Bringing foreign money into an Indian company from a nearby country means a lot of paperwork. In practice, this is often one of the first questions. Both foreign investors and Indian promoters ask it. Why can’t we use the Automatic Route like everyone else?

The key is a regulatory change that altered India’s foreign investment scene: press note 3 (2020). Over the years, our advisory desk has managed many FDI Government Approval applications. We’ve noticed that one missed disclosure can delay a deal by months.

This guide summarises press note 3 2020. It’s written in a clear manner. It feels like talking to a client face-to-face. We focus on the important compliance details.

What is Press Note 3 (2020)?

Press Note 3 (2020), released by DPIIT on 17 April 2020, changed India’s FDI Policy. It now needs Government approval. This is for foreign investment from individuals or groups in countries near India. This includes cases where someone locates the beneficial owner in such countries. They said we need to stop opportunistic takeovers. This is important for Indian firms during the COVID-19 slowdown.

Before this notification, most sectors in India permitted FDI under the Automatic Route. The government didn’t need to approve anything before. Only the RBI wanted reports after the investment.

Press Note 3 (2020) introduced new investors. This eliminated that convenience completely. Clients often request the exact PDF of press note 3 from 2020 to see the original wording. Check the DPIIT source document instead of relying on summaries, like this one.

Why Was Press Note 3 (2020) Introduced?

The timing tells you everything:

• In early 2020, Indian stock valuations crashed due to the pandemic.
• Several listed and unlisted companies became attractive, undervalued targets
• Reports came out. A Chinese financial institution raised its stake in an Indian NBFC.
• Based on our experience, we saw the government’s clear worry. It aimed to stop buyers from grabbing important Indian assets at low prices during this tough economic time.
• The intent was to add a scrutiny layer, not to shut the door on legitimate investment.

Objectives of Press Note 3 (2020)

• Prevent opportunistic or hostile acquisitions of Indian companies during economic distress
• Examine investments with greater scrutiny. This is important when the ultimate beneficial owner is from a nearby country.
• Close the loophole. This allows investments to go through a third country. It hides the real source of funds.
• Protect sectors that are sensitive to strategic interests from unchecked foreign control.
• Align India’s FDI policy in Press Note 3. Match it with screening practices from major economies.

Countries Covered Under Press Note 3 (2020)

Press Note 3 (2020) applies to countries that share a land border with India:

• China (including Hong Kong and Macau)
• Pakistan
• Bangladesh
• Nepal
• Bhutan
• Myanmar
• Afghanistan

Many businesses think this list is for investors. They believe it only applies to those from these countries. They often overlook its wider importance. They often overlook other important factors. However, the requirements are broader. Beneficial ownership is the primary factor, and we cover that in detail below.

What is the Government Route Under Press Note 3?

Investors must get approval. They should contact the right Indian ministry or department. You need this under Press Note 3 of the Government Route before investing. This is not like the Automatic Route. There, the RBI requires only post-facto reporting.

Key features of the Government Route:

• Applicants file applications through the Foreign Investment Facilitation Portal (FIFP).
• Proposals are reviewed by the concerned administrative ministry
• The Ministry of Home Affairs seeks security-related inputs.
• The route is slower and more document-intensive than the Automatic Route
• The investor needs to demonstrate the commercial viability of the proposal. First-time foreign investors often struggle with this.

Which Investments Require Government Approval?

Under Press Note 3 (2020), Government approval is mandatory for:

• Fresh FDI by an entity or citizen of a bordering country
• More investment by an existing investor from a bordering country
• Transfer of shares that shifts ownership to a nearby country entity.
• Investments go through a third country. The ultimate owner is in a nearby country.
• Any restructuring, rights issue, or bonus issue that changes the beneficial ownership pattern

Applicability of Press Note 3 (2020)

New Foreign Investments

• Any new capital injection needs prior approval. This includes equity, convertible instruments, and FDI-linked options from a covered entity.
• Approval must be obtained before the funds are received and shares are allotted

Additional Investments

• An investor who was a shareholder before April 2020 can’t increase their stake. They need new Government approval to do so.
• This applies whenever the additional investment falls within the PN3 framework

Transfer of Existing Investments

• Secondary transfers happen when a non-resident sells shares. If they sell to a nearby country entity, it still needs approval.
• Many businesses overlook this. They think share transfers are just a private deal between buyer and seller. This is a common compliance mistake.

