India Regulatory Changes: What's Coming in 2026-2027 for Foreign Companies

A Regulatory Inflection Point for Foreign Companies in India

India's regulatory environment for foreign companies is undergoing its most concentrated period of reform since the 1991 liberalisation. Between November 2025 and May 2027, foreign companies operating in India face a wave of changes spanning labour law, data protection, tax policy, FDI regulations, corporate governance, and trade policy.

This is not a distant forecast. The four labour codes became effective on November 21, 2025. The Digital Personal Data Protection Act entered its first enforcement phase in November 2025 with full compliance required by May 2027. GST 2.0 rate rationalization has already restructured the slab system. And the Union Budget 2026-27 introduced new provisions affecting transfer pricing safe harbours, MAT rates, and data centre tax holidays.

For a foreign company with an Indian wholly owned subsidiary, branch office, or liaison office, each of these changes requires concrete action: updated HR policies, new compliance filings, revised tax positions, or modified data handling practices. This guide provides a complete timeline, the specific impact on foreign companies, and the action items you need to address.

Labour Codes: India's Biggest Employment Law Overhaul

The Government of India brought all four Labour Codes — the Code on Wages (2019), the Industrial Relations Code (2020), the Code on Social Security (2020), and the Occupational Safety, Health and Working Conditions Code (2020) — into force on November 21, 2025. These codes consolidate and replace 29 previous labour laws into four streamlined statutes.

Key Changes Affecting Foreign Companies

What Foreign Companies Must Do Now

• Restructure salary components to ensure basic pay constitutes at least 50% of total compensation. This will increase employer PF contributions and gratuity liabilities.
• Update employment contracts to reflect fixed-term employment provisions — this is particularly useful for project-based GCC operations.
• Review contractor and staffing agency agreements to ensure compliance with the new social security obligations for gig and platform workers.
• Monitor state-level notifications, as implementation timelines differ across states — each state must complete its own rulemaking process.

The enhanced monitoring and stricter penalties under the new codes place an added compliance burden on foreign businesses. Invest in a compliance management system and ensure your HR and legal teams are current on state-specific rules.

Digital Personal Data Protection Act (DPDPA): Three-Phase Compliance

India's data protection regime has moved from concept to enforcement. The Digital Personal Data Protection Act is being implemented in three phases, and the penalties for non-compliance are severe — up to INR 250 crore (approximately USD 30 million).

Implementation Timeline

Specific Obligations for Foreign Companies

• Consent management: Obtain express user permission for data collection, with mechanisms for withdrawal. Consent managers must register with the government by November 2026.
• Data breach reporting: Report breaches to the Data Protection Board of India within 72 hours. Update breach response procedures by November 2026.
• Cross-border data transfer: Data transfers outside India are permitted except to countries specifically blacklisted by the government. The final blacklist is expected by mid-2026.
• Data Protection Officer: Appoint a designated DPO for your Indian entity if it qualifies as a Significant Data Fiduciary.
• Children's data: Verifiable parental consent required for processing data of individuals under 18.

For foreign companies transferring customer or employee data between India and their parent company, the DPDPA's cross-border framework is more permissive than the EU's GDPR — India uses a blacklist approach (everything permitted unless specifically restricted) rather than an adequacy-based whitelist. However, companies should not wait for the final blacklist; begin implementing data mapping and transfer impact assessments now.

FDI Policy: Relaxed Rules and New Opportunities

The Union Cabinet approved significant changes to India's FDI policy, notified by DPIIT as Press Note 2 (2026) on March 10, 2026, affecting companies from land-border countries and opening new sectors to full foreign ownership.

Land-Border Country FDI Relaxation

The revised Press Note 3 framework now allows:

• 10% automatic route threshold: Foreign investors from countries sharing a land border with India (China, Bangladesh, Pakistan, Nepal, Bhutan, Myanmar, Afghanistan) can invest up to 10% in Indian companies via the automatic route, without prior government approval.
• 60-day approval timeline: Investment proposals from land-border countries in approved manufacturing sectors now have a defined 60-day decision timeline.
• Strategic manufacturing sectors: The relaxation specifically covers electronic components, capital goods, and solar cell manufacturing.
• Indian control requirement: Majority ownership and effective control must remain with resident Indian citizens or Indian-owned entities.

