Quick Answer
11 min read|Updated: Mar 21, 2026|Published: Mar 20, 2026|Fema
Last Updated: 20 March 2026 | Applicable Law: Foreign Exchange Management Act, 1999 & RBI Master Directions | Tracker Period: January–December 2026
The Foreign Exchange Management Act (FEMA), 1999, and its subordinate regulations are administered through a steady stream of RBI circulars, master directions, and A.P. (DIR Series) notifications.
Last Updated: 20 March 2026 | Applicable Law: Foreign Exchange Management Act, 1999 & RBI Master Directions | Tracker Period: January–December 2026
The Foreign Exchange Management Act (FEMA), 1999, and its subordinate regulations are administered through a steady stream of RBI circulars, master directions, and A.P. (DIR Series) notifications. At Virtual Auditor, we maintain this monthly tracker to help Indian companies, foreign investors, NRIs, and compliance professionals stay current with every significant FEMA-related development in 2026. This article covers FDI policy changes, External Commercial Borrowings (ECB) framework updates, Liberalised Remittance Scheme (LRS) modifications, and Overseas Direct Investment (ODI) amendments.
Key FEMA and RBI developments in 2026 include: LRS limit retained at USD 250,000 with enhanced reporting requirements, FDI in space & defence sectors liberalised (automatic route up to 74% for space), ECB framework rationalised with expanded eligible borrower categories, ODI reporting digitised through a new online portal, and revised Master Direction on Investment by persons resident outside India consolidating FDI, FPI, and NRI investment rules. These changes aim to simplify cross-border transactions while strengthening compliance oversight.
The Foreign Exchange Management Act, 1999 (FEMA) is the primary legislation governing foreign exchange transactions in India. It replaced the Foreign Exchange Regulation Act (FERA), 1973, and shifted the regulatory approach from conservation of foreign exchange to facilitating external trade and payments. FEMA empowers the Reserve Bank of India (RBI) to regulate current account and capital account transactions through rules, regulations, and directions. Key FEMA regulations cover FDI, ECB, ODI, LRS, export/import of currency, and investment by persons resident outside India.
Table of Contents
- January 2026 — Circulars & Updates
- February 2026 — Circulars & Updates
- March 2026 — Circulars & Updates
- April–June 2026 — Expected Developments
- July–December 2026 — Expected Developments
- FDI Policy Changes in 2026
- ECB Framework Updates
- LRS Updates & Compliance
- Overseas Direct Investment (ODI) Amendments
- Expert Insight
- Key Takeaways
- Frequently Asked Questions
1. January 2026 — Circulars & Updates
A.P. (DIR Series) Circular No. 01 (8 January 2026) — Revised ECB Framework
The RBI has issued a revised framework for External Commercial Borrowings (ECB), effective from 1 April 2026. The key changes include:
- Expanded eligible borrower categories: Micro and small enterprises registered under the MSME Act are now eligible to raise ECB under the automatic route, subject to an individual limit of USD 5 million per financial year
- All-in-cost ceiling: Revised to benchmark rate (SOFR/applicable benchmark) + 350 bps for ECB with maturity up to 5 years, and benchmark + 500 bps for longer maturities
- End-use restrictions relaxed: ECB proceeds can now be used for working capital requirements of manufacturing units, subject to a minimum average maturity period of 3 years
- Hedging requirements: Mandatory hedging of at least 70% of the principal outstanding for ECB with residual maturity of up to 5 years has been relaxed to 50% for borrowers with natural hedges (export receivables)
A.P. (DIR Series) Circular No. 02 (15 January 2026) — ODI Reporting Digitisation
The RBI has launched a new online portal for Overseas Direct Investment (ODI) reporting under the Foreign Exchange Management (Overseas Investment) Rules, 2022. Effective 1 April 2026, all ODI-related filings — including Form ODI Part I (initial investment), Form ODI Part II (annual performance report), and disinvestment reports — must be submitted electronically through the portal. Paper-based filings will no longer be accepted.
A.P. (DIR Series) Circular No. 03 (22 January 2026) — LRS Reporting Enhancement
Enhanced reporting requirements for Authorised Dealer (AD) banks under the Liberalised Remittance Scheme (LRS). AD banks must now submit LRS transaction data to the RBI on a fortnightly basis (previously monthly) and include additional data fields such as purpose sub-categories and beneficiary details. This is aimed at strengthening the monitoring of outward remittances while retaining the current limit of USD 250,000 per financial year per individual.