Beneficial Ownership Criteria

• This is the part clients underestimate the most
• The registration of the immediate investing entity in Singapore, Mauritius, or the US does not matter.
• If the ultimate beneficial owner is in a nearby country, you still need Foreign Investment Approval from the Government.
• Before making foreign investments, promoters need to map the whole ownership chain. They shouldn’t focus only on the entity on the share certificate.

Sectors Affected by Press Note 3 (2020)

Press Note 3 (2020) is horizontal in nature. It applies across sectors, not just to a specific industry.

That said, in our advisory experience, scrutiny tends to be more intense in:

• Telecommunications and technology
• E-commerce and digital platforms
• Banking, NBFCs, and financial services
• Defence and strategic manufacturing
• Pharmaceuticals and healthcare
• Infrastructure and power

Eligibility Criteria for Government Route Approval

• The investing entity or its beneficial owner must be clearly identified and disclosed
• The proposal must comply with sectoral caps and conditions under the FDI Policy
• The investment must not fall under a sector where FDI is prohibited
• Complete KYC and source-of-funds documentation must be available
• The applicant must have a valid business rationale supporting the transaction

Documents Required for Government Route Approval

• Board resolution of the Indian investee company approving the proposal
• Detailed beneficial ownership declaration and ownership chart
• Shareholding pattern before and after the proposed investment
• Valuation certificate from a SEBI-registered merchant banker or chartered accountant
• Certificate of incorporation and KYC documents of the foreign investor
• Details of the source of funds and remittance route
• Sector-specific NOCs, if applicable

Step-by-Step Approval Process Under Press Note 3 (2020)

Step 1: Determine Applicability

Confirm whether the investor, or its ultimate beneficial owner, falls within the PN3 framework. This first step governs the entire process, and getting it wrong wastes weeks.

Step 2: Prepare Required Documents

Collect the ownership structure. Get the valuation report. Gather the KYC documents. Also, include the commercial justification for the investment. Then, file everything.

Step 3: Submit the Foreign Investment Proposal

The application is filed electronically through the FIFP portal along with the prescribed fee and supporting documents.

Step 4: Review by Concerned Ministries

DPIIT shares the proposal with the right ministry. If needed, it goes to the Ministry of Home Affairs for security clearance.

Step 5: Government Approval

Once cleared, the ministry gives its approval. Sometimes, it adds specific conditions. The company must follow these after the investment.

Step 6: FEMA & RBI Reporting

Once approved and funds arrive, the investee company must file with the RBI. They need to do this on time. This is where many approved deals still run into trouble.

RBI & FEMA Compliance After Approval

Government approval under Press Note 3 does not close the compliance loop. After receiving funds and allotting shares, the company must file FEMA reports with the RBI. Missing this step can lead to penalties, even with prior approval.

Form FC-GPR

Filed when shares are allotted to a foreign investor, within 30 days of allotment, through the FIRMS portal.

Form FC-TRS

Filed for transfer of shares between a resident and a non-resident, or vice versa, within 60 days of the transaction.

Annual FLA Return

An annual return on Foreign Liabilities and Assets, filed with RBI by 15 July every year by any Indian entity that has received FDI or made overseas investment.

Other Applicable FEMA Filings

Companies might need to file different forms depending on the instrument. This includes Form ESOP or Form LLP(I)/(II). They may also need to submit downstream investment notices under Regulation 13.6 of the NDI Rules.

Common Compliance Challenges Under Press Note 3

• Difficulty tracing the ultimate beneficial owner across multi-layered holding structures
• Long and unpredictable approval timelines, particularly for investors linked to China
• Ambiguity around whether indirect or portfolio-level exposure triggers PN3
• Inconsistent documentation from foreign investors unfamiliar with Indian KYC norms
• Missed FC-GPR/FC-TRS deadlines even after Government approval is obtained
• Restructuring transactions inadvertently triggering fresh approval requirements

Penalties for Non-Compliance

• You can get a penalty of up to three times the amount involved in the contravention. If the amount isn’t clear, the penalty is ₹2 lakh.
• Additional penalty of ₹5,000 per day for continuing contravention
• Compounding of the contravention by RBI, subject to payment of the compounding amount
• In serious cases, potential criminal liability under FEMA provisions
• Reputational risk and difficulty in future fundraising if compliance history is poor

Recent Developments in Press Note 3 (2020)

Press Note 3 (2020) is no longer the static rule it was in 2020.

