Tag: FEMA

  • Setting Up an Indian Subsidiary of a Foreign Company: Steps and Compliance

    Setting Up an Indian Subsidiary of a Foreign Company: Steps and Compliance

    For many overseas businesses, the most practical way to operate in India is through a wholly owned Indian subsidiary of a foreign company, usually a private limited company. It can hire staff, sign contracts, invoice customers and access the local market as an Indian entity, while the foreign parent holds the shares.

    The process is well established and largely online. This guide walks through the entry route, the incorporation steps, the foreign investment reporting and the compliance calendar for the first year, so that the set-up is smooth and properly documented from day one.

    Key takeaways

    • Most sectors allow 100% foreign investment under the automatic route, without prior government approval, subject to sectoral conditions.
    • Investment from entities with beneficial owners in countries sharing a land border with India needs government approval, with some relaxations introduced in 2026.
    • A private company needs at least two directors, one of whom must be resident in India, and at least two shareholders.
    • Incorporation, PAN, TAN and some registrations are handled through the SPICe+ form on the MCA portal.
    • Share capital received from the parent must be reported in Form FC-GPR within 30 days of allotment.

    Step 1: Confirm the FDI route

    Before incorporation, check the sector under India’s FDI policy:

    • Automatic route: the majority of sectors, including IT services, most manufacturing and many service activities, permit 100% foreign ownership.
    • Government route or caps: certain sectors such as some defence, media, insurance and multi-brand retail activities have caps or need approval.
    • Land-border countries: where the investor, or its beneficial owner, is a citizen of a country sharing a land border with India, government approval is needed. Press Note 2 of 2026 introduced a 10% beneficial ownership threshold and faster processing for some sectors, so the current position should be checked case by case.

    Step 2: Plan the structure

    DecisionTypical choicePoints to consider
    Entity typePrivate limited companyLimited liability, flexible, widely understood by banks and customers
    ShareholdersForeign parent plus a nomineeMinimum two shareholders for a private company
    DirectorsTwo or moreAt least one must have stayed in India for 182 days or more in the financial year
    Share capitalAs per business planNo statutory minimum; fund enough for initial operations
    Registered officeIndian addressNeeded at incorporation or soon after

    The resident director can be an Indian professional or an employee based in India. Foreign directors need a Digital Signature Certificate and a Director Identification Number, which are obtained as part of the process.

    Step 3: Prepare documents

    The foreign parent’s documents usually need to be notarised and apostilled (or consularised, where the country is not part of the Apostille Convention):

    • certificate of incorporation and constitutional documents of the parent;
    • board resolution authorising the investment and nominating its representative;
    • identity and address proof of foreign directors and the authorised signatory;
    • proof of the Indian registered office, such as a rent agreement and utility bill with a no-objection letter.

    Allow time for this step, because foreign document legalisation is often the longest part of the timeline.

    Step 4: Incorporate through SPICe+

    The SPICe+ web form on the MCA portal covers name reservation, incorporation, allotment of DIN, PAN and TAN, and linked registrations such as EPFO and ESIC, with GST registration optional. The memorandum and articles are filed electronically. On approval, the Registrar issues the Certificate of Incorporation with the Corporate Identity Number.

    Our guide to private limited company registration in India explains the SPICe+ process in more detail.

    Step 5: Bring in capital and report it

    1. Open a current account with an authorised dealer bank.
    2. The parent remits the subscription amount through normal banking channels.
    3. The bank issues a foreign inward remittance certificate and completes KYC of the remitter.
    4. Allot shares within 60 days of receipt of funds, at a price not lower than the fair value under the FEMA pricing guidelines.
    5. File Form FC-GPR on the FIRMS portal within 30 days of allotment, with a valuation certificate and the company secretary’s certificate.

    The first subscription at incorporation (subscriber shares) is also treated as foreign investment and needs reporting. Our guide to FDI reporting through FC-GPR and FC-TRS covers the forms and common errors.

