FEMA, ODI & tax rules when Indians own a US company

The framework

Investment by Indian residents in a foreign company is governed by the Foreign Exchange Management (Overseas Investment) Rules, 2022, the related Regulations and the RBI’s Overseas Investment Directions. Holding shares in your own US company as an India-resident founder is typically Overseas Direct Investment (ODI).

Founders investing personally

• Limit: investments come out of the Liberalised Remittance Scheme limit of USD 250,000 per person per financial year.
• Operating business: resident individuals can make ODI in an operating foreign entity; investments in entities engaged in financial services are restricted.
• Subsidiaries: resident individuals face restrictions on investing in a foreign entity that has subsidiaries or step-down subsidiaries where the individual has control — relevant if your US company will own an Indian or other subsidiary.
• Route: the remittance is made through your AD bank as an overseas investment, not as a gift or card payment.

Indian companies investing

An Indian company setting up a US subsidiary can generally invest under the automatic route up to 400% of its net worth (as per its last audited balance sheet), subject to the Rules. The investment is reported through the AD bank, and the Indian company then has ongoing reporting and transfer-pricing obligations. Full walkthrough: setting up a US subsidiary of an Indian company.

Reporting: Form FC and the APR

1. Form FC — filed through your AD bank for the ODI; the bank obtains a Unique Identification Number (UIN) for the investment.
2. Share certificate — evidence of the shares issued to you must be submitted to the AD bank within six months of the remittance.
3. Annual Performance Report (APR) — due by 31 December every year for each foreign entity, based on its financials.
4. Disinvestment — selling or winding up the US company is also reported (see closing a Delaware company from India).

TCS on your remittance

Remittances under LRS for investment beyond ₹10 lakh in a financial year attract 20% TCS (the rate remained unchanged from 1 April 2026). TCS is not an extra tax — it is credited against your income-tax liability — but it affects cash flow, so plan the timing.

Indian income-tax points

• Schedule FA: residents must disclose foreign shareholdings and foreign bank accounts in their income-tax return — non-disclosure carries heavy penalties under the Black Money Act.
• Dividends from the US company are taxable in India, with credit for US withholding under the India–US treaty.
• POEM: if the US company is effectively managed from India, it risks being treated as an Indian tax resident.
• LLC mismatch: a US LLC ignored for US tax may still be treated as a foreign company in India, complicating foreign tax credit.
• Transfer pricing: if your Indian company provides services to the US entity, the pricing must be at arm’s length.

Common mistakes

• Paying the US company’s formation fees or capital by credit card or a friend’s US account, with no ODI reporting.
• Missing the APR year after year because the US company was “dormant”.
• Not disclosing the shares in Schedule FA.
• Building a US-parent / Indian-subsidiary structure without checking the individual-control restrictions first.

Missed something? Late reporting can often be regularised. Related: FEMA / RBI compliance and US company registration.

Frequently asked questions

Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.