FEMA 395(4) 2026: NRI & OCI Mode of Payment Rules

Historical scope: the notification and implementation discussion below reflects the original 16 June 2026 article. The later operational checklist has been consolidated here, but current commencement dates, ownership limits and bank instructions have not been reverified. Do not use the June implementation snapshot as a statement of today's rules.

If you hold repatriable Indian investments before returning, the practical issue is which account funds each investment and where proceeds can be credited. This article separates those questions from account redesignation on return and from income-tax treatment.

On 13 June 2026 the Reserve Bank of India issued Notification No. FEMA. 395(4)/2026-RB under Section 47 of the Foreign Exchange Management Act, 1999. It is the Fourth Amendment to the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (the principal regulations were notified as FEMA. 395/2019-RB on 17 October 2019). It was uploaded to the RBI website on 15 June 2026.

The amendment is short, surgical and operational. It rewrites two schedules in the mode-of-payment regulations and rebrands one reporting form. It does not, on its face, change any cap, ceiling or quota. It does not cite the 5 June 2026 Governor's Statement on equity-investment limits, although the topic area overlaps. The NDI Rules ceiling change that media coverage has been speculating about lives in a separate instrument and has not been notified as of 16 June 2026.

1. What the notification rewrites

Three things, in order.

1.1 Schedule III: repatriable investments by individuals resident outside India

Schedule III governs the route by which an NRI, OCI or other individual person resident outside India invests in Indian instruments on a repatriation basis. The amended Schedule III specifies:

Mode of payment

  Equity & MF investments    Inward remittance through banking channels, OR
                             funds in any repatriable deposit account
                             maintained under FEMA Deposit Regulations, 2016
  Designated rupee account   A repatriable rupee account, designated and used
                             exclusively for investments under this Schedule
  NPS subscription           Inward remittance, OR repatriable foreign currency
                             account, OR repatriable rupee account, OR NRO account

Remittance of sale proceeds

  Equity instruments         Net of taxes: remit outside India, OR credit to
                             designated rupee account
  Mutual fund units          Net of taxes: remit outside India, OR credit to
                             any account under FEMA Deposit Regulations, 2016,
                             at the NRI/OCI investor's option
  NPS proceeds               Same option set as MF units, at the investor's
                             option

Two operational changes worth reading carefully. The amended Schedule III states explicitly that NPS subscriptions by NRIs and OCIs may be paid as inward remittance, or out of any repatriable foreign currency or rupee account, or from an NRO account. The pre-amendment Schedule III (post the January 15, 2025 Third Amendment) already mentioned NRO funding for NPS subscriptions in its Sl. No. III text, so this is a wording consolidation, not a brand-new permission. The amended language tightens the listing of permissible source accounts.

The amended Schedule III also retains, with cleaner drafting, the "at the option of the NRI/OCI investor" phrasing for remittance of mutual-fund and NPS sale proceeds. The "at the option" wording was already present in the pre-amendment text. The amendment moves it into the consolidated remittance paragraph, which removes some ambiguity AD banks had been resolving in their own SOPs.

1.2 Schedule XI: Indian companies listed on International Exchanges

Schedule XI applies when a Permissible Holder (broadly defined in the parent NDI Rules and including persons resident outside India who are eligible to invest under the International Listing scheme) subscribes to or purchases equity shares of an Indian company listed on a recognised International Exchange, such as IFSC exchanges in GIFT City. The amended Schedule XI specifies:

Mode of payment

  Through banking channels     Foreign currency account of the Indian company
                               held under the Foreign Currency Accounts by a
                               Person Resident in India Regulations, 2015
  Or                           Inward remittance through banking channels, OR
                               funds in any repatriable foreign currency or
                               rupee account under FEMA Deposit Regulations, 2016

Remittance of sale proceeds

  Net of taxes                 Remit outside India, OR credit to the bank
                               account of the Permissible Holder maintained
                               under FEMA Deposit Regulations, 2016

The Explanation in Schedule XI also clarifies that proceeds of purchase or subscription must either reach a bank account in India or sit in the Indian company's foreign currency account held under the 2015 FCY Account Regulations. The wording lines up the international-listing route with the deposit-regulations framework that already governs other NRI investment.