    Step 6: First-year compliance calendar

    • Within 30 days of incorporation: board appoints the first statutory auditor.
    • Within 180 days of incorporation: file Form INC-20A declaring receipt of subscription money, before commencing business.
    • Registrations: GST (if applicable), Shops and Establishments, professional tax, import-export code if trading across borders.
    • Every year by 15 July: Annual Return on Foreign Liabilities and Assets (FLA) to the RBI.
    • Annual: financial statements (AOC-4) and annual return (MGT-7A or MGT-7), board and general meetings, and director KYC.
    • Tax: income-tax return, transfer pricing documentation and Form 3CEB for transactions with the parent and group entities.

    Transfer pricing deserves early attention. Intercompany service fees, cost reimbursements and royalties should be backed by agreements and an arm’s length pricing approach from the start.

    Practical tips for a smooth set-up

    • Agree the business plan and capital needs before choosing the share capital.
    • Appoint a reliable resident director and define their role clearly.
    • Set up the accounting system, chart of accounts and payroll from the first month.
    • Put intercompany agreements in place before the first cross-border invoice.
    • Keep a compliance calendar with owners and dates for each filing.

    Frequently asked questions

    Can a foreign company own 100% of an Indian subsidiary?

    Yes, in most sectors under the automatic route, subject to sectoral caps and conditions. A second shareholder, often a nominee, is needed for a private company.

    Is a resident Indian director mandatory?

    Yes. Every company must have at least one director who has stayed in India for at least 182 days in the financial year.

    How long does it take to set up an Indian subsidiary?

    Once documents are ready, incorporation is often completed within a few weeks. Legalising foreign documents usually takes the most time.

    What is Form FC-GPR?

    It is the form used to report issue of shares to a foreign investor, filed on the RBI’s FIRMS portal within 30 days of allotment.

    If you are planning to set up an Indian subsidiary, our corporate and FEMA team will be happy to guide you from entry route to the first year’s compliance.

    This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

  • Liberalised Remittance Scheme (LRS): Limits, Purposes and TCS on Foreign Remittances

    Liberalised Remittance Scheme (LRS): Limits, Purposes and TCS on Foreign Remittances

    The Liberalised Remittance Scheme (LRS) lets resident individuals send money abroad for a wide range of purposes, from a child’s university fees to an overseas investment. Alongside the foreign exchange rules, there is an income-tax angle: banks collect tax at source on many remittances, and understanding the LRS remittance TCS rules helps you plan cash flow and claim the credit properly.

    The TCS rates were simplified from 1 April 2026 by the Finance Act 2026, with lower rates for education, medical treatment and overseas tour packages. This guide explains the LRS limit, the permitted purposes, the current TCS structure and how to get the TCS back.

    Key takeaways

    • Resident individuals can remit up to USD 250,000 per financial year under LRS for permitted current and capital account purposes.
    • From 1 April 2026, TCS on education and medical remittances is 2% above ₹10 lakh, and nil where education is funded by a loan from a financial institution.
    • Overseas tour packages attract 2% TCS from the first rupee.
    • Other purposes such as investments and gifts attract 20% TCS above ₹10 lakh in a financial year.
    • TCS is not an extra cost: it is credited against your tax liability and can be refunded through your return.

    What LRS allows

    LRS is framed by the Reserve Bank of India under FEMA. The limit of USD 250,000 applies per resident individual per financial year, including minors (through a guardian), and covers all permitted purposes together.

    Commonly used purposes include:

    • Education abroad, including tuition and living expenses.
    • Medical treatment abroad.
    • Travel, both private and business, and overseas tour packages.
    • Gifts and donations to persons or bodies abroad.
    • Maintenance of close relatives living abroad.
    • Investments, such as listed foreign shares, overseas mutual funds, and immovable property abroad, subject to the overseas investment rules.
    • Opening and maintaining a foreign currency account with a bank abroad.

    Certain remittances are not allowed under LRS, such as margin or speculative trading abroad, lottery and similar payments, and remittances to countries identified as non-cooperative by the FATF. Businesses making overseas investments follow the separate overseas investment framework; our guide to overseas direct investment rules covers that route.

