Investing In... 2026

Last Updated January 20, 2026

India

Law and Practice

Authors



Khaitan & Co is a top-tier, full-service law firm with over 1,300 legal professionals, including 300+ leaders, and a presence in India and Singapore. With more than a century of experience in practising law, the firm offers end-to-end legal solutions across diverse practice areas to clients worldwide. Khaitan & Co has a team of highly motivated and dynamic professionals delivering outstanding client service and expert legal advice across a wide gamut of sectors and industries. The firm acts as a trusted adviser to leading business houses, multinational corporations, financial institutions, governments and international law firms. From M&A to IP matters, banking to taxation, capital markets to dispute resolution and emerging areas such as white-collar crime, data privacy and competition law, the firm has strong capabilities and deep industry knowledge across practices. With offices in Ahmedabad, Bengaluru, Chennai, Delhi NCR, Kolkata, Mumbai, Pune and Singapore, Khaitan & Co has a multi-jurisdictional presence and robust working relationships with top international law firms across jurisdictions.

In India, the applicable legal system is common law. India has a quasi-federal structure – federal in its division of legislative powers between the union and the states, yet unitary in its integrated judiciary.

In addition to judicial precedents and laws enacted by the Indian legislature, specialised regulatory bodies have the power to issue regulations which govern specific sectors or areas. For example, banking, finance and foreign exchange are regulated by the Reserve Bank of India (RBI), public securities market is regulated by the Securities and Exchange Board of India (SEBI), telecommunications, broadcasting and related services are regulated by the Telecom Regulatory Authority of India, and anti-competitive practices are regulated by the Competition Commission of India.

The Supreme Court is the highest court in India. Its decisions are binding on all lower courts and tribunals. High Courts in each state or union territory serve as the principal civil courts, supervising subordinate district courts. Additionally, specialised courts and quasi-judicial bodies- such as commercial courts, National Company Law Tribunals (NCLT), consumer forums, and income tax appellate tribunals address subject-specific legal matters.

Foreign Direct Investment (FDI) in India is regulated by the Department for Promotion of Industry and Internal Trade (DPIIT), a department of the Ministry of Commerce and Industry of the Indian Government, and the RBI, which regulates foreign investments and foreign currency transactions.

Indian exchange control laws permit FDI through the following routes:

  • automatic route – foreign investments under this route do not require prior approval of the RBI or the central government; and
  • approval route – foreign investments under this route can be undertaken only with prior approval of the RBI or the relevant central government department.

Key considerations for FDI are outlined below.

Sectoral Caps

Investments in specific sectors, subject to the caps and limits under the Indian exchange control laws, require prior approval. For example, 100% FDI under the automatic route is permitted in sectors such as manufacturing, agriculture, greenfield pharmaceuticals and the services sector. Whereas, in sectors like defence and brownfield pharmaceuticals, FDI under the automatic route is permitted up to 74%, beyond which prior approval is required.

PN3 Restriction

Investments made from restricted territories (ie, the following countries – China, Hong Kong, Macau, Bhutan, Nepal, Myanmar, Pakistan, Bangladesh and Afghanistan) or whose “beneficial owner” is situated in, or is a citizen of, or incorporated in a restricted territory require prior approval (this was originally introduced pursuant to Press Note No 3 (2020 Series) issued in April 2020 (PN3)).

Prohibited Sectors

FDI is completely prohibited for certain sensitive sectors such as atomic energy, lottery business, gambling, railways, chit funds, etc.

India enters 2026 with a broadly stable political backdrop and strong macro tailwinds. The 2024 general elections returned the incumbent government for a third term, signalling policy continuity on liberalisation, infrastructure push and manufacturing-led growth. Real GDP growth remains amongst the highest globally: the RBI and IMF project growth in the 6.5%–7% range for FY 2025–26, with Q1–Q2 FY 2025–26 printing above 7.5% and inflation at historically low levels, prompting calibrated rate cuts by the RBI.

Foreign direct investment (FDI) data reinforce this momentum. India recorded USD81.04 billion in total FDI inflows in FY 2024–25, a 14% year-on-year increase, with services, manufacturing, computer software and hardware and financial services leading the way. In the first half of FY 2025–26 (April–September), FDI inflows rose a further 18% to USD35.18 billion, with inflows from the USA more than doubling, and total inflows for April–June 2025 alone touching USD25.2 billion. Despite near-term external challenges (including US tariffs and a weaker rupee), India continues to position itself as a core investment market. On the regulatory side, the last 18–24 months have seen meaningful FDI-facing reforms:

Relaxations for the Space Sector

Previously, in the space sector, the FDI Policy limited foreign direct investment to the establishment and operation of satellites. In 2024, FDI was permitted upto 100% under the automatic route for manufacturing of components and systems / sub-systems for satellites, ground segments and user segments, 74% under the automatic route for satellites-manufacturing and operation, satellite data products, ground segment and user segment, and 49% under the automatic route for launch vehicles and associated systems or subsystems, and creation of spaceports for launching and receiving spacecraft.

Proposed Relaxation for the Insurance Sector

Currently, FDI up to 74% under the automatic route is permitted. This limit is proposed to be increased to 100%, enabling foreign investment in this sector.

Steady PN3 Approvals

In the last few years, stakeholders have argued for the relaxation of PN3, expressing concerns about the ambiguity in the definition of “beneficial ownership” and the lack of transparency in the approval process. Recent news reports suggest that the government is considering allowing Chinese companies to acquire up to 26% equity in joint ventures for critical electronic components, suggesting a shift from the current 10% equity cap imposed on other categories. Although the PN3 approvals remain on a case-by-case basis, it is expected that, to enhance ease of doing business, the government may introduce certain relaxations in the coming years.

India’s Promise to Enhance the Ease of Doing Business

In February 2025, the Indian finance minister announced that a high-powered committee would be constituted to review current hurdles and challenges and introduce measures, such as deregulation policies and rules, to allow hybrid instruments in corporate financing that would encourage investors and attract FDI.

M&A and private equity transactions in India are commonly structured through primary issuances (subscription to fresh shares), secondary sales (purchase of existing shares), or a combination of both. Foreign investors typically invest via equity shares, compulsorily convertible debentures or preference shares, or share warrants — hybrid or optionally convertible instruments are not permitted under the FDI regime.

For acquisitions of private companies, share purchase or subscription agreements are common, involving equity or a mix of equity and preferred capital. In contrast, public company acquisitions are more strictly regulated and generally follow a securities acquisition route. Acquiring 25% or more of a listed company or acquisition of more than 5% in a financial year by persons holding more than 25% or acquisition of control triggers a mandatory open offer for at least an additional 26% under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SEBI Takeover Code), with pricing amongst other things, based on highest of the historical stock data, valuation reports and negotiated price. Disclosure norms, insider trading regulations, and convertible instrument tenures (capped at 18 months) also differ significantly from private deals. While private and public deals share structural similarities, public acquisitions face additional regulatory scrutiny, which impacts deal timelines and the flexibility in structuring.

Court- or tribunal-approved schemes of arrangement are used in corporate restructuring or mergers. Asset or business acquisitions (rather than share deals) may be preferred in specific cases, mainly for liability management or ring-fencing.

For minority investments, structures mirror those of majority acquisitions but include investor protections such as board rights, veto rights, and put/call options (provided these do not guarantee assured returns). Deferred consideration (up to 25% of the consideration and for no more than 18 months), escrows, and staggered tranches are common tools for managing execution and performance risks.

Key considerations for foreign investors for structuring transactions include:

  • FDI sectoral caps;
  • tax implications;
  • regulatory approval requirements (eg, antitrust, exchange control); and
  • the overall speed and certainty of execution.

Structuring is aimed at reducing regulatory friction and accelerating completion timelines.