2. February 2026 — Circulars & Updates
A.P. (DIR Series) Circular No. 04 (5 February 2026) — FDI in Space Sector
In line with the FDI Policy liberalisation announced in Budget 2026-27, the RBI has notified amendments to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019:
- Space sector: FDI up to 74% permitted under the automatic route for satellite manufacturing, launch vehicle production, and ground segment operations. Beyond 74%, government approval is required
- Defence sector: The existing 74% automatic route limit continues, with a clarification that defence-related space applications follow the defence sector cap
- Insurance sector: FDI limit increased to 100% under the automatic route for insurance intermediaries; 74% continues for life and general insurance companies
A.P. (DIR Series) Circular No. 05 (12 February 2026) — Revised Master Direction on Investment by Persons Resident Outside India
The RBI has issued a revised and consolidated Master Direction on Investment by Persons Resident Outside India, superseding the earlier 2018 direction. Key features:
- Consolidation of FDI, FVCI, FPI, and NRI investment rules into a single direction
- Streamlined reporting forms — the erstwhile FC-GPR, FC-TRS, and LLP-I/LLP-II forms have been merged into a unified “Foreign Investment Reporting Form” (FIRF)
- Digital-first approach — all filings to be made through the FIRMS (Foreign Investment Reporting and Management System) portal
- Enhanced KYC requirements for foreign investors, including beneficial ownership disclosure for layered investment structures
Circular No. 06 (20 February 2026) — Compounding of FEMA Contraventions
Revised compounding framework for FEMA contraventions. The monetary ceiling for compounding by the RBI Regional Offices has been raised from ₹5 crore to ₹10 crore. Contraventions involving amounts above ₹10 crore will be compounded by the RBI Central Office or referred to the Directorate of Enforcement. The compounding fees structure has been rationalised to encourage voluntary disclosure.
For FEMA compliance advisory, consult our FEMA advisory services.
3. March 2026 — Circulars & Updates
A.P. (DIR Series) Circular No. 07 (5 March 2026) — NRI Investment in IFSC
NRIs and Overseas Citizens of India (OCIs) are now permitted to invest in entities registered in the International Financial Services Centre (IFSC) at GIFT City without any restrictions on the source of funds. Previously, NRI investments in IFSC entities were subject to FEMA’s general FDI or portfolio investment regulations. The new dispensation treats IFSC investments at par with investments in foreign jurisdictions, allowing NRIs to use both Indian and foreign-sourced funds.
Need FEMA Compliance Help?
End-to-end FDI reporting, 15CA/CB, FC-GPR filing. Avoid RBI penalties.
A.P. (DIR Series) Circular No. 08 (15 March 2026) — Export-Import Regulations Amendments
Amendments to the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015:
- Export realisation period: Extended from 9 months to 12 months for all exporters (the earlier relaxation granted during COVID has been made permanent)
- Advance remittance limit: Enhanced to USD 500,000 (from USD 200,000) for importers with a satisfactory track record (no adverse findings in the preceding three years)
- INR settlement of trade: Expanded the list of countries whose banks can open Special Rupee Vostro Accounts (SRVAs) for trade settlement in Indian Rupees
4. April–June 2026 — Expected Developments
This section will be updated as circulars are issued. Key expected developments include:
- FDI Policy 2026: DIPP/DPIIT is expected to issue a consolidated FDI Policy circular incorporating all changes notified in Q1 2026
- ECB revised framework takes effect (1 April 2026): AD banks to implement new ECB guidelines
- ODI digital portal goes live (1 April 2026): All ODI filings to migrate to the online portal
- Annual Return on Foreign Liabilities and Assets (FLA): Due by 15 July 2026 for entities with FDI or ODI
- Annual Performance Report (APR) for ODI: Due by 31 December 2026 for the preceding financial year
5. July–December 2026 — Expected Developments
This section will be updated in H2 2026. Expected areas of focus include:
- RBI Monetary Policy implications on FEMA regulations
- Further liberalisation of FDI in e-commerce and retail trading
- Review of LRS limit (currently USD 250,000)
- Potential revision of ECB end-use restrictions
- FEMA penalty and enforcement trends
6. FDI Policy Changes in 2026
Foreign Direct Investment policy in India is governed by the Consolidated FDI Policy issued by DPIIT, read with the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. The following sector-specific changes have been notified or announced in 2026:
Sector-Wise FDI Limits — 2026 Update
| Sector | FDI Cap | Route | Change in 2026 |
|---|---|---|---|
| Space — Satellites & Launch Vehicles | 74% | Automatic | New — liberalised from 49% |
| Space — Ground Segment | 100% | Automatic | New — previously restricted |
| Insurance Intermediaries | 100% | Automatic | Increased from 74% |
| Defence | 74% | Automatic | No change |
| Telecom | 100% | Automatic (up to 49%); Govt (beyond) | No change |
| Multi-brand Retail | 51% | Government | Under review |
Reporting Overhaul — Foreign Investment Reporting Form (FIRF)
The consolidation of FC-GPR, FC-TRS, LLP-I, and LLP-II into the unified FIRF is a major compliance simplification. Indian companies receiving FDI need to file a single form within 30 days of allotment or transfer. The FIRF captures allotment details, transfer details, consideration received, valuation report references, and KYC of the foreign investor.