Businesses should check the latest RBI Master Directions and DPIIT Press Notes before investing. The framework has changed. Many clients are now looking for press note 3 2026, hoping for a fresh update to PN3. However, what actually happened is a related but different notification. Key updates to track:

• In March 2026, after Cabinet approval, DPIIT released Press Note 2 (2026 Series). This note updates Paragraph 3.1.1 of the FDI Policy. This is the key Press Note 2 amendment businesses should be tracking today.
• Investments from countries with a land border can now go ahead automatically. This is true if the beneficial ownership is 10% or less. Also, it should not give control. This is subject to reporting requirements.
• Any stake above that 10% threshold, or involving control, still needs Government approval
• A new 60-day approval process is now in place for key manufacturing sectors. This includes electronic components and solar wafer manufacturing.
• Pakistan faces strict rules. It is confined to the Government route. Investments in defence, space, and atomic energy are not allowed.
• These changes received legal backing. They came from the FEMA (Non-Debt Instruments) Amendment Rules, 2026. These rules were announced on 2 May 2026.

Benefits of Professional Foreign Investment Advisory

• Accurate, upfront assessment of whether PN3/PN2 applies to your specific transaction
• Properly structured beneficial ownership documentation that withstands ministry scrutiny
• Reduced approval timelines through complete, error-free filings
• Coordinated RBI/FEMA reporting so approval doesn’t get undone by a missed deadline
• Ongoing monitoring as sectoral and land-border policies continue to evolve

Why Choose FEMA Expert for Government Route Approvals?

What our team brings to a Government Route filing:

• I have worked in different sectors. This includes early-stage startups that raise bridge capital. It also includes established companies that restructure their cap tables.
• It’s not just knowing the notification text. You also need to understand how DPIIT and MHA evaluate these files in real situations.
• Clarity on which documentation expedites a proposal clearance
• Awareness of where applications typically stall
• FEMA Advisory experience helps you spot compliant filings. It also helps you identify rejected ones.

Conclusion

Press Note 3(2020), dated 17 April 2020, changed the evaluation process. It requires prior government approval for foreign investment from India’s neighbouring countries. This change still matters even after the 2026 update in Press Note 2.

What hasn’t changed is the core lesson we share with every client:

• Identify your beneficial ownership chain early
• Document it properly, right from the first filing
• Don’t see Government approval as the end. RBI and FEMA reporting after it is just as important.
• Always check the current position. Use the latest RBI Master Directions and DPIIT Press Notes. These rules change a lot.
• Speak with a qualified FEMA advisor before structuring or closing any cross-border investment

(FAQs)

1. What is Press Note 3 (2020)?

Press Note 3 (2020) is a DPIIT notification from 17 April 2020. Foreign Direct Investment (FDI) from nearby countries needs government approval. This rule helps manage and monitor investments. This includes cases where the beneficial owner is from such a country.

2. Why was Press Note 3 introduced?

They introduced it to stop hostile takeovers of Indian companies during the COVID-19 pandemic. Low valuations at that time made businesses easy targets for cheap acquisitions by nearby countries.

3. Which countries are covered under Press Note 3?

India shares land borders with many countries. These include China (with Hong Kong and Macau), Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, and Afghanistan.

4. What is beneficial ownership under Press Note 3?

Beneficial ownership refers to the real person or entity that controls or profits from an investment. This is true regardless of where the immediate investing entity registers. PN3 applies based on this ultimate ownership, not the direct investor.

5. Is Government approval mandatory under Press Note 3?

Yes, for covered investments. After Press Note 2 (2026), ownership stakes of 10% or less that don’t give control might qualify for the automatic route. This is subject to reporting requirements.

6. Which sectors are experiencing effects?

Press Note 3 applies to all sectors. Telecom, technology, e-commerce, banking, financial services, defence, pharmaceuticals, and infrastructure face increased scrutiny.

7. Which FEMA forms do you need after approval?

Companies usually need to file:

• Form FC-GPR for share allotment
• Form FC-TRS for share transfers
• The Annual FLA Return

They must also include any other filings that apply to the specific instrument used.

8. How can FEMA Expert help with Government Route approvals?

FEMA Expert helps with:

• Assessing applicability
• Documenting details
• Structuring beneficial ownership
• Filing FIFP
• Coordinating with ministries
• Ensuring post-approval RBI/FEMA compliance

This support ensures the transaction closes smoothly and remains compliant.