In addition to the FDI regime, M&A transactions in India may trigger other regulatory reviews or approvals based on factors such as deal size, target sector, investor rights, and transaction structure.

Competition/Antitrust Clearance

Clearance may be required under the Competition Act, 2002 (as amended) where a transaction crosses the prescribed:

  • asset or turnover thresholds; or
  • deal value threshold.
  • For more information, see 6. Antitrust/Competition.

This review is mandatory and suspensory, which means the deal cannot be implemented until clearance is obtained.

Public Listed Companies

In transactions involving publicly listed companies, a mandatory tender offer may be triggered under the SEBI Takeover Code if the acquirer, along with persons acting in concert, crosses certain shareholding thresholds (typically 25% or more) or acquires control. In such cases, SEBI scrutiny applies to the offer process, pricing, and disclosures.

Sector-Specific Approvals

Sector-specific transaction approvals may be required in regulated industries such as:

  • banking and NBFCs, which are overseen by the RBI;
  • insurance, which is regulated by the Insurance Regulatory and Development Authority of India (IRDAI); and
  • pharmaceuticals, telecom, and defence.

Investments in these sectors may also be subject to caps on foreign ownership, minimum capitalisation norms, and ongoing compliance requirements.

Contractual Rights

Where contractual arrangements (eg, veto rights or board seats) confer “control” under Indian law, these may independently trigger regulatory scrutiny, even in minority investments. As a result, deal structuring should account not only for equity thresholds but also for the nature of the rights acquired.

Corporate governance in India is primarily governed by the Companies Act, 2013 (applicable to all companies) and, for publicly listed companies, the SEBI Listing Obligations and Disclosure Requirements Regulations. Additional governance norms may apply to entities regulated by sectoral authorities such as the RBI or the IRDAI. These frameworks set out board composition requirements, qualifications for independent directors, functioning of board committees, audit standards, and director liabilities. While executive directors carry operational responsibility, non-executive and independent directors typically have limited liability, commensurate with their roles and oversight.

Limited Liability Companies

The most common form of legal entity in India is the limited liability company, which can be private or public. This form is preferred by foreign investors due to its well-defined governance structure, limited liability protection, and flexibility in ownership and capital structuring.

Other Legal Entities

Other legal forms include limited liability partnerships (LLPs), though these are less common than limited liability companies. In certain cases, there may be tax advantages to using an LLP, and this entity is gaining popularity, especially with companies in the IT/ITES sector. Foreign investors may also consider setting up branch offices, liaison offices, or project offices. These are subject to RBI guidelines, can undertake only specified, limited activities, and require prior approval from the RBI (granted through authorised dealer banks).

Selecting the appropriate entity form impacts not only regulatory compliance but also foreign ownership limits, governance requirements, and operational flexibility.

Under Indian company law, minority shareholders enjoy statutory protections aimed at safeguarding their interests against oppressive conduct by majority stakeholders.

Shareholders holding at least 10% of a company’s share capital may call for shareholder meetings, initiate class action suits, or approach the National Company Law Tribunal (NCLT) for relief against oppression and mismanagement. Shareholders with 25% or more voting rights can block special resolutions relating to key corporate actions such as amendments to constitutional documents, mergers, or winding-up.

In private companies, minority rights are typically negotiated contractually and may include board representation, veto rights on reserved matters, information access, and exit mechanisms — critical tools for foreign or institutional investors seeking investment protection.

In publicly listed companies, minority shareholders can nominate a “small shareholder director” and benefit from oversight by a mandated stakeholders’ relationship committee. Additionally, SEBI’s SCORES platform allows shareholders to raise and track grievances, with listed companies required to respond within 30 days.

FDI in India is subject to certain mandatory disclosure requirements under foreign exchange laws, regardless of investment size.

For primary and secondary issuances by unlisted companies, the reporting obligation rests on the Indian investee company or the resident party. For primary issuance, the Indian investee company must file Form FC-GPR with the RBI within 30 days of issuing equity instruments. For secondary transfers, the resident party (transferor or transferee) must file Form FC-TRS within 60 days of the transfer or receipt/remittance of funds, whichever is earlier.

For listed companies, investors, including foreign investors, who acquire a 5% or more shareholding or voting rights, are required to make public disclosures under the SEBI Takeover Code. Subsequent changes of 2% or more also trigger disclosure obligations. Additional filings may apply under insider trading regulations if the investor qualifies as a “designated person.” An assessment of any sector-specific or FDI-linked approval and post-investment reporting requirements should also be undertaken.

India’s capital markets are a key part of the Indian financial system and support economic growth by mobilising long-term and higher-risk capital that commercial banks typically avoid. While bank financing is a crucial source of funding for businesses – especially for short- to medium-term needs, capital markets offer an increasingly important alternative, particularly for companies seeking long-term, large-scale or risk-tolerant capital.

The Indian capital markets consist of:

  • securities market, comprising both the primary market (IPOs, FPOs, private placements) and secondary market (stock exchanges);
  • financial intermediaries, including mutual funds, venture capital funds, private equity firms, and merchant banks;
  • development finance institutions catering to the infrastructure and industrial sectors; and
  • gilt-edged market for government securities regulated by the RBI.

Capital markets not only diversify funding options for corporates but are also subject to market risks and offer investors potentially superior returns compared to traditional bank deposits. As regulatory frameworks and investor participation deepen, capital markets are playing an even greater role in financing India’s development and private-sector expansion.

India’s capital markets are regulated by the SEBI, which oversees market participants, protects investor interests, and promotes fair and efficient trading practices.

SEBI regulates both the primary and secondary markets, monitors insider trading and fraudulent and unfair trade practices in the securities markets, and governs takeovers, disclosures, and corporate governance of listed companies. It also licenses and supervises key intermediaries, including merchant bankers, brokers, credit rating agencies, and portfolio managers. As a quasi-judicial authority, SEBI has wide enforcement powers, including the authority to conduct investigations and impose civil and monetary penalties.

Foreign investors acquiring listed securities in India are required to register with SEBI as Foreign Portfolio Investors (FPIs) via a local custodian. SEBI’s FPI regulations prescribe eligibility criteria, investment limits, and permitted classes of securities, including equity and certain categories of debt. FPIs are also subject to RBI-imposed limits and are required to comply with periodic reporting and disclosure obligations.

While FDI into unlisted companies is regulated by India’s foreign exchange laws, any FDI into listed companies may trigger securities law requirements, including disclosures, compliance with the takeover code, and insider trading restrictions, depending on the nature and size of the transaction.

Indian foreign exchange laws do not specifically subject investment funds to any additional regulatory review for the purpose of FDI.

India has a mandatory and suspensory merger control regime governed by the Competition Act, 2002 (as amended) and enforced by the Competition Commission of India (CCI). Under the regime, certain transactions, termed “combinations,” cannot be consummated without prior notification to and approval from the CCI.

Notification Triggers

A transaction must be notified to the CCI if it meets any of the following thresholds:

  • asset/turnover thresholds – if the combined assets or turnover of the parties (or their groups) involved exceed specified limits in India or globally;
  • deal value threshold (DVT) – DVT was introduced in September 2024 and requires transactions where the deal value exceeds INR20 billion (approximately USD240 million) and the target has “substantial business operations in India” to be notified, regardless of the target’s asset or turnover value.

Exemptions: Certain exemptions exist, such as the “de minimis” exemption, which applies if the target’s India asset value or turnover in India falls below specified thresholds. However, this exemption does not apply to transactions meeting the DVT.

Process and Timelines

Filing

Parties must file a notification with the CCI before implementing a transaction. The filing can be made in a Form I (short form) or Form II (long form), depending on the parties’ combined market shares in the overlapping markets.

Review period

The timeline for approving a transaction in Phase I is 30 calendar days (excluding the time taken to clear any defects and clock-stops). The outer limit for approving a transaction stands at 150 calendar days.

