Compliance watch-outs
The sources single out six areas where foreign financial firms most often run into compliance risk: who owns the investor, how indirect investment is counted, who must be resident, whether the activity is regulated at all, how much capital the licence needs, and how personal data is handled.
Land-border beneficial owners
An investor from a country sharing a land border with India, or one whose beneficial owner holding more than 10% or control is a citizen of such a country, needs the government route (Press Note 2 (2026)). The test looks through the ownership chain, so a fund or holding company based elsewhere can still be caught. Proposals are filed on the FIF/NSWS portal and the Ministry of External Affairs comments on them. Indirect land-border ownership up to 10% without control stays on the automatic route, with prior reporting. See land-border investors.
Downstream investment
Investment by a foreign-owned Indian company counts as indirect foreign investment, so the sector cap and conditions follow the money into each investee. A bank’s strategic downstream investment counts for the investee. A group that already holds a foreign-owned Indian entity should test every planned acquisition by that entity against the FDI rules for the investee’s activity.
Resident control requirements
Insurers need a resident Indian citizen as at least one of the chairperson, managing director and CEO, even at 100% foreign ownership. Private banks need at least 26% resident shareholding at all times, except where the bank is a wholly owned subsidiary of a foreign bank. Board and shareholder plans should be drawn up with these tests in mind from the start.
Unregulated activities
The 100% automatic route for financial services applies to activities regulated by RBI, SEBI, IRDAI, PFRDA, NHB or another notified regulator. Financial activities outside that regulation need prior government approval for foreign investment. A new fintech model that no regulator yet covers can therefore face a slower route than a licensed lender.
Capital to be maintained
Most NBFCs need net owned funds of ₹10 crore (existing NBFCs by 31 March 2027). Non-bank payment aggregators need net worth of ₹15 crore at application and ₹25 crore over the next three years. In credit information companies, a single FPI must stay below 10%, and acquisitions above 1% must be reported to RBI. Capital is a continuing condition, not only an entry test. The full table is on regulators and registrations.
Personal data
The DPDP Rules 2025 were notified on 13 November 2025 with an 18-month phase-in. Consent notices and processing must be ready by 13 May 2027. Financial firms holding customer data should build consent and data processes alongside licensing, not after launch.
Further pitfalls from the rules
Treating the FDI cap as a licence
Clearing the FDI cap does not license the business. Each activity needs registration or authorisation from its regulator before it starts, and most carry a minimum capital. Plans that schedule launch from the date of investment rather than the date of licence will slip.
Choosing more than one bank channel
A foreign bank may enter through branches, a wholly owned subsidiary or a stake of up to 74% in a private bank, but may use only one of the three channels. The choice should be made before any stake-building begins.
Counting portfolio holdings outside the bank cap
The 74% limit for private banks includes portfolio investment by FPIs and NRIs. Since 12 June 2026 non-resident individuals may also buy listed shares through a designated bank branch, each below 10% and all such individuals together up to 24% (FEMA Non-debt Instruments Rules). Headroom under the cap can shrink without any action by the strategic investor.
Relying on the proposed 15% IFSC rate
Budget 2026-27 proposed taxing IFSC business income at 15% once the deduction period ends. The proposal is not in the Finance Act 2026. Long-range forecasts for an IFSC unit should not treat it as law.
Forming an IFSC unit by splitting an Indian business
IFSC units and offshore banking units starting from 1 April 2026 must not be formed by splitting or reconstructing a business already in India if they are to claim the s.147 deduction. Restructuring an existing Indian operation into GIFT City needs care.
Assuming the 9% MAT applies to all IFSC income
The 9% MAT (or AMT) under s.206 of the Income-tax Act 2025 applies to IFSC units deriving income solely in convertible foreign exchange. Other companies in the old regime pay a final 14% MAT.
Counting on lapsed state incentives
The Tamil Nadu FinTech Policy 2021 expired on 31 December 2025, when its incentives ended. Only the TIDCO Fintech City space in Chennai (110 acres) remains as stated support. Gujarat’s GIFT City figures are converted from million-rupee amounts; confirm current terms with the state agency. See state incentives.
Treaty relief and GAAR
Treaty exemptions on capital gains are open to challenge under GAAR after the Supreme Court’s Tiger Global decision (January 2026), which denied India–Mauritius treaty benefit and rejected grandfathering protection. Holding structures for financial-sector stakes should be tested for substance.
Budget announcements are not yet law
The corporate bond market framework, the municipal bond incentive, the High Level Committee on Banking for Viksit Bharat, the review of the FEMA (Non-debt Instruments) Rules and the proposed change to treasury-centre deemed-dividend rules were announced in Budget 2026-27 on 1 February 2026. They are announcements until notified. See central incentives.
What to check next
- Trace every shareholder up to the beneficial owner and record the land-border test result before investing.
- Map downstream investments by any existing foreign-owned Indian entity in the group.
- Confirm the minimum capital for each licence and how it must be maintained after registration.
- Build a DPDP compliance plan with the 13 May 2027 date as the deadline.
- Re-check the status of Budget 2026-27 proposals before relying on them in a business case.