    The remittance process

    1. Choose an authorised dealer bank and the purpose code for the remittance.
    2. Submit Form A2 (the purpose declaration) along with your PAN, which is mandatory for LRS.
    3. Provide supporting documents such as an admission letter, hospital estimate, tour operator invoice or investment account details.
    4. The bank checks the LRS limit and collects TCS where applicable.
    5. Keep the remittance advice and TCS certificate for your records.

    LRS remittance TCS rates from 1 April 2026

    The table below summarises the structure that applies to remittances made on or after 1 April 2026.

    PurposeUp to ₹10 lakh in a financial yearAbove ₹10 lakh
    Education funded by a loan from a financial institutionNilNil
    Education (self-funded) or medical treatmentNil2% on the excess
    Overseas tour package2% from the first rupee2%
    Other purposes (investment, gifts, maintenance, etc.)Nil20% on the excess

    The ₹10 lakh threshold is applied per individual for the financial year across all LRS remittances through the same collector, so it is worth planning larger payments early in the year and keeping all remittance records together.

    Worked examples

    • Self-funded tuition of ₹25 lakh: no TCS on the first ₹10 lakh; 2% on ₹15 lakh = ₹30,000.
    • Overseas tour package of ₹4 lakh: 2% = ₹8,000.
    • Investment of ₹30 lakh in US shares: 20% on ₹20 lakh = ₹4,00,000, which is a significant cash-flow item until adjusted in your return.

    Under the Income-tax Act 2025, these rules continue in the corresponding TCS provision, and TCS credit is reflected in the annual tax statement (Form 168, which replaced Form 26AS).

    Getting the TCS back

    TCS is collected in your name against your PAN. You can:

    • Claim credit in your income-tax return for the tax year in which it was collected. If your total tax liability is lower, the excess is refunded.
    • For salaried employees, ask your employer to take the TCS into account while computing tax deduction on salary, so less tax is deducted during the year.

    Always check that the TCS appears correctly in your annual tax statement before filing. Where a bank has not reported it, ask for the TCS certificate and a correction.

    Practical tips for families and investors

    • Plan the purpose correctly: education and medical remittances enjoy lower rates, so use the right purpose code with proper documentation.
    • Use education loans where sensible: remittances funded by a loan from a financial institution attract nil TCS.
    • Spread investment remittances thoughtfully and budget for the 20% TCS on amounts above ₹10 lakh.
    • Keep a remittance log for the family: date, bank, purpose, amount in USD and INR, and TCS collected.
    • Report foreign assets in your return where required, especially after investing abroad.

    Frequently asked questions

    What is the LRS limit for 2026-27?

    The limit is USD 250,000 per resident individual per financial year, covering all permitted purposes together.

    What is the TCS on education remittances now?

    From 1 April 2026, self-funded education remittances attract 2% TCS on amounts above ₹10 lakh, and nil TCS where funded by a loan from a financial institution.

    Is TCS a permanent cost?

    No. TCS is an advance collection of tax. You can adjust it against your tax liability and claim any excess as a refund in your return.

    Is PAN mandatory for LRS remittances?

    Yes. PAN is required for remittances under LRS, and TCS is collected and reported against it.

    If you are planning education, travel or investment remittances abroad, our FEMA and tax team will be happy to help you plan the route, documents and TCS efficiently.

    This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

  • Overseas Direct Investment (ODI) from India: Rules for Companies and Individuals

    Overseas Direct Investment (ODI) from India: Rules for Companies and Individuals

    Indian businesses and founders are increasingly investing abroad, whether to set up a sales subsidiary in Dubai, acquire a small company in the UK or form a US entity to serve American clients. The ODI rules overseas investment framework under FEMA sets out who can invest, how much, in what and with what reporting. Getting the structure right at the start avoids approvals and compounding later.

    The current framework came into force in August 2022 through the Foreign Exchange Management (Overseas Investment) Rules, 2022, the related Regulations and RBI’s Master Direction. This guide summarises the main rules for Indian companies and resident individuals.