Standstill obligation

Parties cannot consummate the transaction, or any part of it, until they receive CCI approval. Violations may lead to penalties up to 1% of the total assets, turnover or the value of the transaction, whichever is higher. For certain transactions, such as open-market purchases, the CCI allows a derogation from the standstill obligation, provided that specific conditions are met, including filing a notification within 30 days of the first acquisition and the parties refraining from exercising ownership, beneficial or voting rights until approval is granted.

India maintains a robust merger control regime that includes a substantive assessment of FDI to ensure they do not adversely affect competition within the country.

Substantive Assessment Criteria

The CCI evaluates combinations to determine whether they are likely to cause an “appreciable adverse effect on competition” (AAEC) in the relevant market. This assessment encompasses various factors, outlined under the Competition Act 2002 (as amended), including:

  • market concentration – the level of concentration in the market and the market share of the entities involved;
  • barriers to entry – the extent of barriers preventing new competitors from entering the market;
  • countervailing buyer power – the ability of buyers to counteract any potential negative effects of the combination;
  • substitutability – the availability of substitute goods or services in the market;
  • vertical Integration – the nature and extent of vertical integration resulting from the combination; and
  • innovation – the impact of the combination on innovation within the market.

Review Process

The CCI’s review process is structured in two phases, outlined below.

  • Phase I: A preliminary review to assess whether the combination is likely to cause an AAEC. This phase must be completed within 30 calendar days (excluding the time taken to clear defects or any clock-stops).
  • Phase II: If the CCI identifies potential concerns in Phase I, a detailed investigation is initiated, which must be concluded within 150 calendar days from the date of notification.

During the review, the CCI may seek information from the parties involved and, in certain cases, invite comments from third parties to assess the potential impact on competition.

Green Channel Approval

Introduced in 2019, the Green Channel route allows for deemed approval of combinations that do not exhibit any horizontal, vertical, or complementary overlaps between the parties. This automatic route is attractive for global investors, significantly expediting low-risk deals.

Recent Developments

In recent high-profile cases, such as the USD8.5 billion merger between Reliance Industries and Walt Disney’s India media assets, the CCI conducted a detailed enquiry on market concentration in the sports broadcasting rights segment. The CCI’s approach underscores its commitment to maintaining competitive markets and its intent to closely examine significant FDI transactions that may influence market dynamics in India.

In India’s merger control regime, the CCI may require remedies to address potential anti-competitive effects of a combination. While these remedies are recommended on a case-by-case basis, they can be broadly categorised as structural, behavioural, or a combination of both.

Structural Remedies

These involve changes to the structure of the merging entities, such as divestiture of certain businesses or assets. For example, in the Disney-Reliance USD8.5 billion merger, the parties agreed to divest certain TV channels to alleviate concerns regarding market concentration in the media sector.

Behavioural Remedies

These are commitments to act in a certain way post-merger to maintain competitive conditions. For example, in the same Disney-Reliance merger, the companies pledged not to unreasonably increase advertising rates for certain cricket events for which they held broadcasting rights until the parties held such rights.

2023 Amendment to the Competition Act 2002

The CCI’s approach to remedies has evolved to allow for more flexibility and negotiation. Under the 2023 Amendment to the Competition Act 2002, the CCI has introduced a framework for the proposal of modifications during the Phase I review, enabling earlier resolution of competition concerns.

India’s merger control regime empowers the CCI to block or challenge FDI transactions that meet specified thresholds and pose competition concerns.

Appeals Process

Decisions of the CCI can be appealed before the National Company Law Appellate Tribunal (NCLAT), and appellants are required to deposit 25% of the penalty amount with the NCLAT when preferring an appeal. Appeals from NCLAT lie with the Supreme Court of India, the final appellate authority.

Gun-Jumping

For notifiable transactions, parties are required to notify the CCI and obtain its approval before consummating the transaction. The CCI can initiate an enquiry into a transaction which was not notified to it for a period of up to one year from the date of completion of the transaction. Notifiable transactions that have not been notified to the CCI are not automati¬cally void but are voidable.

Implementing a notifiable transaction without prior approval constitutes “gun jumping” and can attract penalties of up to 1% of the acquirer’s or merging parties’ total assets, turnover or transaction value, whichever is higher.

As discussed in our response to 1.2 Regulatory Framework for FDI, India regulates foreign direct investment (FDI) through a dual-route (ie, approval and automatic) framework governed by DPIIT. While India does not have a standalone national security screening regime, prior government approval is required for investments in certain sensitive sectors.

Regardless of the route, all FDI must comply with applicable sectoral laws, licensing requirements and regulatory approvals (eg, in banking, insurance, or non-banking financial services) as set out in 1.2 Regulatory Framework for FDI above prior to making the investment. Failure to seek prior clearance in approval-route sectors can result in regulatory action and penalties.

While there are no general exemptions from compliance with the FDI regime, certain investors, such as foreign venture capital investors or investments under treaty-based frameworks, may qualify for relaxed treatment if specific conditions are met.

Approval Process via FIFP

For sectors under the approval route, foreign investors can submit their proposals through the Foreign Investment Facilitation Portal (FIFP). The DPIIT acts as the nodal authority and consults the relevant line ministry or sectoral regulator for clearance. To streamline this process, DPIIT has issued Standard Operating Procedures (SOPs), under which:

  • proposals are processed within eight to ten weeks from the date of submission;
  • relevant ministry(-ies) may seek clarifications or additional information during this review; and
  • DPIIT may take an additional 2 weeks for reconsideration if conditions are proposed or applications are initially rejected.

India’s foreign investment approval regime is administered via the Foreign Investment Facilitation Portal (FIFP) and is coordinated by DPIIT. For FDI through government approval routes, a detailed scrutiny is conducted. The process involves both commercial and national security considerations, with specific criteria set out in the SOPs.

Documentation Required

For proposals submitted through FIFP, the following documentation is required:

  • summary of proposed investment
  • audited financials of the investor and investee entities;
  • ownership and control details, including details of significant beneficial owners;
  • supporting documents such as joint venture / shareholder / technology transfer agreements;
  • valuation reports issued by a chartered accountant and statutory auditor certificates; and
  • foreign inward remittance certificates (for post facto approvals, if any).

Evaluation Process and Criteria

Once submitted, proposals are allocated to relevant ministries or sector regulators based on the nature of the business. Investments in sensitive sectors (such as defence, telecom, civil aviation, and broadcasting or proposals covered under PN3) are also referred to the Ministry of Home Affairs for security clearance. Where the proposed foreign equity inflow exceeds INR50 billion, the matter is escalated to the Cabinet Committee on Economic Affairs (CCEA). Key factors considered during review include:

  • sector-specific caps and conditions;
  • national security concerns;
  • impact on domestic industry, employment, and innovation; and
  • alignment with broader economic and policy priorities.

The review criteria are agnostic to the investment structure (ie, whether it is a joint venture, a minority investment or a partnership). What matters is the nature of control, the source of funds, sectoral sensitivities, and alignment with the FDI policy.

Under India’s foreign investment regime, the relevant ministry or department, along with DPIIT, requires specific remedies or commitments as part of the FDI approval process. These are typically seen during the proposal review stage and are tailored to the sector and nature of the investment.

At the review stage, ministries may request clarifications on the investor’s business plans, funding structure, and future operations. Sector-specific commitments may also be imposed. For instance, in the pharmaceutical sector, investors are typically required to confirm that no non-compete clauses have been agreed upon to preserve market competitiveness.

Once approval is granted, the government may require formal undertakings or post-approval confirmations, including:

  • compliance with pricing norms and reporting obligations under foreign exchange regulations;
  • adherence to downstream investment conditions where applicable; and
  • compliance with relevant environmental and anti-pollution laws.

These conditions are not exhaustive and may vary depending on the sector’s sensitivities, the nature of the investment (eg, greenfield v brownfield), and broader policy considerations.

