Foreign investors can set up a wholly owned subsidiary, joint venture or LLP, or operate through a branch, liaison or project office. Most sectors are open under the automatic route, but prohibited sectors, sector caps and the land-border-country rule must be checked first, because they decide whether prior government approval is needed. Companies are incorporated with the Ministry of Corporate Affairs through the SPICe+ integrated form, and every company needs at least one director who meets the Indian residence test.
Automatic route, government route and prohibited sectors
Under the automatic route an investor needs no prior approval from the RBI or the central government; under the government route prior approval is required and its conditions must be met. The route depends on the sector and, above certain shareholding levels, on the size of the stake.
Some activities are closed to foreign direct investment altogether, including lotteries, gambling and betting, chit funds, Nidhi companies, trading in transferable development rights, real estate business and farmhouse construction, and manufacture of cigars and cigarettes. Check the activity against the prohibited list before any structuring work, because no approval route exists for these.12
Investors linked to countries sharing a land border with India
Since April 2020 an investment by an entity of a country sharing a land border with India, or where the beneficial owner of the investment is linked to such a country, has needed government approval. This captures indirect ownership as well as direct investment, so group structures with shareholders in, for example, China or Hong Kong must be traced to the ultimate beneficial owners.
The central government revised this framework in March 2026. Beneficial ownership is now tested using the criteria in the Prevention of Money-laundering Rules, 2005, and investors whose land-border-country beneficial ownership is non-controlling and no more than 10% can use the automatic route, subject to sector caps and conditions, with the investee reporting details to DPIIT. Proposals in specified manufacturing sectors such as capital goods, electronic components and polysilicon must be decided within 60 days where the land-border investor holds up to 49% and resident Indians keep majority ownership and control.345
Choosing a vehicle and incorporating
A private company needs at least two directors (a public company three, a one person company one), and every company needs at least one director who has stayed in India for at least 182 days. Foreign groups that intend to run the board from abroad usually need to appoint or second a qualifying resident director at the outset.
Incorporation is filed online with the Ministry of Corporate Affairs on SPICe+. Part A reserves the name; Part B covers incorporation together with director identification numbers, PAN and TAN, EPFO and ESIC registration, GSTIN and opening a bank account, with the electronic memorandum and articles and the AGILE-PRO-S form filed as linked forms. Foreign investment in LLPs is allowed subject to conditions in the FDI Policy, and branch, liaison and project offices are governed by separate FEMA regulations and an RBI Master Direction.678910
| Option | Legal basis | Approval or registration | What to check |
|---|---|---|---|
| Private limited company (wholly owned subsidiary or joint venture) | Companies Act, 2013; FDI Policy and FEMA (Non-debt Instruments) Rules | Incorporation through SPICe+ with the Ministry of Corporate Affairs; FDI under automatic or government route by sector | At least two directors, one meeting the 182-day residence test; sector cap and route |
| Limited liability partnership (LLP) | LLP Act, 2008; FDI Policy para 3.2.4 | Registration with the Ministry of Corporate Affairs; FDI permitted subject to conditions | Whether the sector allows LLP investment under the FDI Policy conditions |
| Branch office | FEMA (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016; RBI Master Direction | Approval under the FEMA regulations | Permitted activities and eligibility criteria in the current RBI Master Direction |
| Liaison office | Same FEMA regulations and RBI Master Direction | Approval under the FEMA regulations | Liaison offices are for representative activity; confirm current eligibility and validity rules |
| Project office | Same FEMA regulations and RBI Master Direction | Approval under the FEMA regulations | Tied to a specific project in India |
How it works, step by step
- Confirm the activity is not prohibited and identify the sector cap and entry route12DPIIT (FDI Policy)
- Trace beneficial ownership of the investor to test the land-border-country rule and the 10% non-controlling exception34DPIIT
- Where approval is needed, file the proposal online on the Foreign Investment Facilitation Portal for decision by the competent ministry11512DPIIT and the administrative ministry, with security clearance from the Ministry of Home Affairs where required
- Reserve the name and incorporate through SPICe+ with eMoA, eAoA and AGILE-PRO-S8Ministry of Corporate Affairs
- Appoint the board, including at least one director meeting the 182-day residence test67Company (Companies Act, 2013)
- Receive the investment through banking channels and complete foreign investment reporting through the authorised dealer bank1314Authorised dealer bank and RBI
No timings or fees are shown unless an official source states them.