    Key takeaways

    • ODI means investment in unlisted foreign equity, or 10% or more of a listed company’s equity, or investment with control; other investments are overseas portfolio investment (OPI).
    • An Indian entity can make financial commitments up to 400% of its net worth; commitments above USD 1 billion in a financial year need RBI approval.
    • Resident individuals invest within the LRS limit of USD 250,000 a year, only in operating entities outside financial services, and cannot control an entity with its own subsidiaries.
    • Investments in real estate business, gambling and INR-linked financial products are prohibited.
    • Reporting runs through the authorised dealer bank: Form ODI before or at the time of investment, and an Annual Performance Report by 31 December each year.

    ODI or OPI: the first question

    InvestmentClassification
    Any equity in an unlisted foreign companyODI
    Less than 10% of a listed foreign company, without controlOPI
    10% or more of a listed foreign company, or any stake with controlODI
    Debt, guarantees or pledges for a foreign entity in which ODI is madePart of financial commitment

    ‘Control’ includes the right to appoint a majority of directors or to control management or policy decisions, including through shareholding of 10% or more of voting rights. Once an investment is classified as ODI, it remains so even if the stake later reduces, unless it is fully disinvested.

    Rules for Indian companies and LLPs

    Financial commitment limit

    An Indian entity’s total financial commitment, covering equity, debt, guarantees and pledges, cannot exceed 400% of its net worth as per the last audited balance sheet. Some commitments are counted at a lower value, and some forms of guarantee are included only in part, so the calculation should be prepared carefully.

    Where the investment can go

    • A foreign entity engaged in a bona fide business activity, directly or through step-down subsidiaries.
    • Investment in a foreign entity in the financial services sector is allowed subject to extra conditions, such as the Indian entity itself being in financial services and meeting profitability and regulatory tests.
    • Investment in start-ups abroad is allowed only from the Indian entity’s internal accruals.

    Round-tripping safeguards

    An Indian entity cannot make ODI in a foreign entity that has invested, or invests, in India if the structure results in more than two layers of subsidiaries, subject to specified exceptions. Structures such as an Indian parent owning a foreign company that in turn owns an Indian company need careful review.

    Worked example

    A Pune software company has net worth of ₹12 crore as per its last audited balance sheet. Its ODI limit is 400% of that, or ₹48 crore. It plans to invest USD 2 million (roughly ₹17 to 18 crore) in equity of a new Singapore subsidiary and give a corporate guarantee of USD 1 million for the subsidiary’s bank line. Both count toward the limit, which is comfortably met, so the investment can proceed under the automatic route with Form ODI filed through its AD bank.

    Rules for resident individuals

    • Investment is made under the Liberalised Remittance Scheme, within USD 250,000 per financial year across all LRS remittances.
    • ODI is permitted only in an operating foreign entity, not engaged in financial services.
    • An individual cannot make ODI with control in a foreign entity that has a subsidiary or step-down subsidiary.
    • Shares can also be acquired by gift, inheritance, ESOPs or sweat equity, subject to conditions.
    • Remittances under LRS can attract TCS above the threshold at the time of remittance, which can be adjusted against income-tax.

    If you are setting up a US entity as an individual, our guide to compliance for a US LLC owned by an Indian resident covers both sides of the border.

    Prohibited investments

    ODI is not allowed in a foreign entity engaged in:

    • Real estate activity, meaning buying and selling of real estate or trading in transferable development rights (building townships or infrastructure is permitted).
    • Gambling in any form.
    • Dealing in financial products linked to the Indian rupee without RBI approval.

    Investments in certain jurisdictions, such as Pakistan, need government approval, and investment in countries identified as non-cooperative by FATF is restricted.