Insurance Sector: 100% FDI Now Permitted

The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 — which received Presidential assent on December 20, 2025 and was published in the Gazette of India on December 21, 2025 — raises the statutory FDI ceiling in insurance from 74% to 100%, with the FDI limit operationalised through a corresponding amendment to the Companies (Foreign Investment) Rules. Foreign insurers can now wholly own Indian insurance companies, subject to safeguards and the residency-related conditions specified by the government and IRDAI. This is among the most significant openings in India's financial services sector in over a decade.

SWAGAT-FI: Single-Window Market Access

SEBI's SWAGAT-FI (Single Window Automatic and Generalised Access for Trusted Foreign Investors) framework, notified on January 16, 2026 and effective June 1, 2026, creates a unified digital gateway for a specified class of trusted foreign investors — such as sovereign wealth funds, central banks, pension funds, and regulated insurers. It enables single-window onboarding and consolidated compliance across categories, and grants eligible FPIs an extended ten-year registration validity instead of the standard three-year renewal cycle.

GST 2.0: Simplified Slabs and Reduced Compliance Burden

The GST 2.0 reforms, announced by Prime Minister Modi on August 15, 2025 and operationalised through the 56th GST Council meeting, represent the most significant restructuring of India's indirect tax system since GST's 2017 launch.

Rate Rationalization

The restructured GST framework has effectively consolidated into two primary slabs:

• 5% for essentials — expanded to absorb nearly 99% of items previously in the 12% slab
• 18% for standard goods and services — absorbing approximately 90% of items previously in the 28% slab
• Luxury and sin goods retain higher rates with compensation cess (being gradually reduced)
• 0% and 40% slabs continue for exempt categories and demerit goods respectively

Impact on Foreign Company Operations

For foreign subsidiaries operating in India, the GST 2.0 changes have several practical implications:

• Lower input costs: Many inputs previously at 12% have moved to 5%, improving margins for manufacturing operations.
• Simplified compliance: Pre-filled returns are now automated, reducing manual work. For companies registered in multiple states, this materially reduces the monthly GST filing burden.
• Faster refunds: Exporters and businesses dealing with inverted duty structures can now claim GST refunds more quickly, improving cash flow — a significant benefit for export-oriented foreign subsidiaries.
• ERP updates required: Companies must update their accounting and ERP systems to reflect the new rate structure. Consult your tax advisor to reclassify your product/service categories under the revised slabs.

Corporate Tax and Transfer Pricing: Budget 2026-27 Changes

The Union Budget 2026-27 introduced several provisions directly affecting foreign companies' tax positions in India.

MAT Rate Reduction

Minimum Alternate Tax (MAT) is reduced from 15% to 14% for tax year 2026-27 onwards. Additionally, all non-residents paying tax on a presumptive basis are now exempt from MAT entirely — a welcome simplification for foreign companies with limited India operations such as branch offices or permanent establishments.

Transfer Pricing Safe Harbour Expansion

The safe harbour regime for IT services has been significantly expanded:

• A single category of information technology services with a unified safe harbour margin of 15.5%
• Threshold for availing safe harbour raised from INR 300 crore to INR 2,000 crore — bringing many more foreign subsidiaries into the safe harbour framework
• This reduces the need for expensive benchmarking studies and transfer pricing documentation for qualifying companies

Data Centre Tax Holiday

Foreign cloud service providers using Indian data centres to deliver services to customers outside India are granted a tax holiday until 2047. Services to Indian customers must be routed through an Indian reseller entity. This provision, combined with the Draft National Data Centre Policy's infrastructure incentives, positions India as a competitive destination for global cloud and AI infrastructure.

