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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).
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.
The RBI has issued a revised framework for External Commercial Borrowings (ECB), effective from 1 April 2026. The key changes include:
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.
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.
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:
The RBI has issued a revised and consolidated Master Direction on Investment by Persons Resident Outside India, superseding the earlier 2018 direction. Key features:
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.
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.
Amendments to the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015:
This section will be updated as circulars are issued. Key expected developments include:
This section will be updated in H2 2026. Expected areas of focus include:
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 | 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 |
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.
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.
| 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 |
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.
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.
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.
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.”
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.
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.
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.
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.
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.
| 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.
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