    Reporting and ongoing compliance

    EventReportTimeline
    Financial commitmentForm ODI through the AD bankBefore or at the time of the investment
    Evidence of investmentShare certificate or equivalentWithin six months
    Annual performanceAnnual Performance Report (APR)By 31 December each year, based on the foreign entity’s accounts
    Restructuring or disinvestmentForm ODI / FC as applicableWithin 30 days
    Portfolio investments by listed Indian companiesForm OPIHalf-yearly
    Foreign liabilities and assetsFLA return to RBIBy 15 July each year

    Delays can generally be regularised by paying a late submission fee, under a formula similar to the one we explain in our guide to FDI reporting through FC-GPR and FC-TRS. An Indian entity with reporting delays cannot make further financial commitments until the delay is regularised.

    Practical checklist before you invest abroad

    1. Decide the investor: the Indian company, an LLP or the promoter individually.
    2. Confirm ODI vs OPI and check the sector and jurisdiction restrictions.
    3. Calculate the financial commitment limit from the latest audited net worth.
    4. Obtain a valuation where the rules require it for acquisitions or transfers.
    5. Pass board (and where needed, shareholder) resolutions.
    6. Share documents with the AD bank, obtain the UIN and remit.
    7. Calendar the share certificate, APR and FLA deadlines.
    8. Plan the tax side, including transfer pricing for intra-group transactions and disclosure of foreign assets.

    Frequently asked questions

    What is the limit for an Indian company to invest abroad?

    Up to 400% of its net worth as per the last audited balance sheet, with commitments above USD 1 billion in a financial year needing RBI approval.

    Can a resident individual set up a company abroad?

    Yes, within the LRS limit and in an operating business outside financial services. The individual cannot control an entity that has its own subsidiaries.

    What is the due date for the Annual Performance Report?

    The APR is due by 31 December each year for every foreign entity in which ODI has been made, based on its latest accounts.

    Is RBI approval needed for most ODI?

    No. Most investments fall under the automatic route through the AD bank. Approval is needed only in specified cases, such as exceeding the limits or investing in restricted sectors or jurisdictions.

    If you are planning an overseas investment from India, our team would be glad to help you structure it and manage the FEMA reporting.

    This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

  • FDI Reporting under FEMA: FC-GPR, FC-TRS and Timelines

    FDI Reporting under FEMA: FC-GPR, FC-TRS and Timelines

    Foreign investment into an Indian company brings capital and confidence, along with a set of reporting duties to the Reserve Bank of India. FDI reporting FC-GPR covers fresh issues of shares to non-residents, while FC-TRS covers transfers between residents and non-residents. Both are filed on RBI’s FIRMS portal through the company’s authorised dealer bank.

    The process is routine once you know the sequence, but missed timelines can lead to late submission fees or compounding. This guide sets out the timelines, documents and practical steps for each form, with the annual return that follows.

    Key takeaways

    • Reporting is governed by the FEMA (Non-debt Instruments) Rules, 2019 and the related reporting regulations, and filed on the FIRMS portal.
    • Shares must be issued within 60 days of receiving the foreign inward remittance, otherwise the money must be refunded within 15 days thereafter.
    • FC-GPR is due within 30 days from the date of issue of equity instruments.
    • FC-TRS is due within 60 days of transfer or receipt/remittance of funds, whichever is earlier, and is filed by the resident party.
    • Delays can usually be regularised by paying a late submission fee, and the FLA return is due every year by 15 July.

    Before the first filing: FIRMS set-up

    Companies need to register on FIRMS before any filing:

    1. Entity master: the company’s details, registered once and updated on changes.
    2. Business user registration: an authorised person (usually a director or company secretary) registered with supporting documents, approved through the AD bank.

    Doing this early avoids a rush when the 30-day FC-GPR clock is running.

    FDI reporting FC-GPR: fresh issue of shares

    Sequence and timelines

    StepTimeline
    Receipt of funds from non-resident investor through banking channelsDay 0
    Obtain FIRC and KYC of the remitter from the AD bankSoon after receipt
    Allot equity shares, CCPS or CCDsWithin 60 days of receipt
    If not allotted, refund the amountWithin 15 days after the 60 days
    File FC-GPR on FIRMSWithin 30 days of allotment
    File return of allotment (PAS-3) with the Registrar of CompaniesWithin 30 days of allotment

    Documents typically required

    • FIRC and KYC report from the remitting bank.
    • Board resolution for allotment and, where relevant, shareholders’ special resolution.
    • Valuation certificate confirming the issue price is not below fair value as per pricing guidelines.
    • Declaration on sectoral cap and entry route (automatic or government approval).
    • Company secretary’s certificate on compliance with the Companies Act and FEMA.
    • Memorandum of Association, and the pre- and post-issue shareholding pattern.