Upon review of the FDI proposals, if the proposal is not in compliance with sectoral conditions or national interest considerations, the competent authority, in consultation with DPIIT, may reject it. There is no formal appeals process, though investors may submit a fresh proposal for reconsideration.

Post-investment, the DPIIT and the RBI have the authority to review and take action against non-compliant transactions under the Indian exchange control laws. If an investment is made without prior approval when required, the authorities may:

  • require the parties to unwind the transaction; or
  • allow post-facto regularisation through a compounding process which may involve penalties; or
  • initiate adjudication or enforcement proceedings.

Further, violations can attract monetary penalties and may lead to further regulatory scrutiny. In many cases, foreign investors opt for voluntary compounding to resolve non-compliance.

The legal and regulatory landscape governing FDI is nuanced, and based on several factors, such as the nature of the investor, the investment vehicle, the sector of investment, and the mode of entry, additional regulatory compliance requirements may be applicable.

General Registrations and Compliances

Certain common regulatory and compliance requirements that foreign investors need to consider are:

  • obtaining business registrations, such as tax registrations;
  • opening local bank accounts; and
  • acquiring applicable operating licenses under state-specific Shops and Establishments Acts.

Depending on the industry, specific licenses or approvals from sectoral regulators may also be required.

Apart from general registrations and compliances set out above, certain specific sectors involve additional regulatory considerations. A brief overview of regulatory considerations in a few sectors is set out below.

Real estate

FDI not permitted in the real estate business, ie, dealing in land and immov¬able property (without undertaking any form of construction development)with a view to earning profit from them, construction of farmhouses, and trading in transferable development rights in India. However, subject to specific conditions, 100% FDI is allowed under the automatic route in construction development projects (eg, townships, commercial/residential buildings, educational institutions, hotels, resorts, infrastructure projects, etc) and earning of rental income is permitted. In other words, leasehold improvements/building improvements and redevelopment of property, and thereafter leasing such properties, along with providing managed services with respect to such properties, is fine and not an issue from an FDI perspective.

Financial services and fintech

India’s regulated financial services sector is open to foreign investment, subject to compliance with RBI, SEBI, and IRDAI norms and guidelines. In the insurance sector, FDI up to 74% is permitted via the automatic route, with Indian control and governance safeguards. As for NBFCs and fintech companies, 100% FDI is permitted under the automatic route, subject to licensing by the RBI. Further, sub-sectors of the fintech sector, such as payments, peer-to-peer lending and digital wallets, are regulated under sector-specific frameworks.

E-commerce activities

The FDI policy classifies e-commerce activities into two segments: an inventory-based model and a marketplace-based model, as follows:

  • inventory model – FDI is prohibited, where the inventory of goods and services is owned by the e-commerce entity itself.
  • marketplace model – 100% FDI under the automatic route is permitted, provided the e-commerce entity only provides its platform to facilitate transactions between buyers and sellers.

Retail industry

FDI in India’s retail industry has a differentiated regime for single brand retail trading (SBRT) and multi-brand retail trading (MBRT). Subject to specified conditions, 100% FDI is permitted under the automatic route in SBRT. If the FDI exceeds 51%, the entity must source at least 30% of the value of goods purchased from India, preferably from micro, small and medium enterprises (MSMEs). For companies selling products under a single global brand, this route enables them to establish wholly owned retail outlets in India. The government has also eased local sourcing norms, especially for high-tech or cutting-edge products. In contrast, for MBRT, FDI up to only 51% is allowed under the approval route and is subject to conditions such as minimum investment thresholds, local sourcing requirements, infrastructure development obligations, and state-level consent.

Companies doing business in India are taxed under the Income Tax Act, 1961, with varying rates and compliance obligations based on residency status, nature of business undertaken, legal entity structure, and turnover. An overview of the different tax rates applicable is set out below.

Domestic Companies

Indian companies are generally taxed at 25% if turnover is below INR 4 billion, and 30% otherwise (plus 7% or 12% surcharge if income exceeds INR10 million or INR100 million, respectively and 4% cess). A reduced tax rate of 22% (plus a 10% surcharge and a 4% cess) is available to domestic companies that do not claim specified exemptions.

Foreign Companies

Foreign companies are taxed at 35%, with an additional surcharge of 2% or 5% if income exceeds INR10 million or INR100 million, respectively, plus 4% cess. Taxability is generally limited to income accrued or arising in India or deemed to be so.

Partnerships and LLPs

Indian partnerships and LLPs are taxed at 30%, plus 12% surcharge on income exceeding INR10 million, and 4% cess. Foreign partnerships or LLCs are assessed based on their structure and functions and taxed as either partnerships or corporations, depending on their characteristics.

Minimum Alternate Tax (MAT)

MAT of 15% applies to companies not availing reduced rates, 18.5% to partnerships availing specified exemptions, plus applicable surcharge and cess, based on adjusted book profits.

The surcharge at the rates mentioned above is applicable on the base tax rate, and the tax, as increased by the applicable surcharge, is further increased by the cess.

India imposes withholding tax on dividends and interest paid to foreign investors under the Income Tax Act of 1961, subject to applicable tax treaty relief, as outlined below.

Interest payments to non-residents are typically subject to a 20% withholding tax on foreign currency loans. In specific cases (eg, issuance of certain bonds listed on the GIFT City International Financial Services Centre (“IFSC”)), a concessional rate of 9% applies. For other forms of debt, rates may be 30% or 35%, depending on the status of the payee (corporate, partnership, etc), plus surcharge and cess.

Dividends are taxed in the hands of non-resident shareholders at the rate of 20% withholding tax, plus surcharge and cess.

Tax Treaty Benefits

Tax treaty benefits may reduce abovementioned rates to typically, 5%, 10% or 15%, depending on shareholding thresholds or holding periods. Beneficial rates are applicable only where the investor is the “beneficial owner” of the income.

Treaty shopping has long been a contentious issue in Indian tax jurisprudence. With the introduction of domestic anti-abuse provisions and India’s adoption of the OECD’s Multilateral Instrument (MLI), there is now greater scrutiny in allowing tax treaty benefits – for example, an assessment of whether an arrangement has genuine commercial substance and whether its principal purpose is to obtain treaty benefits is undertaken.

India offers several tax planning strategies that companies can leverage to optimise their tax outflows. A few such structuring strategies are set out below.

  • Tax-neutral structuring: Mergers and demergers structured in accordance with the conditions set out in the Income Tax Act of 1961 are tax-neutral. Such structures allow the transferee to carry forward and set off unutilised tax losses. These structures are widely used for internal group reorganisations and business hive-offs. Asset transfers between a holding company and its wholly owned subsidiary may also be tax-neutral, but such transfers do not permit a step-up in the cost base for depreciation purposes.
  • Leveraged acquisitions: Debt-funded acquisitions enable an interest deduction, enhancing post-tax returns. In a typical leveraged buyout, the acquiring company merges with the target post-acquisition, allowing the target to assume the acquirer’s debt – creating an interest shield and access to target cash flows.
  • IP migration: Migrating IP from India to a foreign affiliate is considered where significant future value is expected. Income from IP exploitation may thereby fall outside India’s tax net. Commercial substance, transfer pricing, and valuation are key in such structuring.
  • Debt v equity funding: Funding through debt instead of equity infusion is a popular tax mitigation strategy. Hybrid instruments such as compulsorily convertible debentures (CCDs) offer interest deductibility (subject to thin capitalisation rules), potential treaty-based capital gains exemptions, and the possibility of conversion into equity, providing flexibility in structuring returns.
  • Offshore holding structures: Indirect investments via offshore entities that hold Indian assets may be tax efficient. Gains on exit could attract capital gains tax if the offshore entity derives substantial value from Indian assets, although tax treaty benefits may mitigate this exposure.
  • Business v share transfers: A share transfer is typically more tax-efficient for non-residents compared to a direct asset or business transfer, which may trigger higher tax and repatriation costs.

