---
title: "Investing in India from Hong Kong: Press Note 3, FDI Approvals and the 2026 Regulatory Framework"
date: 2026-10-27
author: "Jidesh Kumar"
url: https://ksandk.com/fdi/investing-in-india-from-hong-kong-fdi-rules/
---

# Investing in India from Hong Kong: Press Note 3, FDI Approvals and the 2026 Regulatory Framework

Posted On - 27 October, 2026 • By - Jidesh Kumar

![Hong Kong and Indian flags beside investment documents, a globe and coins, symbolizing investment from Hong Kong into India.](https://ksandk.com/wp-content/uploads/Hong-Kong–India-Investment-Partnership-1.png)

## Executive Summary

India presents investment opportunities for Hong Kong businesses across manufacturing, technology, renewable energy, healthcare, infrastructure, consumer markets and financial services. However, foreign direct investment (FDI) from Hong Kong requires careful assessment of India’s restrictions on investments involving countries that share a land border with India.

Press Note 3 of 2020 introduced a government approval requirement for specified investments involving such countries. In 2026, the Government of India revised this framework through Press Note No. 2 of 2026 and corresponding amendments to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules). The revised framework provides a limited automatic-route relaxation for qualifying investments involving non-controlling beneficial ownership from [land-border countries](https://ksandk.com/fdi/india-eases-fdi-rules-for-land-bordering-nations-investments/) of up to 10%, together with an expedited approval process for specified manufacturing investments.

These changes do not create a general exemption for Hong Kong-incorporated or registered entities. Investors must assess the identity of the immediate investor, its beneficial ownership and control, the proposed Indian business activity, and the applicable sectoral conditions before proceeding.

The key considerations for Hong Kong investors are:

- **Direct investment from Hong Kong:** Prior government approval should be anticipated under the applicable land-border investment framework.
- **Investment through a third-country holding company:** Incorporation in Singapore, Mauritius or another jurisdiction does not, by itself, remove the restrictions. The investor’s beneficial ownership and control must be assessed.
- **The 10% relaxation:** This applies to qualifying third-country investor entities with non-controlling land-border-country beneficial ownership within the prescribed threshold. It is not a blanket exemption for Hong Kong investors.
- **Expedited approvals:** The 2026 reforms provide a 60-day decision timeline for specified manufacturing investments, subject to the applicable eligibility conditions.
- **Reporting and compliance:** Qualifying investments under the revised framework are subject to prescribed reporting requirements, in addition to applicable sectoral and foreign exchange compliance.
- **Transaction planning:** Investors should determine the approval pathway before signing or closing, coordinate with their authorised dealer bank, and address regulatory risk in the transaction documents.

## Does Press Note 3 Apply to Investments from Hong Kong?

### 1. Background to Press Note 3 of 2020

On 17 April 2020, the Department for Promotion of Industry and Internal Trade (DPIIT) issued Press Note No. 3 (2020 Series), introducing restrictions on investments involving countries that share a land border with India. The original framework required government approval for investments by entities incorporated in such countries and for specified investments involving beneficial ownership situated in, or held by citizens of, those countries. It also addressed subsequent transfers of ownership that brought an investment within the restricted category.

The countries identified in the framework are Afghanistan, Bangladesh, Bhutan, China, Myanmar, Nepal and Pakistan. The policy operates alongside the Foreign Exchange Management Act, 1999 (FEMA), the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, as amended, and the sector-specific conditions applicable to foreign investment in India.

### 2. The position of Hong Kong investors

Hong Kong is a Special Administrative Region of the People’s Republic of China. Investors should not assume that Hong Kong’s separate legal and economic system exempts Hong Kong-incorporated or registered entities from India’s land-border investment restrictions. In March 2026, DPIIT clarified that entities registered in Hong Kong and mainland China would continue to require prior government approval to invest in India, notwithstanding the proposed relaxation of the beneficial-ownership rules.

Accordingly, a Hong Kong-incorporated or registered entity proposing to subscribe to shares in an Indian company, acquire an existing shareholding or establish an Indian subsidiary should assess the government approval requirement before proceeding. The applicable policy and implementing rules should be examined in their current form, particularly where the transaction involves a third-country holding company or a complex ownership structure.

### 3. Which transactions require scrutiny?

The land-border investment framework may be relevant to:

- Subscription to newly issued shares of an Indian company.
- Acquisition of existing shares from Indian or foreign shareholders.
- Acquisitions involving minority or controlling shareholdings.
- Investments made through overseas holding companies.
- Transfers or restructuring that change beneficial ownership or bring an investment within the applicable restrictions.