1.3 Regulation 4(9): LEC (NRI) becomes LEC (IFI)

Sub-regulation (9) of Regulation 4 has been rewritten. The reporting form for designated Authorised Dealer Category I banks is now LEC (Individual Foreign Investor - IFI), replacing the older LEC (NRI). The scope of who is reported on the form is also widened: AD banks shall report purchase or transfer of equity instruments by an individual person resident outside India, including NRIs or OCIs, on stock exchanges in India.

The change is consistent with the regulator's broader vocabulary shift toward "individual person resident outside India" as the umbrella category, with NRI and OCI as subsets. AD banks and brokers will need to update the field name in their reporting pipelines. The substance of what is reported (purchase or transfer of equity instruments on Indian stock exchanges) is unchanged.

2. What the notification does not change

This is where the article must be careful, because the news coverage has not always been.

The notification is silent on the quantum of investment any single NRI or OCI can make. The pre-existing aggregate ceiling of ten per cent of the paid-up equity capital of an Indian company, the single-investor ceiling of five per cent on a repatriable basis, and the special-resolution route to raise the aggregate to twenty-four per cent all sit under Schedule III of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. Those Rules are issued by the Ministry of Finance through the Department of Economic Affairs and notified in the Official Gazette. They are a separate instrument from the FEMA 395 series, and an amendment there will appear as a Gazette G.S.R. notification, not as an RBI FEMA notification.

The notification is also silent on operational instructions to AD banks. Operational mechanics (transition timing, exact field-level changes for the LEC (IFI) report, and any clarification on the new Schedule III account-list wording) typically follow as an A.P. (DIR Series) circular. As of the morning of 16 June 2026, no such circular had been published on the RBI portal.

On the effective date: paragraph 1(ii) ties commencement to publication in the Official Gazette. The notification text on the RBI website is dated 13 June 2026 and was uploaded to the RBI portal on 15 June 2026. The Gazette publication date itself (and the corresponding G.S.R. number for this amendment) is what the commencement clause references; readers and AD banks should treat the regulator's own portal entry as authoritative for the operative content while the Gazette G.S.R. number lands.

3. Where this sits next to the 5 June 2026 Governor's Statement

The 5 June 2026 Governor's Statement (Press Release 2026-2027/386) said NRI and OCI equity-investment limits on stock-exchange trades without SEBI registration are being increased, and the facility is being extended to all individual Persons Resident Outside India at par with NRIs and OCIs. Headlines have rounded that to "doubled to ten per cent" or similar, which is interpolation that the Governor's Statement does not state.

FEMA 395(4)/2026-RB is not the operational delivery of that Governor's Statement. It is a Mode of Payment and Reporting amendment. The two are adjacent in topic area and likely part of the same regulatory sequence, but they are different instruments doing different jobs:

What                       Instrument                  Status as of 16 Jun 2026

Mode of payment +          FEMA 395(4)/2026-RB         Notified 13 Jun 2026,
reporting (form name +     (RBI FEMA notification)     uploaded on RBI portal
funding accounts)                                      on 15 Jun 2026

Numeric ceiling on         Schedule III, NDI Rules,    Not amended as of
NRI/OCI investment         2019 (Ministry of           16 Jun 2026
                           Finance, Gazette)

Operational instruction    A.P. (DIR Series)           Not issued as of
to AD banks                circular                    16 Jun 2026

In the original June analysis, the mode-of-payment amendment was distinguished from separate ownership-limit rules. Verify the currently operative instruments rather than extending that dated implementation account to a later transaction.

4. Practical takeaways for NRIs and OCIs

The amendment is structural, not transactional. Items worth keeping on a returnee's or NRI's own checklist (to be discussed with the AD bank, MF registrar, NPS POP and a qualified cross-border CA, not actioned blindly off this article):

