The concept of linkages between foreign direct investment and innovation, particularly of the investee, is relatively a new and emerging one. There is no clear understanding and conclusive evidences to support the fact that FDI either enhances or suppresses the innovation capacity of the investment receiver. This is irrespective of the level of measurement of innovation, be it the firm level, sector level, regional and even at the national level. The present work makes significant contribution towards better understanding of the subject by taking instances from the Indian services sector. For better understanding the innovative capacity of firms, two new indicators of innovation are introduced in this work namely RTL intensity and FRTL intensity. This are in addition to the traditional indicator i.e. R&D intensity. The present study observes some sort of innovation in terms of ownership of business entities, domestic BEs are more innovative in terms of R&D intensity while foreign BEs are more innovative in regard to RTL and FRTL intensity.