Even a small stake from a China or Hong Kong-linked investor can pull your funding round off the automatic route

A Singapore or Mauritius fund investing in your company isn't itself a land-border-country entity, so the direct line looks fine. RBI's rule doesn't stop at the direct line. It asks who the beneficial owner of that investment actually is, and if a large enough slice of the fund's own capital traces back to China, Hong Kong, or one of India's other land-border neighbours, the approval requirement reaches through the fund to your round. Checking only the name on the term sheet, and not the fund's own investor base, is the single most common way this gets missed until diligence surfaces it.

If the investing entity is itself incorporated or registered in a land-border country, or the investor is personally a citizen of one, Government-route approval is required at any stake, there's no minimum that lets it slide through on automatic route. The indirect case works differently: a foreign fund's own beneficial ownership is tested against the PMLA's 10% threshold, cross it and approval is triggered. A March 2026 DPIIT clarification drew the boundary between these two more precisely, the 10% test is a safe harbour for a genuinely diffuse-ownership vehicle, not a way for an entity actually based in a land-border country to route around the rule through a thin layer of structuring.

Before September 2023, the PMLA beneficial-ownership threshold was split, 25% for companies and 15% for partnerships and trusts. A single uniform 10% now applies to both. A cap table that was checked against the old split, or checked once at the time of an earlier round and never rechecked, can be sitting on the wrong number for a filing that's due now.

The recurring pattern: a round closes on the automatic route because the direct investor's jurisdiction looked unremarkable, and the fund's own upstream ownership is never actually verified against the PMLA threshold, sometimes because nobody asked the fund for that detail, sometimes because the fund itself didn't disclose it clearly. It surfaces later, at a subsequent round's diligence, a bank's KYC refresh, or an RBI query, by which point the investment has already been reported as automatic-route FDI when it should have gone through Government approval, and unwinding or regularising that position is a far harder conversation than checking it before the round closed.