    Worked example

    A Noida SaaS company received USD 400,000 from a Singapore investor on 5 May. The board allotted CCPS on 20 June, which is within 60 days. FC-GPR was due by 20 July. The company obtained the FIRC and KYC in May, commissioned the valuation before allotment and filed on 10 July. The AD bank raised one query on the valuation date, which was answered within a week, and the form was approved.

    FC-TRS: transfers between residents and non-residents

    FC-TRS applies when equity instruments of an Indian company are transferred:

    • From a resident to a non-resident (for example, a founder selling to a foreign fund).
    • From a non-resident to a resident (for example, a buyback by a resident promoter).

    Key points:

    • The form is due within 60 days of transfer of the instruments or receipt/remittance of funds, whichever is earlier.
    • The resident transferor or transferee is responsible for filing.
    • Pricing must follow the guidelines: a resident selling to a non-resident cannot sell below fair value, and a non-resident selling to a resident cannot sell above it.
    • Up to 25% of the consideration can be deferred, placed in escrow or paid with indemnity for up to 18 months, subject to pricing compliance.
    • Transfers between two non-residents generally do not require FC-TRS.

    Other reporting forms to keep in mind

    • Form DI: downstream investment by an Indian company that counts as foreign-owned or controlled.
    • FDI-LLP(I) and (II): for foreign investment into, and transfers in, LLPs.
    • Form CN: for convertible notes issued by startups.
    • ESOP reporting: for shares issued to non-resident employees.
    • FLA return: the annual return on foreign liabilities and assets, due by 15 July each year from every company that has received FDI or made overseas investment.

    If your group also invests abroad, our guide to overseas direct investment rules covers the outbound side.

    If a filing is delayed: late submission fee

    Delays can generally be regularised by paying a late submission fee (LSF), computed as:

    LSF = ₹7,500 + (0.025% × A × n), where A is the amount involved and n is the delay in years, rounded up to the nearest month and expressed to two decimals. The LSF cannot exceed the amount involved.

    For example, an FC-GPR for ₹3.2 crore filed 7 months late gives n = 0.58. LSF = ₹7,500 + (0.025% × ₹3,20,00,000 × 0.58) = ₹7,500 + ₹4,640 = ₹12,140.

    For longer or more serious contraventions, compounding with RBI may be required. Keeping a compliance calendar is far cheaper than either route.

    Good practices for smooth FDI reporting

    • Plan valuation and board approvals before funds arrive, so allotment fits the 60-day window.
    • Ask investors to mention the purpose and the company’s details clearly in the remittance.
    • Keep one file per round: FIRC, KYC, valuation, resolutions, forms and approvals.
    • Align FEMA filings with company law filings such as PAS-3 and updates to the register of members.
    • Review sectoral caps and conditions before each round, especially where government approval may be needed.

    For founders still setting up, our guide to private limited company registration covers incorporation basics.

    Frequently asked questions

    What is the time limit for FC-GPR?

    FC-GPR must be filed within 30 days from the date of issue of equity instruments to the non-resident investor.

    Who files FC-TRS?

    The resident party to the transfer, whether transferor or transferee, is responsible for filing FC-TRS within 60 days.

    What happens if shares are not allotted within 60 days of receiving funds?

    The amount must be refunded to the investor within 15 days after the 60-day period. Continued retention is a contravention that may require compounding.

    Is the FLA return required every year?

    Yes. Companies that have received FDI or made overseas investment must file the FLA return by 15 July each year, including in years with no fresh investment.

    If you are raising foreign investment or transferring shares with non-residents, we would be glad to help plan and file the RBI reporting.

    This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.