BEPS Pillar Two: Global Minimum Tax

While India has not yet enacted domestic legislation for the OECD/G20 Pillar Two Global Minimum Tax, the first Global Information Return (GIR) filings for calendar-year taxpayers are due by June 30, 2026 in jurisdictions that have adopted the rules. Large multinational groups (annual consolidated revenues of at least EUR 750 million) with Indian operations need to model the impact of a 15% minimum effective tax rate across all jurisdictions.

The Section 115BAB concessional regime (15%, effective ~17.16%) was available only to new manufacturing companies that commenced production by 31 March 2024; that window has closed and was not extended, so new manufacturers now default to the Section 115BAA rate of 22% (effective approximately 25.17%). For companies using the concessional rate under Section 115BAA, the effective rate is approximately 25.17%. These rates are above the Pillar Two minimum, but companies using India-specific incentives (SEZ benefits, IFSC tax holidays) should evaluate whether their effective rate in India might fall below 15% once qualified domestic top-up taxes are considered.

Corporate Governance: MCA Reforms and Director KYC

The Ministry of Corporate Affairs has implemented several reforms that affect the compliance burden on foreign-owned companies.

Director KYC Simplified to Every 3 Years

Previously, every director — including foreign directors — had to file annual KYC (Form DIR-3 KYC) with the MCA by September 30. Effective March 31, 2026, director KYC is required only once every three years. While this reduces compliance frequency, missing the filing still results in DIN deactivation and a penalty of INR 5,000. Foreign directors on multiple Indian company boards should coordinate their KYC filings through their Indian legal counsel.

Small Company Definition Expanded

A company now qualifies as a "small company" with paid-up share capital up to INR 100 million (previously INR 40 million) and turnover up to INR 1 billion (previously INR 400 million). Small companies benefit from fewer compliance requirements: no cash flow statement in financial statements, biennial board meetings instead of quarterly, and lower audit fees. Many foreign subsidiaries in their early years will now qualify for this relaxed regime.

MCA V3 Portal and AI-Powered Compliance

All corporate filings now go through the MCA V3 portal (the V2 portal became read-only from June 18, 2025). The V3 portal uses AI to analyse filings and detect discrepancies, sending automated alerts to help companies stay compliant. Traditional forms including MGT-7 (annual return), MGT-7A, and CRA-4 are being redesigned with enhanced fields including geolocation of registered offices and mandatory office photographs.

Companies Act and LLP Act Amendments

The Union Cabinet approved amendments to the Companies Act and LLP Act in March 2026, focusing on easing processes and reducing compliance burden. Key changes include form rationalisation and further decriminalisation of procedural offences. The MCA is also expected to propose changes enabling global multidisciplinary professional practice firms — allowing CAs, cost accountants, and company secretaries to practise together under a single firm structure.

SEZ 2.0 and Trade Policy Reforms

In March 2026, the government notified a 17-member committee to recommend comprehensive reforms to the Special Economic Zones Act, 2005 — a reform initiative branded as SEZ 2.0. The committee's mandate includes modernising the SEZ framework, aligning it with WTO requirements, and addressing structural issues including under-utilised land, regulatory overlaps, and subsidy concerns.

Key reform areas include:

• Whether the export-only orientation and Net Foreign Exchange (NFE) performance criteria remain suitable in a post-DESH, WTO-sensitive environment
• Amendments to enable domestic tariff area sales at concessional duties
• New performance metrics beyond export obligations
• Infrastructure and logistics connectivity improvements within existing SEZ zones

For foreign companies currently operating in SEZs, the existing benefits remain in place during the committee's review period. However, new SEZ investments should be structured with awareness that the incentive framework may shift from export-oriented subsidies to broader investment-linked incentives over the next 12-18 months.