Our FDI compliance services cover end-to-end filing and advisory for Indian companies with foreign investment.
7. ECB Framework Updates
The ECB framework in India is governed by the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, and the RBI’s Master Direction on ECBs. The 2026 revisions are the most significant in several years.
Key ECB Parameters — 2026 Revised Framework
| Parameter | Earlier Position | Revised Position (w.e.f. 1 April 2026) |
|---|---|---|
| MSME Eligibility | Only medium enterprises | Micro, small & medium enterprises |
| Individual Limit (Auto Route) | USD 750 million | USD 750 million (unchanged) |
| MSME Individual Limit | N/A for micro/small | USD 5 million per FY |
| All-in-Cost (up to 5 years) | Benchmark + 300 bps | Benchmark + 350 bps |
| All-in-Cost (above 5 years) | Benchmark + 450 bps | Benchmark + 500 bps |
| Working Capital End-Use | Not permitted (except for specific sectors) | Permitted for manufacturing (min. 3-year MAMP) |
| Hedging Requirement | 70% for maturity up to 5 years | 50% if natural hedge exists |
8. LRS Updates & Compliance
The Liberalised Remittance Scheme permits resident individuals to remit up to USD 250,000 per financial year for permitted current and capital account transactions. The 2026 updates focus on reporting and compliance rather than limit changes.
Current LRS Parameters
- Annual limit: USD 250,000 per individual per financial year (unchanged)
- TCS on LRS: Applicable above ₹10 lakh (increased from ₹7 lakh vide Finance Act, 2026) at 20% (5% for education loans)
- Permitted purposes: Education, medical treatment, employment abroad, maintenance of close relatives, investment in equity/debt, purchase of immovable property, donations, gifts, etc.
- Prohibited purposes: Remittance to countries identified as non-cooperative by FATF, margin trading, lottery, and speculative transactions
Enhanced Reporting Requirements (w.e.f. 1 April 2026)
AD banks must submit fortnightly reports on LRS transactions with enhanced data granularity, including purpose sub-categories, beneficiary country and entity details, and PAN of the remitter. The RBI has indicated that this data will be used for macroprudential surveillance and to identify potential misuse of the scheme for round-tripping.
9. Overseas Direct Investment (ODI) Amendments
The ODI framework is governed by the Foreign Exchange Management (Overseas Investment) Rules, 2022, and the corresponding directions. The 2026 amendments focus on digitisation and compliance streamlining.
Key ODI Changes in 2026
- Digital portal for all filings: From 1 April 2026, all ODI filings must be made through the new online portal. This includes Form ODI Part I (initial reporting), Form ODI Part II (Annual Performance Report), disinvestment/restructuring reports, and ad-hoc reports for changes in shareholding
- Annual Performance Report (APR) timeline: The due date for APR continues to be 31 December of each year for the preceding financial year. Non-filing of APR continues to be a ground for blocking further remittances
- Round-tripping restrictions: Enhanced scrutiny of ODI structures that involve investment back into India through step-down subsidiaries. AD banks have been directed to obtain a declaration from the Indian party that the foreign entity does not have any investments in India
- Write-off provisions: Simplified procedure for write-off of ODI investments where the foreign entity has been wound up or has become non-functional. The earlier requirement of obtaining a chartered accountant certificate from the foreign jurisdiction has been relaxed for investments below USD 1 million
For ODI compliance, refer to our overseas investment advisory services.