Documents usually needed
- Investor constitutional documents, board resolution and audited financial statements, authenticated as required
- Group structure and fund-flow charts showing beneficial owners, including any land-border-country or significant beneficial owner links
- Pre- and post-investment shareholding pattern of the Indian entity
- Proposed directors' identity and address proofs and consents
- Valuation certificate where the transaction requires one
- English translations, apostilled or consularised, of foreign-language documents
Common mistakes
- Checking only the direct shareholder and missing a land-border-country beneficial owner further up the chain.
- Relying on an older FDI summary that predates the 2026 changes to the land-border framework or to insurance.
- Incorporating before a resident director is available, then breaching the residence requirement in the first year.
- Assuming a liaison office can earn revenue or sign commercial contracts.
- Starting operations in a sector on the prohibited list, such as real estate business, under the belief that approval can be obtained later.
When the business crosses borders
- The land-border rule follows beneficial ownership, so a fund or holding company in a third country can trigger it.
- Government-route applications need investor documents from the home country, apostilled or consularised, which adds lead time.
- A later transfer of shares that moves beneficial ownership to a land-border-country person also needs approval.
Questions businesses ask
Do we need government approval to set up a subsidiary in India?
Not in most sectors. Under the automatic route no prior approval is needed, but you must still meet sector caps and conditions. Approval is needed for government-route sectors and, generally, for investors linked to countries sharing a land border with India.13
Our investor has a small Chinese minority shareholder. Does that require approval?
Possibly not. Since the March 2026 revision, non-controlling land-border-country beneficial ownership of up to 10% can use the automatic route, with reporting to DPIIT. Above that level, or where there is control, approval is required.4
How long does a government-route approval take?
DPIIT's standard operating procedure dated 4 May 2026 sets a cumulative indicative timeline of 12 weeks, excluding time the applicant takes to answer queries. A 60-day timeline applies to qualifying land-border proposals in specified manufacturing sectors.115
Must a director live in India?
At least one director must have stayed in India for a total of at least 182 days under section 149(3) of the Companies Act, 2013. Confirm the current measurement period with a company secretary.7
What this guide does not yet confirm
These points need checking with a qualified local professional in India before you rely on them.
- Branch and liaison office eligibility criteria (profit track record, net worth), validity periods and the split between bank-level and RBI approval could not be confirmed: the RBI Master Direction page and PDF could not yet be checked.
- The current wording of the measurement period in section 149(3) of the Companies Act, 2013 (calendar year or financial year, and the treatment of newly incorporated companies) was not confirmed on an official text.
- The significant beneficial owner register rules under section 90 of the Companies Act, 2013 (threshold and filing forms) were not source-checked.
- The date the March 2026 land-border changes took legal effect (reported as 2 May 2026 through an amendment to the Non-debt Instruments Rules) was confirmed only by secondary sources.
- No official incorporation fee schedule or processing time was confirmed.
Sources and review status
Each statement is numbered to the source it was checked against. We use official sources where we can, and each statement says whether it was checked against an official or a secondary source. Sources last checked on 19 October 2026. None of it has been professionally reviewed yet: it is research checked against official and secondary sources by WONE Global, not legal or tax advice.
Foreign investment under the automatic route does not need prior approval of the RBI or the central government, while investment under the government route needs prior government approval and must follow the conditions of that approval. Applies by sector under the Consolidated FDI Policy and the FEMA (Non-debt Instruments) Rules, 2019. Central rule.
The FAQ document is undated; it refers to the Consolidated FDI Policy Circular of 15 October 2020 as amended.
Foreign direct investment is prohibited in lotteries, gambling and betting, chit funds, Nidhi companies, trading in transferable development rights, real estate business or construction of farmhouses, manufacture of cigars and cigarettes, and activities not open to private investment such as atomic energy and most railway operations. Para 5.1 of the Consolidated FDI Policy. Central rule.