• NRO funding for NPS subscriptions. The amended Schedule III lists NRO accounts in the source-of-funds menu for NRI and OCI NPS subscriptions, alongside inward remittance and repatriable foreign-currency / rupee accounts. The pre-amendment text already referenced NRO; the amendment tightens the listing. The AD bank's internal SOP is the operational gating factor for any debit instruction.
• Designated rupee account for repatriable equity. The amendment retains the requirement that a repatriable rupee account used for Schedule III investments be designated and used exclusively for that purpose. Cash that has been parked in a general-purpose NRE rupee account is a useful item to surface in the next AD-bank conversation.
• Mutual fund and NPS sale-proceeds option. When an NRI or OCI redeems mutual funds or partial-withdraws from NPS, the amended Schedule III states that net-of-tax proceeds may be remitted outside India or credited to any account maintained under the Deposit Regulations, 2016, at the investor's option. The instruction goes to the registrar or NPS POP; eligibility of the chosen account is something the AD bank confirms.
• LEC (IFI) reporting field. This affects AD banks and custodians, not investors directly. Reporting confirmations from the bank may show a renamed form. There is no investor-side filing involved.
• Numeric limits. Until the NDI Rules, 2019 are amended (in the Gazette, by the Ministry of Finance) and the corresponding A.P. (DIR Series) circular is issued, the existing five per cent single-investor and ten per cent aggregate ceilings under Schedule III of the NDI Rules continue to govern. No headroom has been formally added by this notification.
• Permissible Holders for International Exchange listings. The Schedule XI rewrite tightens the routing for funding and for remittance of sale proceeds. For GIFT-IFSC subscriptions to shares of an Indian-incorporated company listed there, the amended wording is what a treasury memo should be reading off, with sign-off from a qualified cross-border CA on the structuring.

5. What to watch next

Three regulatory artefacts to keep an eye on, in this order:

1. The Official Gazette publication date and G.S.R. number for FEMA 395(4)/2026-RB. The notification's own commencement clause is tied to that date. The RBI portal entry of 15 June 2026 is the operative reference for the text in the meantime.
2. An A.P. (DIR Series) circular from the RBI Foreign Exchange Department giving AD banks the operational mechanics of the new mode-of-payment language, the LEC (IFI) field rollout, and any transition guidance.
3. An NDI Rules, 2019 amendment from the Ministry of Finance through the Department of Economic Affairs, published as a Gazette G.S.R., that actually changes the numeric ceiling. Without that, the "doubled to ten per cent" reading of the 5 June Governor's Statement remains commentary, not law.

The listed June watch items are not a claim that those instruments remain pending. A current transaction needs a fresh check of the Gazette text, RBI directions and the authorised dealer's workflow.

6. Questions at the authorised dealer counter

The separate operational checklist is consolidated into these questions, without treating the old implementation assumptions as newly verified:

1. Which account is designated for the relevant repatriable investment route, and which debits does the applicable rule permit? Keep the bank's written designation and instructions.
2. For NPS, which sources of funds are permitted under the current rule and the provider's eligibility requirements? Do not generalize an NRO-to-NPS permission to every equity transaction.
3. For a sale or redemption, what destination is allowed for that instrument, and what tax and source-of-funds records does the bank require?
4. Which current reporting confirmation will the bank provide? Do not mistake a bank-side LEC form for a new investor filing obligation.
5. On a qualifying return, how will the designated account and investment records change? Use the separate NRE/NRO redesignation guide; a payment-route amendment does not postpone that action.

The retained reporting explainer and Schedule XI explainer remain separate reference pages. Their availability is not a new verification stamp.

Sources:

• Reserve Bank of India, Notification No. FEMA. 395(4)/2026-RB dated 13 June 2026, Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment) Regulations, 2026 (uploaded on RBI portal 15 June 2026): https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=13484
• Reserve Bank of India, FEMA Notifications listing (FEMA 395(4)/2026-RB entry, 180 kb PDF, dated 15 June 2026): https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx
• Reserve Bank of India, Notification No. FEMA. 395/2019-RB dated 17 October 2019, the principal Mode of Payment and Reporting of Non-Debt Instruments Regulations, 2019: https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=11723
• Reserve Bank of India, Press Release 2026-2027/386, Governor's Statement of 5 June 2026: https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=62864
• Reserve Bank of India, Master Direction on Deposits and Accounts, FED Master Direction No. 14/2015-16 (referred for Foreign Exchange Management (Deposit) Regulations, 2016 framework): https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10198
• Foreign Exchange Management Act, 1999, Act No. 42 of 1999, full text on India Code: https://www.indiacode.nic.in/bitstream/123456789/1988/1/A1999_42.pdf