While structuring opportunities are available in India, tax authorities in India closely scrutinise arrangements that lack commercial substance. Accordingly, any structuring must be supported by robust documentation, arm’s length valuations, and adherence to both domestic and international anti-abuse frameworks.

Capital gains derived by foreign investors from the sale or other disposition of FDI are generally taxable in India. There is no blanket exemption under Indian domestic tax law; however, concessional tax rates apply depending on the nature of the investment and the holding period. Long-term capital gains (typically for listed shares held for more than 12 months, and unlisted shares for more than 24 months) are taxed at 10% or 20%, while short-term gains are taxed at 15% for listed shares and at regular corporate rates for unlisted shares or other capital assets.

Importantly, the application of tax treaties can provide significant relief. Certain treaties, such as those with Singapore and Mauritius, are beneficial with respect to the sale of securities other than shares in an Indian company, and the treaty with the Netherlands may exempt capital gains arising from the sale of shares of Indian companies or other securities, subject to certain conditions and limitations (including the principal purpose test under OECD’s MLI).

Gains from the disposition of interests in fiscally transparent entities, such as partnerships or LLPs, remain a grey area, as India does not automatically recognise the treaty eligibility of such entities. As a result, many foreign investors prefer to invest through a “blocker” corporation in a treaty jurisdiction to ensure access to treaty benefits, certainty of tax treatment, and potential capital gains exemptions.

India imposes a mix of specific and general anti-avoidance rules aimed at curbing tax avoidance in foreign direct investment (FDI) structures. These are embedded in the Income Tax Act, 1961 and further supported by global initiatives such as the OECD’s MLI.

Specific Anti-Avoidance Rules

India requires that certain transactions be conducted at or above fair market value. If immovable property or securities are transferred at a discount to fair value, tax is triggered for both buyer and seller based on deemed income or sale consideration.

Transfer Pricing and Thin Capitalisation

Comprehensive transfer pricing rules apply to cross-border related-party transactions, and in certain circumstances to domestic unrelated transactions. These must comply with the arm’s length principle and are subject to detailed documentation and audit requirements. Thin capitalisation rules cap the deduction of interest on related-party cross-border debt at 30% of EBITDA.

Corporate Residency

A foreign company whose “place of effective management” is in India may be considered a tax resident, bringing its global income into the Indian tax net.

GAAR

General Anti-Avoidance Rules (GAAR) give tax authorities broad powers to disregard or recharacterise transactions lacking commercial substance where the main purpose is to obtain a tax benefit.

Anti-Hybrid Rules and MLI

India does not have standalone anti-hybrid rules. However, such arrangements may be challenged under GAAR. The MLI introduced the “principal purpose test” to deny treaty benefits for tax-motivated arrangements, reinforcing India’s anti-avoidance framework.

Overview of India’s Labour Law Landscape

Labour law in India is governed by both central and state-level legislation. While the central government enacts core laws on industrial disputes, wages, and social security (eg, provident fund, employee insurance, and gratuity), state-specific Shops and Establishments Acts govern working conditions in commercial offices and service sectors. Reforms have been underway to consolidate various laws into four labour codes aimed at simplifying compliance and improving employer flexibility.

Collective Bargaining and Labour Representation

Collective bargaining and trade union activity are more common in traditional manufacturing and industrial sectors. Industrial establishments with 100 or more workers may be required to constitute a works committee (in the event that the relevant government issues any specific or general directions to that effect), comprising equal representation of workers and employers, to address disputes and service conditions. While white-collar unionisation is still evolving, recent developments in the IT/ITES sectors have seen increased organisation in response to layoffs and job insecurity.

Unionisation may impact employer flexibility in certain sectors. However, there are no India-specific labour restrictions that uniquely disadvantage foreign investors compared to domestic businesses.

Employee Compensation Framework in India

Employee compensation in India is primarily cash-based, with statutory requirements on minimum wages and permissible deductions. In addition to fixed salaries, employees are entitled to social security benefits such as provident fund contributions, pension schemes, employee state insurance, statutory bonus, and gratuity (an end-of-service benefit). Many companies also offer performance-linked incentives and equity-based compensation, such as employee stock option plans (ESOPs), particularly in the tech and start-up sectors.

Impact of Investment Transactions on Employee Compensation

Share sale

In a share sale, the employer-employee relationship remains unchanged, and there is no impact on compensation structures or employee rights, as only the shareholding of the company changes.

Asset/business sale

In contrast, an asset or business sale triggers more complex considerations. Indian law does not provide for an automatic transfer of employees. The buyer must obtain employee consent and ensure continuity of service and comparable/no less favourable terms of employment. If not, non-managerial staff, classified as “workmen”, with at least 240 days of tenure, will be deemed to be retrenched and may be entitled to statutory notice and retrenchment compensation under the Industrial Dispute Laws in India. Buyers must therefore carefully structure employee transitions to mitigate risks and preserve continuity during change-of-control transactions.

Apart from the employee rights in an acquisition as set out in 10.2 Employee Compensation, there are no mandatory works council or employee consultation requirements under Indian law for employee transfer in such transactions.

However, if a trade union is recognised at the establishment, it is prudent to engage in dialogue to mitigate resistance and ensure a smooth transition. Any collective bargaining agreement in place should also be reviewed, as it may impose additional obligations on the employer in the context of a transaction.

Intellectual property (IP) is an important consideration in India’s FDI screening process, particularly in sensitive sectors such as pharmaceuticals, defence, and telecommunications.

Where FDI falls under the government approval route, proposals are reviewed not just from a security or ownership lens, but also for the strategic value of IP assets involved. In such cases, the Indian government evaluates aspects such as the location of IP ownership, potential technology transfer, and the economic benefit the investment would bring to India, including:

  • access to innovation;
  • local manufacturing; or
  • R&D capability.

Sectors like pharmaceuticals are especially scrutinised where the transaction involves control over patented drugs or manufacturing know-how, as the government assesses whether the deal may affect access to essential medicines or impact domestic industry interests.

There is no standalone IP review regime, but IP considerations form part of the broader FDI approval process where applicable.

India has made significant strides in strengthening its IP regime and is increasingly recognised as an investor-friendly jurisdiction for IP protection. India has a robust statutory framework across all major IP categories, including patents, trademarks, copyrights, and designs, supported by a growing body of progressive judicial decisions. Indian courts have actively adapted to modern challenges, demonstrating a willingness to tackle complex IP infringement cases with creative and business-friendly interpretations.

That said, certain sectors present enforcement and protection challenges. In software and pharmaceuticals, patentability remains restricted. For example, computer programs “per se” are excluded from patent protection, though courts have clarified that inventions with demonstrable technical effects may qualify. Similarly, Indian patent law restricts patents on new forms of known substances unless enhanced therapeutic efficacy is proven, an area particularly relevant to pharmaceutical applicants. Separately, there is no statutory protection for trade secrets, and protections for trade secrets are governed by general contractual and equitable principles, which may present limitations for tech-oriented businesses.

In terms of enforcement, while India’s IP enforcement mechanisms are improving, damages awarded for IP infringement remain modest compared to jurisdictions like the US. However, recent cases such as the Delhi High Court’s decision in a trademark infringement suit against Amazon, directing it to pay an amount of approximately USD39 million/INR340 as damages (among the highest damages awarded) to Beverly Hills Polo Club, show that courts are becoming more assertive.

Prior to the enactment of the Digital Personal Data Protection Act, 2023 (DPDPA), India did not have a standalone data protection law. Data privacy was governed through a combination of sectoral regulations and judicial interpretations under the Information Technology Act, 2000 and the Indian Supreme Court’s recognition of privacy as a fundamental right. The DPDPA, introduced in August 2023, is India’s first comprehensive data protection legislation. However, the DPDPA has not been notified by the central government so far and is therefore not in force yet.