ECB Regulations: Updated Borrowing Framework

The RBI's External Commercial Borrowing framework, governed by the Foreign Exchange Management (Borrowing and Lending) Regulations under FEMA, continues to be periodically consolidated and updated. For foreign subsidiaries that rely on parent company loans to fund Indian operations, the key practical points remain:

• The all-in-cost ceiling (interest rate plus other charges) for ECBs remains benchmarked to SOFR/applicable benchmark plus a spread
• Automatic route ECBs up to USD 750 million per financial year remain available for eligible borrowers
• End-use restrictions continue — ECBs cannot be used for real estate activities, equity investment, or on-lending to entities for such activities
• The FC-GPR and related reporting requirements remain unchanged, but the consolidated regulations simplify interpretation of compliance obligations

Environmental Compliance: Tightening Standards

The Ministry of Environment, Forest and Climate Change has been progressively tightening environmental clearance requirements. Foreign companies setting up manufacturing operations should be aware of several evolving requirements:

• Extended Producer Responsibility (EPR): The Plastic Waste Management (Amendment) Rules require producers, importers, and brand owners to collect and recycle a specified percentage of plastic packaging waste. Non-compliance carries penalties of INR 10,000-25,000 per day.
• Carbon Credit Trading Scheme: India's domestic carbon market framework, launched in 2023, is gradually expanding. While compliance obligations currently apply primarily to energy-intensive industries, the scope is expected to broaden by 2027 to include more manufacturing sectors.
• Water Discharge Standards: Zero Liquid Discharge (ZLD) requirements for textile, pharma, and certain chemical manufacturing facilities have been enforced more strictly since 2025. Foreign manufacturers in these sectors must budget for ZLD infrastructure (INR 5-20 crore depending on capacity) at the project planning stage.

Environmental compliance costs are frequently underestimated by foreign companies. The environmental clearance process for large projects (exceeding INR 500 crore investment) takes 6-12 months and requires an Environmental Impact Assessment (EIA) report prepared by an accredited consultant at a cost of INR 10-30 lakh.

Intellectual Property: Strengthened Enforcement

India's intellectual property regime has strengthened significantly, which is relevant for foreign companies bringing proprietary technology, brands, or processes into the country:

• Patent filing timelines: The average time for patent grant in India has reduced to 20-24 months from 58 months in 2020, following the appointment of additional patent examiners and digitisation of the patent office.
• Trademark registration: Online trademark filing through the IP India portal now takes 12-18 months for registration, with expedited examination available for an additional fee. Foreign companies should file Indian trademarks early in their market entry process — ideally 12 months before launch.
• Trade secret protection: While India does not have a dedicated trade secrets statute, the Information Technology Act, Indian Contract Act, and common law remedies provide enforceable protection. Non-compete agreements are generally unenforceable in India (Section 27 of the Indian Contract Act), making trade secret protection through NDAs and confidentiality agreements all the more critical.

Compliance Calendar: Key Dates for 2026-2027

Key Takeaways

• The four labour codes are already in effect — restructure salary components so basic pay is at least 50% of gross, update employment contracts, and review contractor agreements. The higher retrenchment threshold (300 employees) gives mid-sized foreign subsidiaries more flexibility.
• DPDPA compliance is on a ticking clock — Phase 2 by November 2026 requires breach response procedures, data protection impact assessments, and consent manager registration. Penalties up to INR 250 crore begin with Phase 3 in May 2027.
• FDI policy has become more open — insurance sector now permits 100% FDI under automatic route, land-border country restrictions have been eased with a 10% automatic threshold, and SWAGAT-FI creates single-window market access from June 2026.
• GST 2.0 simplifies compliance but requires system updates — the effective two-slab structure (5% and 18%) reduces complexity, but ERP systems must be reconfigured. Pre-filled returns and faster refunds are tangible operational improvements.
• Budget 2026-27 favours foreign companies — MAT reduced to 14%, non-resident MAT exemption on presumptive income, IT services safe harbour expanded to INR 2,000 crore, and data centre tax holiday until 2047.

For compliance support navigating these regulatory changes, explore our FEMA and RBI compliance services and annual compliance management. To understand how entity structure choice affects your regulatory obligations, see our branch office vs subsidiary comparison.