR relief and decriminalisation. Directors and KMP: Face new disclosure duties, tightened qualification norms and personal penalty exposure as officers in default, even as criminal risk for technical lapses falls. Shareholders and investors: Benefit from hybrid/virtual meetings, buy-back flexibility and reformed IEPF refund processes; must watch easier merger approvals more closely. LLPs: Affected by the extended registered valuer framework, penalty adjudication reforms and the new IFSC LLP regime with foreign-currency accounting. Auditors and audit firms: Come under a far stronger NFRA and a three-year post-tenure cooling-off on certain services. Foreign-owned Indian subsidiaries: Benefit from simpler financial year alignment with overseas parents and easier fast-track mergers. Key Legal Requirements and Changes 1. Changes for Directors Decriminalisation with continued accountability: Around 21 minor and technical offences move from criminal courts to civil penalties through e-adjudication. Example: a delay in furnishing documents to the ROC would attract a monetary penalty, not prosecution. However, serious offences such as fraud remain criminal, and directors continue to be liable as “officers in default”. New Section 134 disclosures: The Board’s Report must explain adverse auditor observations and disclose, with reasons, any Audit Committee recommendation the Board rejected. Minutes and agenda papers must capture these deliberations. Stricter qualification criteria: The Bill tightens director qualification and vacation-of-office provisions, making proactive DIN and disclosure hygiene essential. Incorporation declarations: Professionals certifying incorporation documents (advocates, CAs, CSs, cost accountants) must give their own declarations, raising accountability at the setup stage. 2. Changes for Shareholders Hybrid and virtual general meetings: AGMs and EGMs may be physical, virtual or hybrid, with at least one physical AGM required every three years. Practical example: a company with NRI investors can now lawfully hold fully virtual AGMs in two out of every three years. Buy-back flexibility: Prescribed companies may exceed existing buy-back limits and make up to two buy-back offers in a year, with a minimum six-month gap between offers. Easier fast-track mergers: Fast-track mergers under Section 233 will need approval by a majority of members present and voting holding at least 75% of shares present and voting, instead of 90% of total shares; the creditor threshold also falls from 90% to 75%. IEPF reforms: Refund procedures under the Investor Education and Protection Fund are restructured, and unclaimed amounts from extinguished buy-back shares flow into the IEPF. Employee compensation schemes: Share-linked employee compensation beyond classic ESOPs (RSU and SAR-style plans) gets statutory recognition, affecting dilution and disclosure. 3. Changes for Private and Small Companies Higher small-company thresholds: The paid-up capital ceiling rises from INR 10 crore to INR 20 crore and turnover from INR 100 crore to INR 200 crore. Many more private companies will qualify for lighter compliance: fewer board meetings, abridged annual returns and lower penalties. CSR relief: The net-profit trigger for mandatory CSR rises from INR 5 crore to INR 10 crore, the CSR Committee exemption threshold rises from INR 50 lakh to INR 1 crore, and timelines for transferring unspent CSR amounts are extended. Financial year alignment: A simpler route to adopt a financial year other than April–March helps subsidiaries of foreign groups align reporting with their parent. Charge registration relief: Prescribed companies get additional time under Section 77 to register charges, protecting lender security from procedural delays. 4. Changes in ROC Compliance Digital presence (new Section 12A): Prescribed companies must maintain a website, official email and electronic communication

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FDI Compliance in India | FEMA, RBI & FC-GPR Guide

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Introduction India received over USD 70 billion in Foreign Direct Investment in FY 2023-24, making it one of the top five FDI destinations globally. The attraction is clear: a large domestic market, a skilled workforce, improving infrastructure and a government that has systematically liberalised the FDI regime over the last decade. More than 90% of India’s commercial sectors now accept foreign investment without prior government approval. But FDI compliance in India is not a one-time checkbox. It is a structured, ongoing obligation that begins before the investment arrives and continues every year thereafter. Missing an FC-GPR filing deadline, issuing shares below fair market value, investing in a restricted sector, or failing to file the annual FLA return are each FEMA contraventions that attract penalties, require RBI compounding, and in some cases trigger ED scrutiny. Understanding the regime in full — routes, caps, instruments, pricing, filing and penalties — is the starting point for any foreign investor entering India. This guide covers the complete FDI compliance framework as it stands under the FEM (Non-Debt Instruments) Rules, 2019, the current DPIIT Consolidated FDI Policy, and RBI Master Directions, updated to reflect 2025-2026 regulatory developments. What Qualifies as FDI Under Indian Law Foreign Direct Investment is defined under the