The framework also addresses certain direct and indirect changes in ownership of existing or future FDI. A transaction should therefore be assessed not only at the time of the initial investment but also in light of its proposed transfer and exit arrangements.

## What Changed Under India’s 2026 FDI Reforms?

The 2026 reforms recalibrated the land-border investment framework rather than abolishing it.

Press Note No. 2 of 2026 introduced a revised beneficial-ownership test, a limited automatic-route relaxation for qualifying non-controlling ownership of up to 10%, reporting requirements and an expedited decision process for specified manufacturing investments. The corresponding amendment to the NDI Rules was notified on 1 May 2026.

### 1. Beneficial ownership and control

The revised framework uses the beneficial-owner definition under the Prevention of Money-laundering Act, 2002 and the criteria prescribed under Rule 9(3) of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005.

For companies, the relevant criteria generally include ownership of, or entitlement to, more than 10% of shares, capital or profits, as well as the ability to exercise control through other means. The applicable criteria must be assessed against the relevant legal entity and the particular ownership structure.

The analysis is not limited to the percentage of shares held. Voting arrangements, board appointment rights, shareholder agreements and other contractual rights may also be relevant. The revised framework further addresses circumstances in which beneficial ownership is treated as vested in a land-border country. These provisions require particular attention where ownership, governance rights and ultimate effective control are divided among different persons or entities.

### 2. The 10% automatic-route relaxation

Under the revised framework, certain investments may proceed through the automatic route where the investor entity is incorporated or registered outside a land-border country and its land-border-country beneficial ownership is non-controlling and within the prescribed threshold of up to 10%, subject to the applicable conditions. This relaxation is assessed at the level of the investor entity. It does not mean that every investment involving a small percentage of land-border-country ownership qualifies for the automatic route.

For example:

- **Direct investment by a Hong Kong company:** Prior government approval should be anticipated.
- **Investment through a wholly owned Singapore subsidiary of a Hong Kong parent:** The structure should not be assumed to qualify for the relaxation, given the parent’s ownership and control.
- **Investment through a third-country entity with qualifying non-controlling land-border-country ownership of up to 10%:** The automatic route may be available if the ownership, control, sectoral and reporting conditions are satisfied.
- **Investment through a third-country entity with ownership exceeding the applicable threshold or with relevant control rights:** The government approval requirement must be assessed under the operative rules.

The exact ownership percentage, any contractual control rights and the possibility of ultimate effective control must be examined before relying on the relaxation.

### 3. The 60-day approval process for specified manufacturing investments

The 2026 reforms also introduced an expedited decision process for certain investments involving specified manufacturing activities. The categories identified in the Cabinet’s announcement include capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer manufacturing.

The expedited process is subject to eligibility conditions and should not be interpreted as a universal 60-day approval guarantee for every investment involving a manufacturing business. Investors should verify the complete list of eligible activities, the applicable ownership and control conditions, and the requirements under the operative Standard Operating Procedure (SOP) before structuring a transaction around the expedited process.

The approval timeline must also be distinguished from separate deadlines applicable to share issuance, foreign exchange reporting and other post-investment compliances.

## How Do Reporting Requirements Work Under the Revised Framework?

Reporting is an important component of the 2026 reforms and should be considered during transaction planning. Press Note No. 2 of 2026 provides for reporting of relevant investment information in the format prescribed under the SOP laid down by DPIIT. These requirements apply to investments that fall within the specified reporting category and do not require prior government approval under the revised land-border investment provision.

The parties should determine the applicable reporting requirements by reference to the transaction structure and the operative SOP. Relevant considerations include:

- Whether the transaction involves a primary issuance or a secondary transfer.
- The identity of the entity responsible for making the report.
- The information required to establish beneficial ownership and control.
- The prescribed reporting format and deadline.
- Whether separate filings are required under FEMA or applicable RBI directions.

Reporting under the revised land-border investment framework does not automatically satisfy every other foreign exchange reporting obligation. The parties should confirm their respective responsibilities with Indian legal counsel and the authorised dealer bank before remittance, share issuance or transfer.