Extraterritorial Scope of DPDPA

The DPDPA applies to all entities (Indian or foreign) that process personal data in connection with offering goods or services to individuals in India, thereby having clear extraterritorial reach. This means foreign investors with no physical presence in India may still be subject to the law when handling Indian personal data.

Enforcement and Penalties

Enforcement is vested with the Data Protection Board of India, which has broad investigative powers and discretion in determining penalties. The Act provides for significant monetary fines — up to INR2.5 billion (approximately USD30 million) — depending on the nature, gravity, and frequency of the violation. Importantly, these penalties can far exceed actual economic loss suffered by the data principal, reflecting a strong deterrent intent.

Given the DPDPA’s scope and compliance burden, foreign investors should carefully assess their data flows involving Indian residents, implement robust privacy governance frameworks, and monitor enforcement trends. While rulemaking under the DPDPA is still ongoing, businesses should start preparing now to avoid regulatory risk and reputational exposure in a rapidly evolving enforcement landscape.

Khaitan & Co

One World Centre
10th, 13th & 14th Floor Tower 1C
841 Senapati Bapat Marg
Mumbai 400 013
India

+91 22 6636 5000

+91 22 6636 5050

bdo@khaitanco.com www.khaitanco.com/
Author Business Card

Trends and Developments


Authors



Khaitan & Co is a top-tier, full-service law firm with over 1,300 legal professionals, including 300+ leaders, and a presence in India and Singapore. With more than a century of experience in practising law, the firm offers end-to-end legal solutions across diverse practice areas to clients worldwide. Khaitan & Co has a team of highly motivated and dynamic professionals delivering outstanding client service and expert legal advice across a wide gamut of sectors and industries. The firm acts as a trusted adviser to leading business houses, multinational corporations, financial institutions, governments and international law firms. From M&A to IP matters, banking to taxation, capital markets to dispute resolution and emerging areas such as white-collar crime, data privacy and competition law, the firm has strong capabilities and deep industry knowledge across practices. With offices in Ahmedabad, Bengaluru, Chennai, Delhi NCR, Kolkata, Mumbai, Pune and Singapore, Khaitan & Co has a multi-jurisdictional presence and robust working relationships with top international law firms across jurisdictions.

2025 was a pivotal year for India’s investment landscape. Policy reforms, landmark trade diplomacy, and regulatory clarity across multiple sectors combined to convert momentum into market advantage. These developments recalibrate the opportunity-risk trade-off for investors, companies, and founders looking at India over the next decade. In this article, we focus on select landmark developments that moved the needle in 2025. Taken together, they reflect India’s transition into a more predictable, liberalised, and investor-friendly market environment. We examine what these developments mean in practice, how they unlock new opportunities, streamline compliance, and position India for accelerated growth in the decade ahead.

Signing of the India – UK Free Trade Agreement and Its Sectoral Consequences

Signed in July 2025, the India-United Kingdom (UK) Free Trade Agreement (FTA) represents a pivotal economic partnership for India. The FTA is designed to streamline and reduce the cost and complexity of moving goods, services, capital, and talent between India and the UK, fostering stronger bilateral ties.

India gets improved access to a high-value, high-income market; the UK gets access to one of the fastest-growing economies with deep talent and cost advantages. Both governments anticipate substantial benefits: the UK projects increases in GDP and wage growth, while India expects reduced business costs, clearer trade regulations and enhanced mobility for skilled professionals. The agreement covers tariffs, mobility, digital trade, investment protections, and market access for services. This means it impacts almost every major sector with India-UK commercial linkages. We have set out below key changes brought about by the FTA, along with examples that capture how these reforms translate into commercial reality.

Key highlights of the FTA

  • Tariff reductions – cheaper exports, better margins, stronger competitiveness: A large set of industrial, pharma, textile, machinery and agri-processing products now see reduced or zero tariffs when exported to the UK. So, an Indian auto-component manufacturer selling into the UK with lower tariffs can now compete more effectively with European suppliers who have had the advantage of lower tariffs for years. For many export-heavy companies, when tariffs are reduced, the ultimate cost of Indian goods in the UK market falls, and if the UK price remains unchanged, the exporter earns a higher margin. A better pricing opportunity also means the ability to sell a higher volume of goods. Higher margins, increased sales volumes and lower compliance costs increase exporters’ profitability, thereby boosting valuation multiples in M&A.
  • Workforce mobility – easier secondments, lower cost for global teams: One of the most commercially impactful features of the FTA is the Double Contribution Convention (DCC). Under this, Indian employees seconded to the UK for short periods no longer have to pay double social-security contributions in both countries. This matters because cross-border teams have become essential in sectors such as technology, financial services, engineering, and consulting. For example, an Indian IT services company sending 200 engineers a year to the UK saves on high social security outflows, and Indian consulting firms expanding their UK presence can now deploy project teams on rotation more affordably. This directly benefits India’s services exports and reduces cost barriers for Indian firms, creating UK client relationships.
  • Investment protections – more predictability for long-term capital: Although the FTA does not adopt a full investor-state dispute settlement system, it includes strong investment protection standards and government-to-government dispute mechanisms. This matters most to long-horizon investors such as sovereign wealth funds, pension funds, infrastructure investors, and renewable-energy investors, where unexpected policy shifts or regulatory changes can severely impact returns. The FTA reduces these risks by creating clear guardrails on how either government can regulate sectors that rely on long-term licensing or concessions, providing structured diplomatic channels for resolving disputes instead of unpredictable, discretionary action, enhancing transparency, especially in sectors like energy, infrastructure, insurance, telecom and fintech, and giving weightage to sanctity of contracts, critical for PPP models and project finance. This stability directly improves bid valuations, reduces required risk premiums, and widens the pool of UK and European institutional investors willing to deploy capital into India.
  • Digital trade and data flows – clarity for fintech, SaaS and cloud-based models: The FTA includes provisions on digital trade, covering cross-border data flows, digital services, and fintech collaboration. It gives companies a clearer understanding of when data can be transferred, how cloud services can be used, and what compliance obligations apply while still allowing India to enforce data-sovereignty rules when required. For example, a Bengaluru-based SaaS company serving UK clients can design its data stack with greater certainty, or a fintech platform operating in both the UK and India markets can gain greater clarity on onboarding, authentication, and digital contracting frameworks.

How does this change deal-making?

  • Faster cross-border M&A: Valuation models for export-led businesses improve significantly when tariff and mobility costs are reduced. Private equity funds and strategic buyers are likely to show greater interest in export-oriented manufacturers and platform businesses with UK distribution playbooks, given the increased certainty of future cash flows.
  • Supply-chain realignment: Firms using a China-plus-one approach are likely to prioritise India for production targeted at the UK market. This is particularly relevant for electronics components, medical devices, and select consumer durables, where rules of origin and tariff preferences create arbitrage opportunities.
  • New exit routes and capital flows: Improved UK-India capital flows and corporate mobility mean companies may consider dual listings, etc, creating a wider universe for possible exit routes available to PE/VC-backed companies.
  • Strategic public-private partnerships: Ability to mobilise technical teams from the UK into India for large-scale infrastructure, healthcare and educational projects, resulting in accelerating project pipelines at lower costs.

The FTA is not merely a diplomatic milestone but creates immediate, transactional and structural advantages for cross-border trade and investment. For investors, it is a catalyst – enabling export-led manufacturing platforms, services scale-ups, and a predictable bilateral environment that supports multi-jurisdictional capital deployment and talent mobility.