FEM (Non-Debt Instruments) Rules, 2019 as investment by a non-resident in the equity instruments of an Indian company or in the capital of an LLP, where the investment gives the foreign investor ten percent or more of the post-issue paid-up equity share capital of the company (or ten percent or more of the capital of the LLP). Investment below ten percent is treated as Foreign Portfolio Investment (FPI) and is governed by a separate SEBI-FEMA framework. Two points frequently cause confusion in practice. First, the ten percent threshold is calculated on a fully diluted basis — including all outstanding options, warrants and convertible instruments — not just paid-up equity. Second, the ten percent threshold applies at the time of initial investment; once a person is categorised as an FDI investor, the category persists regardless of subsequent dilution below ten percent. FDI is investment in equity instruments that gives ten percent or more of post-issue paid-up equity on a fully diluted basis. Below ten percent = FPI, governed by SEBI. Different route, different regulator, different compliance obligations. Automatic Route vs Approval Route — The Core Distinction Every FDI transaction begins with one question: does this investment require prior government approval or can it proceed immediately under the automatic route? Automatic Route Under the automatic route, a non-resident investor can remit capital to an Indian company, the Indian company allots equity instruments, and the transaction is reported to the RBI after the fact through the FIRMS portal. No prior approval from the RBI, DPIIT or any ministry is required. This route applies to over 90% of sectors, including IT, manufacturing, infrastructure, renewable energy, e-commerce (marketplace model), pharmaceuticals (greenfield), food processing, and logistics. Government Approval Route The approval route applies to sectors where public policy, national security or strategic considerations require prior executive review. Under this route, the foreign investor must submit an application through the Foreign Investment Facilitation Portal (FIFP) managed by the DPIIT. The DPIIT routes the application to the relevant administrative ministry or department, which evaluates the proposal and grants or refuses approval. Only after approval is received can the investment be made and reported. Key sectors currently requiring government approval include defence manufacturing above 74%, broadcasting content services, print media (daily newspapers and periodicals dealing in news and current affairs), satellite establishment and operations, multi-brand retail trading, and private security agencies. Press Note 3 of 2020 — The Land Border Override ⚠ Press Note 3 (2020 Series): Any investment from a country that shares a land border with India — China, Pakistan, Bangladesh, Myanmar, Nepal, Bhutan — or where the ultimate beneficial owner is a citizen or resident of such a country, requires prior government approval regardless of sector. This applies even to sectors under the automatic route. The rule covers direct investors and beneficial owners across all layers of the investment structure. Identifying and disclosing the complete beneficial ownership chain is mandatory for every FDI transaction. Prohibited Sectors: Where FDI Is Not Permitted FDI is completely prohibited in the following activities, regardless of the investment route, ownership structure or percentage: Lottery business, gambling, betting and casinos (including online formats). Chit funds and Nidhi companies. Trading in Transferable Development Rights (TDRs). Real estate business and construction of farm houses (not including real estate development — townships, commercial buildings, infrastructure — which is permitted). Manufacturing of cigars, cheroots, cigarillos and cigarettes, and tobacco and tobacco substitutes. Atomic energy (reserved for the public sector under the Atomic Energy Act, 1962). Railway operations (other than those specifically permitted). Foreign Technology Collaboration in the lottery sector. ⚠ Investing in a prohibited sector is not a penalty-attracting FEMA contravention — it is a fundamental breach of the FDI framework. The investment is void, the shares issued are invalid, and unwinding the structure involves compounding with the RBI, refund of the foreign remittance and, in some cases, ED investigation. Due diligence on sector eligibility before investing is non-negotiable. Key Sectoral Caps — What Foreign Investors Must Check Where FDI is permitted, it may be subject to a maximum percentage cap on foreign ownership. The following are the most frequently encountered sectoral caps under the current FDI Policy: Sector Cap Route Key Condition Most manufacturing, IT, services 100% Automatic No special conditions Defence manufacturing 74% automatic; beyond 74% government Automatic / Government Security clearance; licence from MoD Pharmaceuticals — Greenfield 100% Automatic No conditions Pharmaceuticals — Brownfield Up to 74% automatic; beyond government Automatic / Government Subject to conditions on technology transfer Insurance 74% Automatic IRDAI registration; Indian management control Banking — Private 74% Automatic up to 49%; Government beyond RBI fit and proper criteria Telecom 100% Automatic up to 49%; Government beyond Security conditions; DoT licence E-commerce — Marketplace 100% Automatic No inventory model; no preference to related