An entity of a country sharing a land border with India, or an investment whose beneficial owner is linked to such a country, can invest only under the government route, and a later transfer that brings beneficial ownership within this category also needs government approval. Press Note 3 (2020 Series) dated 17 April 2020, as revised in 2026; subject to the 10% non-controlling exception in in-establish-004. Central rule.
The FAQ uses the 2020 wording (beneficial owner situated in or a citizen of such a country). Secondary sources report that Press Note 2 (2026 Series) dated 15 March 2026 removed the 'situated in' limb so the test now turns on citizens and entities of those countries; the official Press Note text could not yet be checked.
Investors whose beneficial ownership from land-border countries is non-controlling and no more than 10% may invest under the automatic route, subject to sectoral caps, entry routes and conditions, with the investee reporting the relevant details to DPIIT. Beneficial ownership is defined using the criteria of the Prevention of Money-laundering Rules, 2005 and tested at the level of the investor entity. Central rule.
Cabinet decision dated 10 March 2026. Secondary sources report implementation through Press Note 2 (2026 Series) and an amendment to the FEMA (Non-debt Instruments) Rules notified on 2 May 2026; the gazette notification could not yet be checked.
Proposals from land-border-country investors in specified manufacturing sectors must be decided within 60 days of filing where the investor holds up to 49% and resident Indian citizens or Indian-owned entities keep majority shareholding and control at all times. Sectors listed in Schedule II of the SOP, including capital goods, electronic components and electronic capital goods, polysilicon and ingot-wafer, advanced battery components and rare earth permanent magnets and processing. Central rule.
The Cabinet decision of 10 March 2026 lists a shorter set of sectors and says a committee under the Cabinet Secretary may revise it; the SOP list is the operative one.
A private company must have at least two directors, a public company at least three and a one person company one, with a maximum of fifteen unless more are approved by special resolution. Section 149(1), Companies Act, 2013. Central rule.
Secondary summary of the statute by the professional body; the official Act text on India Code or the MCA site could not yet be checked.
Every company must have at least one director who has stayed in India for a total period of not less than 182 days. Section 149(3), Companies Act, 2013. Applies to foreign-owned subsidiaries. Central rule.
The sources opened describe the period as the previous calendar year; the measurement period may have been amended by later legislation. Confirm the current wording on an official text.
SPICe+ is the Ministry of Corporate Affairs' integrated web form for incorporating a company, with Part A for name reservation and Part B covering incorporation, director identification numbers, PAN and TAN, EPFO and ESIC registration, GSTIN and opening a bank account, filed with linked eMoA, eAoA and AGILE-PRO-S forms. Professional tax registration through the form applies to new companies in Maharashtra and Karnataka only (a state-level registration). Central filing.
Foreign investment in Indian limited liability partnerships is permitted, subject to the conditions in para 3.2.4 of the Consolidated FDI Policy. Central rule. The conditions themselves were not set out in the source page.
Branch, liaison and project offices of foreign entities are governed by the FEMA (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016, with operating rules in an RBI Master Direction last updated as on 18 May 2021. Central rule (RBI under FEMA, 1999).
The regulations are also named in DPIIT's FAQs on FDI Policy (FAQ 7). The Master Direction text itself could not yet be checked, so eligibility criteria are not stated here.
Government-route FDI proposals are filed online on the Foreign Investment Facilitation Portal and assigned by DPIIT to the competent administrative ministry, with an indicative cumulative processing timeline of 12 weeks that excludes time taken by the applicant to supply information. Standard Operating Procedure dated 4 May 2026; DPIIT has two further weeks for proposals proposed for rejection or extra conditions. Central rule.
FDI proposals from land-border-country investors, and proposals in sectors such as defence, telecom and civil aviation, require security clearance from the Ministry of Home Affairs. Standard Operating Procedure dated 4 May 2026. Central rule.
Reporting of foreign investment is governed by the RBI's Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019. Central rule (RBI under FEMA).
Reporting forms and deadlines were not confirmed because RBI pages could not yet be checked.
The RBI Master Direction on Reporting under FEMA sets the reports that authorised persons and authorised dealer Category-I banks must submit, and is shown as updated on 1 October 2026. Central rule (RBI).
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11 statements on entry, investment and company formation in India