Five Years of the National Education Policy and Its impact on Internationalisation of Education

2025 marks five years since the introduction of the National Education Policy (NEP) 2020, a reform that has quietly but fundamentally reshaped India’s education landscape. What began as a policy blueprint for academic transformation has now become a powerful market-opening instrument, especially for foreign universities, global K-12 operators, and private-equity investors.

The most visible impact has been the entry of reputable global education brands into India, across both higher education and K-12. For the first time, India is not only exporting students but also importing institutions – reversing a long-standing trend and signalling to investors that education is becoming a globally competitive and commercially viable sector in India.

Key highlights of the education sector in 2025

Foreign universities setting up campuses in India

2025 saw about 15 foreign universities announcing their India campuses and there appears to be a growing pipeline of interest from leading UK and Australian institutions exploring physical campuses, joint degrees, and research centres. Five years of the NEP have given foreign universities the regulatory confidence they lacked earlier: autonomy, the ability to design curricula aligned with global standards, and operational freedom under a predictable regime.

For foreign institutions, there are several reasons to consider the Indian market – India is the world’s largest source of outbound students, yet only a fraction can afford full overseas tuition; a physical presence in India dramatically expands their addressable market; and Indian campuses reduce cost barriers while allowing universities to protect brand quality and graduate outcomes. From an investor’s perspective, this is the beginning of a transnational education corridor, where university operators, real estate developers, edtech companies and private equity can participate in long-term, regulated cash-flow models built around foreign degree programmes, research parks, and academic-industry partnerships.

Global school operators and private equity tapping into the Indian K-12 market

NEP’s emphasis on holistic schooling, international curricula, and learning outcomes has rapidly increased demand for high-quality private K-12 schools, particularly in Tier 1 and fast-growing Tier 2 cities. This has attracted serious interest from global K-12 operators, who view India as one of the large, underpenetrated education markets. These operators are exploring master franchise structures, greenfield launches, partnerships with Indian developers and other structures to tap into the premium education market.

Factors such as demographics, a rise in parental willingness-to-pay for premium education, and increasing demand for international curricula are attracting private capital interest as well, including recent investments such as Public Sector Pension Investment (PSP Investments) in Lighthouse Learning and large global funds actively evaluating premium school networks for platform-building opportunities.

In its first five years, the NEP vision for easier entry, academic flexibility, digital adoption, and internationalisation of education in India has translated into several tangible outcomes such as – foreign universities actively seeking Indian campuses, international K-12 brands entering high-demand metros, PE funds evaluating buyouts and consolidations, domestic operators partnering with global brands for academic and governance expertise, and real estate players integrating premium schools into township and mixed-use developments. For investors, this means resilient revenue models backed by long-term demand, platform-building opportunities in K-12 and higher education, and rising valuations for well-run operators.

Today, India is emerging as the world’s most investible education market for the next decade, and education appears to be one of India’s most compelling long-term investment themes. The NEP, even in its 5-year horizon, has been significantly instrumental in this push.

Legislative Reimagining of the Digital Entertainment and Gaming Industry

India’s digital entertainment and gaming ecosystem underwent a structural reset in 2025 with the introduction of the Promotion and Regulation of Online Gaming Act, 2025 (Gaming Act). The new law fundamentally reframes how gaming is understood in India, shifting from a broad-brush, risk-averse approach to a targeted, principle-based regulatory framework. The key takeaway from this is that the policy direction is not anti-gaming; it is anti-real-money gaming, where consumer harm risks are highest. Everything else, e-sports, casual gaming, content-driven gaming, ad-supported models, skill-based competitions, is clearly recognised as a legitimate digital entertainment activity.

The Gaming Act deliberately targets real-money wagering models because of addiction, minors’ safety, and fraud concerns. But it simultaneously reinforces confidence in the rest of the ecosystem. Monetisation models based on advertising, subscriptions, in-game IP, creator content, brand sponsorships, media rights, and e-sports tournaments fall squarely within the “green zone” and benefit from lighter compliance requirements. This clear separation enables investors to price risk accurately and back scalable models with fewer regulatory unknowns. For the broader digital entertainment sector, the Gaming Act provides something that did not exist before in this sector – regulatory certainty. By creating a statutory authority, defining permitted and prohibited activities, and establishing compliance and grievance mechanisms, the Gaming Act creates a predictable operating environment for gaming and gaming-adjacent businesses.

Further, the Gaming Act empowers the new regulatory authority to create sandbox environments, ie, controlled testing zones where companies can pilot new products, formats, and technology. This is particularly important for segments like e-sports leagues and tournament platforms, game engines and developer tooling, interactive content and skill-based formats, and youth-focused digital engagement models. Early sandbox approvals provide a competitive advantage, allowing platforms to innovate while maintaining regulatory confidence.

What does this mean for industry and investors?

For industry participants, the Gaming Act signals the need to re-engineer business models around clearly permissible formats. Companies can consider prioritising ad-supported gaming, skill-based competitions, e-sports content, and interactive entertainment, while reassessing any real-money elements that trigger regulatory scrutiny. Platforms can benefit from proactively engaging with the new regulatory authority to participate in the sandbox and future-proof their models.

For investors, the regulatory reset means redirecting capital towards low-regulatory-risk segments and conducting targeted due diligence on monetisation structures and payment flows, including stress-testing whether a portfolio company’s revenue model sits comfortably within the “green zone”. Investors looking for an early-mover advantage should encourage portfolio companies to utilise sandbox approvals to build defensible and sustainable models.

In essence, the Gaming Act transforms India’s digital entertainment ecosystem into a more transparent, predictable and innovation-ready market, giving compliant businesses room to scale and giving investors the confidence to deploy capital into the next generation of gaming and content platforms.

Indirect Taxation Reforms That Create a Simpler and More Predictable Tax Regime

In September 2025, the Indian Government rolled out a new GST slab structure to simplify India’s indirect tax architecture. The reform aims to simplify the prior complex multi-rate matrix that, over the years, had become increasingly complex and dispute-heavy.

Effective 22 September 2025, most goods and services now fall into two principal slabs: 5% for essentials and merit goods, and 18% as the standard rate, with only a narrow 40% band reserved for a limited set of demerit items such as tobacco, casinos, and sugary beverages.

Several sectors stand to gain meaningfully. Consumer goods and retail benefit from smoother flows of input tax credits and reduced compliance costs. Manufacturing and export-oriented units see fewer disputes on intermediate goods and a more stable cost structure. Digital platforms and multi-state service providers, who previously navigated complex GST positions for bundled services, benefit from the standardised treatment and reduced interpretational friction.

What does this mean for the various stakeholders?

For businesses, the shift from a multi-layered rate structure to a cleaner, rationalised framework reduces uncertainty around one of the most litigated aspects of GST: classification. Earlier, minor differences in product features or service bundles often led to classification disputes, blocked input tax credits, and prolonged litigation. The streamlined structure significantly narrows these grey areas, helping companies manage tax positions with greater clarity and lowering the risk of retrospective adjustments.

The reforms also have a direct commercial impact on consumption and pricing strategy. By maintaining low rates for essential items and stabilising the standard rate at 18%, the government aims to ease price pressures for consumers.

From an investor perspective, the reform enhances policy predictability, which should help long-term capital allocation. For manufacturing, logistics, and warehousing projects, indirect tax clarity often influences site selection, supply chain design, and return projections. By simplifying GST and reducing classification risk, India’s tax regime becomes more investor-friendly, particularly for global companies comparing India with Southeast Asian and Middle Eastern alternatives for expansion.

Finally, for practitioners and deal teams, the reforms require active recalibration. Supply-chain contracts may need adjustments to accurately capture input-tax credit optimisation under the new structure. Further, tax models in diligence should be updated to reflect new slab rates and revised margin expectations. And, on transactions, earn-out mechanics and tax indemnities should be revisited where earlier assumptions were tied to litigation-heavy classifications.