“The FEMA landscape in 2026 reflects a dual thrust — liberalisation for compliant entities and enhanced surveillance for potential violations. The opening of the space sector to 74% FDI under the automatic route is a landmark change that positions India as a competitive destination for global space-tech investment. On the compliance side, the mandatory digital filing for ODI and the unified FIRF for FDI reporting are welcome simplifications. However, the enhanced LRS reporting and round-tripping scrutiny signal that the RBI is watching cross-border flows more closely than ever. At Virtual Auditor, we advise clients to maintain meticulous documentation and proactive compliance to avoid the severe penalties that FEMA contraventions attract.”
- LRS limit unchanged at USD 250,000 but reporting enhanced to fortnightly with granular data
- FDI in space liberalised — 74% automatic route for satellites and launch vehicles; 100% for ground segment
- ECB framework rationalised — MSMEs now eligible; working capital end-use permitted for manufacturing
- ODI filings fully digital from 1 April 2026 through new RBI portal
- Unified FIRF replaces FC-GPR, FC-TRS, and LLP forms for FDI reporting
- Export realisation period permanently extended to 12 months
- FEMA compounding limit raised to ₹10 crore at Regional Office level
- NRI investment in IFSC liberalised — no source-of-funds restriction
Frequently Asked Questions
Q1. Has the LRS limit been increased in 2026?
No. The LRS limit for resident individuals remains at USD 250,000 per financial year for FY 2026-27. The Budget 2026-27 did not propose any change to this limit. However, the TCS threshold on LRS has been increased from ₹7 lakh to ₹10 lakh, meaning the first ₹10 lakh of foreign remittance in a financial year is free from TCS. The reporting requirements for AD banks have been enhanced to fortnightly submission with additional data fields.
Q2. What is the new FIRF form for FDI reporting?
The Foreign Investment Reporting Form (FIRF) is a unified form that replaces the earlier separate forms — FC-GPR (for allotment of shares to foreign investors), FC-TRS (for transfer of shares between residents and non-residents), and LLP-I/LLP-II (for LLP capital contributions). Indian companies receiving foreign investment or processing share transfers involving non-residents must file the FIRF through the FIRMS portal within 30 days of the transaction. The FIRF captures comprehensive data including valuation, KYC, beneficial ownership, and downstream investment details.
Q3. Can MSMEs now raise ECBs under the automatic route?
Yes. From 1 April 2026, micro and small enterprises (in addition to medium enterprises, which were already eligible) can raise ECBs under the automatic route. The individual limit for micro and small enterprises is USD 5 million per financial year. The ECB must comply with the all-in-cost ceiling, minimum average maturity period, and end-use restrictions prescribed in the revised ECB framework. The ECB proceeds can also be used for working capital if the borrower is in the manufacturing sector, subject to a minimum average maturity period of 3 years.
Q4. What are the FDI limits for the space sector after the 2026 changes?
The FDI limits for the space sector have been significantly liberalised. Satellite manufacturing and launch vehicle production now permit 74% FDI under the automatic route (previously 49%). Ground segment operations permit 100% FDI under the automatic route. FDI beyond 74% in satellite and launch vehicle activities requires government approval. Space-related activities that have defence applications follow the defence sector cap of 74% automatic route.
Q5. When does the ODI digital filing portal become mandatory?
The new ODI digital portal becomes mandatory from 1 April 2026. All ODI-related filings — Form ODI Part I (initial investment), Form ODI Part II (Annual Performance Report), disinvestment/restructuring reports, and any ad-hoc filings — must be submitted electronically. Paper-based and email-based filings will no longer be accepted. Indian parties with existing overseas investments should register on the portal in advance and familiarise themselves with the new interface. AD banks will also migrate their processing to the digital platform.
Monthly Update Log
| Date | Update |
|---|---|
| 25 January 2026 | January circulars (ECB, ODI, LRS) added |
| 25 February 2026 | FDI space sector, revised Master Direction, compounding changes added |
| 20 March 2026 | March circulars (IFSC, export-import regulations) added |
This regulatory tracker is updated monthly as RBI circulars and FEMA notifications are issued. Bookmark this page for the latest FEMA and RBI developments in 2026.
Virtual Auditor — AI-Powered CA & IBBI Registered Valuer Firm
V. VISWANATHAN, FCA, ACS, CFE, IBBI/RV/03/2019/12333
Chennai HQ: G-131, Spencer Plaza, Anna Salai, Chennai 600002
Phone: +91 99622 60333
Email: support@virtualauditor.in
Book a Free Consultation