## What Are the Practical Routes for a Hong Kong Investor Entering India?

The appropriate investment route depends on the investor’s commercial objectives, existing group structure, proposed Indian business activity and applicable regulatory requirements.

| Investment route | Principal legal consideration |
| --- | --- |
| Direct investment by a Hong Kong entity | Prior government approval should be anticipated under the applicable land-border investment framework. |
| Investment through a Singapore or Mauritius holding company | Beneficial ownership, control, statutory deeming provisions and reporting obligations must be assessed. |
| Joint venture with an Indian partner | The involvement of an Indian partner does not automatically remove the foreign investor’s approval requirements. |
| Acquisition of an Indian company | FDI approval and other transaction-specific clearances may be required. |
| Contractual commercial arrangement | The arrangement must be genuinely non-equity in substance and comply with other applicable laws. |

### 1. Direct investment by a Hong Kong entity

A Hong Kong investor may consider establishing an Indian subsidiary, subscribing to shares in an existing company or acquiring shares from current shareholders. The transaction should be structured around the expected approval process. Where prior approval is required, the parties should address it as a condition precedent and agree on an appropriate long-stop date, regulatory cooperation obligations and termination rights.

The proposed Indian business activity must also be assessed against the applicable FDI cap, entry route, sector-specific conditions and licensing requirements.

### 2. Investment through a third-country holding company

A third-country holding company may form a legitimate part of an international investment structure. However, the incorporation jurisdiction alone does not determine whether the investment can proceed under the automatic route. The assessment should consider:

- The place of incorporation or registration of the immediate investor.
- The complete ownership chain and ultimate beneficial owners.
- Shareholding percentages and voting arrangements.
- Board appointment rights and other control mechanisms.
- The ability to exercise ultimate effective control over the Indian investee.
- Applicable sectoral FDI caps, entry routes and reporting requirements.

A Singapore or Mauritius holding company should not be used as a presumed workaround for the land-border investment framework. Its eligibility must be established from the actual ownership and control arrangements.

### 3. Joint ventures and acquisitions

A joint venture with an Indian partner does not automatically eliminate the requirement for government approval. The foreign investor’s status, ownership structure and the applicable sectoral conditions remain relevant. For acquisitions, the parties should consider [FDI approval](https://ksandk.com/fdi/swagat-fi-framework-to-ease-foreign-investment-in-india/) alongside competition law, sector-specific licensing, securities law, tax and other applicable requirements.

A transaction involving the acquisition of a business or its assets should not be assumed to fall outside the land-border investment framework merely because it is not structured as a conventional subscription of shares.

### 4. Non-equity commercial arrangements

Distribution, supply, licensing, technology collaboration and services arrangements may provide alternative ways to establish commercial relationships in India without making an equity investment, provided the arrangement is genuinely contractual and does not disguise an investment.

Such arrangements may still require review of intellectual property rights, taxation, withholding obligations, transfer pricing, data protection, sectoral regulation and permanent-establishment exposure, as applicable.

## What Approvals Are Required for Investment in India?

A practical starting point is to establish the investor’s regulatory status and identify every approval applicable to the proposed transaction.

**Step 1: Establish the investor’s status.** Prepare an ownership chart identifying the immediate investor, ultimate beneficial owners, shareholding percentages, voting rights, board appointment rights and other control arrangements.

**Step 2: Confirm the sectoral FDI position.** Determine the applicable sectoral cap, entry route, sector-specific conditions and licensing requirements for the proposed Indian activity.

**Step 3: Determine whether government approval is required.** Apply the land-border investment framework and identify any additional approval requirements under the sector-specific FDI policy.

**Step 4: Complete the applicable application or reporting process.** Where government approval is required, prepare and submit the proposal through the prescribed government portal. Where the automatic route is relied on under the revised relaxation, complete the prescribed reporting requirements.

**Step 5: Obtain other applicable clearances.** Depending on the transaction, these may include Competition Commission of India approval, sectoral licences, corporate approvals, securities law compliance and environmental or state-level permissions.

**Step 6: Complete foreign exchange and post-investment compliance.** Coordinate the approval conditions, remittance, share issuance or transfer and applicable filings with the authorised dealer bank and the Indian investee company.

Approval under the land-border investment framework does not replace any other approval required under Indian law.

## How Long Does It Take to Invest in India?

The investment timeline depends on the applicable approval route, the complexity of the ownership structure, the completeness of the application and the requirements of other regulators.

| Stage | Timeline or consideration |
| --- | --- |
| Initial legal and ownership assessment | Depends on the complexity of the investor’s structure and proposed transaction. |
| Approval for eligible specified manufacturing investments | A decision within 60 days is contemplated, subject to eligibility and the applicable SOP. |
| Other government-route proposals | The applicable approval process and SOP govern; a universal 60-day deadline should not be assumed. |
| Reporting under the 2026 relaxation | The prescribed reporting requirements and deadlines must be confirmed under the operative SOP. |
| Issue of equity instruments | Generally within 60 days of receipt of consideration, subject to the applicable foreign exchange framework. |
| FC-GPR filing | Generally within 30 days of the issue of equity instruments, subject to applicable rules and exceptions. |
| Annual FLA return | Generally by 15 July for entities to which the reporting requirement applies, subject to applicable RBI directions. |

The 60-day decision timeline for specified manufacturing investments is distinct from the 60-day period generally applicable to issuing equity instruments. Similarly, FC-GPR filing is a separate post-issuance reporting obligation.