In summary, the GST overhaul moves India towards a simpler, more predictable indirect tax regime – reducing friction for businesses, improving valuation confidence for investors, and creating a more stable foundation for long-term economic growth.

Reserve Bank of India’s Consolidated Regulatory Framework for Payment Aggregators

In September 2025, the Reserve Bank of India (RBI) introduced a comprehensive, consolidated regulatory framework for Payment Aggregators (PAs), the RBI (Regulation of Payment Aggregators) Directions, 2025 (RBI Payment Directions 2025). For the first time, all rules governing PAs and payment gateways have been brought under a single, harmonised regulation, replacing years of fragmented circulars and clarifications.

At its core, the new framework is designed to achieve three objectives:

  • strengthen consumer protection and fund security,
  • streamline compliance for payment intermediaries, and
  • create a more predictable environment for domestic and cross-border digital payments.

One of the most important changes is the introduction of standardised authorisation, capital, governance and merchant-onboarding requirements for all PAs. Earlier, different categories of PAs operated under varying compliance expectations, creating inconsistency and ambiguity. The RBI Payment Directions 2025 level the playing field and require every PA to meet uniform standards on net worth, settlement timelines, escrow management, data governance, cybersecurity and grievance redressal.

What does this mean for the various stakeholders?

The consolidated framework integrates provisions for cross-border payment aggregation, providing foreign merchants and global digital platforms a more structured path to operate in India. This is crucial for global e-commerce players, SaaS companies and marketplace operators that rely on India as both a consumption market and a high-volume processing hub.

For fintechs, the consolidated PA framework provides regulatory stability, which is often the biggest bottleneck to scaling payment-led business models. A startup or mid-sized PA now knows what compliance standards it needs to meet to access banking partnerships, raise capital, or integrate with large merchants. For larger PAs, especially those backed by global payments firms or private equity investors, the unified rulebook reduces execution risk across acquisitions, integrations, and multi-product expansion. As for investors, enhanced governance and predictable processes will command valuation premiums.

For practitioners and deal teams, regulatory diligence on payment flows, escrow management, merchant onboarding logic and data practices becomes more straightforward but also more critical. Transaction structuring for fintech M&A must now factor in authorisation transfer mechanics, board governance requirements and long-term capital commitments under the new framework.

Overall, the consolidated framework elevates India’s payments ecosystem into a safer, more transparent and institutionally robust environment – one that supports innovation while giving investors and operators the regulatory certainty needed to scale.

Notification of the Digital Personal Data Protection Rules 2025, Operationalising the Digital Personal Data Protection Act 2023

In November 2025, the Digital Personal Data Protection (DPDP) Rules, 2025 (DPDP Rules 2025), were notified, operationalising the Digital Personal Data Protection Act, 2023 (DPDP Act). With the DPDP Rules 2025 coming into effect, India now has a fully functional privacy framework.

The DPDP Rules 2025 set out how organisations must collect, store, use, transfer and retain personal data. They introduce detailed requirements on consent, notices, grievance redressal, data security safeguards, and privacy governance. For larger or data-intensive businesses, the DPDP Rules 2025 specify obligations, including undertaking Data Protection Impact Assessments (DPIAs), appointing Data Protection Officers (DPOs), and maintaining internal audit trails. For the first time, companies have a clear operational checklist, reducing the ambiguity that previously made privacy compliance difficult to implement.

The DPDP Rules 2025 also outline mechanisms governing cross-border data transfers, including standard contractual clauses and government-notified transfer regimes that allow companies to transfer data outside India, subject to certain safeguards. This is specifically relevant for global technology companies, MNCs, SaaS providers, fintechs, outsourcing firms and shared-service centres that operate integrated data stacks across jurisdictions.

Further, the DPDP Rules 2025 align India more closely with global privacy norms, making it easier for multinational companies to harmonise compliance across India, Europe and Asia. Investors benefit directly from this as stronger privacy governance reduces enforcement risk, improves the diligence profile of target companies, and enhances the long-term stability of digital business models.

For practitioners and deal teams, the operationalisation of the DPDP Act means privacy compliance now becomes a core diligence item. Contracts governing data sharing, outsourcing, cloud hosting, marketing and analytics must be revisited; and M&A transactions may require data-mapping exercises, remediation plans, or covenants addressing ongoing compliance.

Overall, the notification of the DPDP Rules 2025 creates a more structured, transparent and globally aligned data-protection environment, strengthening confidence in India’s digital economy and improving the investibility of data-driven businesses in India.

Concluding Thoughts

The developments of 2025 collectively mark a turning point in India’s evolution from a high-potential market to a high-performance, high-predictability investment destination. Each of the reforms discussed in this article – the India-UK FTA, five years of NEP-led internationalisation, the Gaming Act, GST simplification, RBI’s unified payment aggregator regime, and the operationalisation of the DPDP Rules, demonstrates a common thread – India is building a regulatory architecture that is more coherent, transparent, and globally aligned than at any point in the last two decades.

For investors, the key takeaway is that India’s risk–reward calculus has fundamentally shifted. Each of these changes reduces uncertainty, compresses execution timelines, and widens the pool of viable deal opportunities. For companies and founders, the message is – India is entering a decade where regulatory clarity becomes a competitive advantage. Businesses that align early with these frameworks, whether in manufacturing, education, gaming, fintech or digital services, are likely to scale faster and stronger. The reforms also create new cross-border pathways for capital, talent and technology, positioning India as a hub in global supply chains and digital networks. For advisors and deal teams, 2025 establishes the foundation of a more predictable environment.

2025’s developments forecast what’s in store for the next decade for India and India’s regulatory and economic trajectory suggests that the Indian market is maturing, stabilising, and accelerating – all geared towards becoming one of the most investible economies in the world.

Khaitan & Co

One World Centre
10th, 13th & 14th Floor Tower 1C
841 Senapati Bapat Marg
Mumbai 400 013
India

+91 22 6636 5000

+91 22 6636 5050

bdo@khaitanco.com www.khaitanco.com/
Author Business Card

Law and Practice

Authors



Khaitan & Co is a top-tier, full-service law firm with over 1,300 legal professionals, including 300+ leaders, and a presence in India and Singapore. With more than a century of experience in practising law, the firm offers end-to-end legal solutions across diverse practice areas to clients worldwide. Khaitan & Co has a team of highly motivated and dynamic professionals delivering outstanding client service and expert legal advice across a wide gamut of sectors and industries. The firm acts as a trusted adviser to leading business houses, multinational corporations, financial institutions, governments and international law firms. From M&A to IP matters, banking to taxation, capital markets to dispute resolution and emerging areas such as white-collar crime, data privacy and competition law, the firm has strong capabilities and deep industry knowledge across practices. With offices in Ahmedabad, Bengaluru, Chennai, Delhi NCR, Kolkata, Mumbai, Pune and Singapore, Khaitan & Co has a multi-jurisdictional presence and robust working relationships with top international law firms across jurisdictions.

Trends and Developments

Authors



Khaitan & Co is a top-tier, full-service law firm with over 1,300 legal professionals, including 300+ leaders, and a presence in India and Singapore. With more than a century of experience in practising law, the firm offers end-to-end legal solutions across diverse practice areas to clients worldwide. Khaitan & Co has a team of highly motivated and dynamic professionals delivering outstanding client service and expert legal advice across a wide gamut of sectors and industries. The firm acts as a trusted adviser to leading business houses, multinational corporations, financial institutions, governments and international law firms. From M&A to IP matters, banking to taxation, capital markets to dispute resolution and emerging areas such as white-collar crime, data privacy and competition law, the firm has strong capabilities and deep industry knowledge across practices. With offices in Ahmedabad, Bengaluru, Chennai, Delhi NCR, Kolkata, Mumbai, Pune and Singapore, Khaitan & Co has a multi-jurisdictional presence and robust working relationships with top international law firms across jurisdictions.

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