Before fixing a closing timetable, investors should verify the applicable FEMA rules, current RBI directions, approval conditions and reporting deadlines. The transaction documents should account for the possibility of regulatory queries, additional information requests and delays.

**Transaction-planning recommendation:** Where approval is required, the parties should incorporate appropriate conditions precedent, a realistic long-stop date, regulatory cooperation provisions and termination rights into the transaction documents rather than assuming that approval will be obtained within 60 days.

## Tax, Repatriation and Exit Considerations

FDI approval is only one part of the legal and commercial analysis. Investors should also assess the tax consequences of the proposed structure, the movement of funds into and out of India, and the requirements applicable to a future exit.

### 1. Tax and treaty considerations

India and Hong Kong have an agreement for the avoidance of double taxation. However, treaty relief depends on the applicable provisions, domestic tax law, eligibility requirements and anti-avoidance rules. Investors should obtain transaction-specific advice on:

- Withholding tax on dividends, interest, royalties and fees for technical services.
- Capital gains arising from the sale of shares in an Indian company.
- Treaty eligibility and applicable anti-abuse provisions.
- Transfer pricing and related-party transactions.
- Indirect transfer exposure, where relevant.
- Tax consequences of using a Singapore, Mauritius or other holding company.

Historical treaty summaries should not be relied on as the sole basis for structuring an investment. The current domestic tax law and the investor’s specific circumstances must be examined.

### 2. Repatriation and exit

Dividends, interest, sale proceeds and other remittances must comply with the applicable tax and foreign exchange requirements.

Exit arrangements require particular attention where a future transfer could result in beneficial ownership or control falling within the land-border investment restrictions. Transfer restrictions, pre-emption rights, options and other exit provisions should therefore be reviewed against the applicable approval and reporting requirements.

## Due Diligence Checklist for Hong Kong Investors

Before committing to an investment structure, investors should establish the following:

1. Where is the immediate investor incorporated or registered?
2. Who are the ultimate beneficial owners of the investor entity?
3. Which persons or entities exercise voting, board appointment or other control rights?
4. Do any land-border-country beneficial-ownership or deeming provisions apply?
5. What FDI cap, entry route and sector-specific conditions apply to the Indian business?
6. Is prior government approval required under the land-border investment framework or another applicable rule?
7. If the 10% relaxation is being relied on, have the ownership, control and reporting conditions been verified?
8. Who is responsible for the prescribed reporting, and what deadline applies?
9. Are separate RBI filings, competition clearances or sector-specific approvals required?
10. Do the transaction documents appropriately allocate regulatory risk and provide a realistic closing timetable?

## Conclusion

India’s 2026 FDI reforms provide a limited automatic-route relaxation for qualifying third-country investors with non-controlling beneficial ownership from land-border countries of up to 10%. They also introduce an expedited decision process for specified manufacturing investments, subject to eligibility conditions.

These reforms do not create a general exemption for Hong Kong-incorporated or registered entities. Nor does investment through Singapore, Mauritius or another overseas holding company automatically remove the restrictions.

For Hong Kong investors, the appropriate route to market begins with a documented assessment of the immediate investor, the ownership and control chain, the proposed Indian sector and the transaction structure. That assessment should determine the applicable approval and reporting pathway before signing or closing, followed by coordinated compliance with the relevant foreign exchange, tax, competition and sectoral requirements.

Early regulatory analysis and carefully drafted transaction documents can help investors manage approval risks, clarify compliance responsibilities and establish a more realistic implementation timetable.

*References:*

- [DPIIT — Press Note No. 2 (2026 Series)](https://www.dpiit.gov.in/static/uploads/2026/03/b9da5830b052c2f2d788593e97d07c63.pdf?v=20260606034943)
- [Press Information Bureau — Revised FDI Framework, 21 August 2026](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2301992&lang=1&reg=48)
- [Press Information Bureau — Cabinet approval of changes to land-border investment guidelines, 10 March 2026](https://www.pib.gov.in/PressReleasePage.aspx?PRID=2237806&lang=11&reg=6)

*Last Updated on 27 October, 2026*

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