ODI and FEMA Rules for Indian Residents Owning a US Company (2026): LRS, TCS, Annual Performance Report, Schedule FA and Late Reporting
What Indian residents must do under FEMA when they own a US LLC or corporation: when ODI applies, the LRS limit and TCS, the annual performance report, Schedule FA, investing through an Indian company, late reporting and closing.
Forming a US company from India takes days and needs nothing more than a passport. Funding it is where Indian law comes in. Under the Foreign Exchange Management Act (FEMA) and the Overseas Investment Rules and Regulations of 2022, putting money into a foreign company you own is usually an overseas direct investment (ODI), with reporting at the start, every year and when anything changes. Many Indian founders form a US LLC, start invoicing and only later learn that the Indian side was never done.
This guide explains, in plain terms, what the Indian rules mean for a US LLC or corporation owned by an Indian resident individual or an Indian company, so you can have an informed conversation with your chartered accountant and authorised dealer bank. It is not legal advice, and the filings themselves are made through your bank and CA.
Short answer: if you are resident in India and put money into a US company you control, it is generally ODI under FEMA. An individual can invest only in an operating company that is not in financial services, through the Liberalised Remittance Scheme (up to $250,000 per financial year), with TCS of 20% on investment remittances above ₹10 lakh in a year (credited against your tax). Your AD bank reports the investment; an annual performance report is due by 31 December every year; and your interest goes in Schedule FA of your income tax return. If you formed a US LLC without doing this, there is a procedure to regularise it with a late submission fee. The US company itself, with EIN, costs $249 all-in in Wyoming with UCB.
Does ODI apply to a US LLC?
Usually yes. ODI covers investment in the equity capital of a foreign entity, and a US LLC counts because its members have limited liability. It applies when you:
- Subscribe or contribute capital to the company when it is formed or later.
- Hold 10% or more, or have control, which the rules link to the right to appoint the majority of managers or to control management or policy decisions, including through 10% or more of the voting rights.
A US LLC that a single Indian founder forms and runs is therefore almost always an ODI. Small holdings below 10% without control, such as listed shares, are overseas portfolio investment instead, with lighter rules.
What about an LLC that has no capital put in, where clients pay the US company and the founder never sends money from India? The founder still holds a foreign entity, and income earned abroad by an entity you control raises its own questions. Discuss with your CA how the holding is reported from the start; "I never sent money" is not the same as "nothing to report".
The rules for a resident individual
| Rule | What it means for a US company |
|---|---|
| Operating entity only | The US company must carry on a real business, such as services, software, e-commerce or trading goods |
| No financial services | An individual cannot make ODI in a foreign entity engaged in financial services activity |
| No subsidiaries where you have control | If you control the US company, it should not have its own subsidiaries or step-down subsidiaries |
| Within LRS | Your remittances for the investment count towards the $250,000 yearly LRS limit, together with all other LRS remittances |
| Through your AD bank | The remittance is made and reported through an authorised dealer bank, which files the form with the RBI |
The financial services restriction matters for founders who want a US company to trade shares, futures or crypto, or to lend: an individual may not be able to invest in it as ODI. See US LLC for trading and investing. The subsidiary restriction matters if you plan a US holding company with its own subsidiaries; that structure is usually done through an Indian company instead.
LRS and TCS
Every remittance from India by a resident individual, for any purpose, counts towards the Liberalised Remittance Scheme limit of $250,000 per financial year (April to March). For investment remittances, the bank collects tax at source (TCS) of 20% on the amount above ₹10 lakh in the financial year. TCS is not an extra tax: it appears in your tax credit statement and is set off against your income tax or refunded, but it ties up cash until then.
Practical points:
- Plan the timing. Most US companies need very little capital. Formation and the first year's costs can be paid without sending large sums.
- Keep the remittance purpose correct. Capital sent to your own US company is an investment, not a payment for services. The purpose code your bank uses should match.
- The company's own income is not LRS. Money US clients pay to your US company does not use your LRS limit; LRS is about what you send from India.
Investing through an Indian company
If your Indian private limited company or LLP will own the US company, the Indian entity makes the ODI instead. The rules differ:
- The Indian entity's total financial commitment abroad is limited to 400% of its net worth.
- An Indian company can set up a US subsidiary with its own subsidiaries, within the rules on layers.
- Round-tripping structures, where the US company invests back into India, need care under the rules and are discussed with your CA before setting up.
- The Indian company prices the work it does for the US company at arm's length, and transfer pricing documentation may apply.
Agencies and software companies with a team in India often choose this route: the US company signs US contracts, and the Indian company does the work and invoices the US company. See US subsidiary for a foreign company.
After the investment: what is reported and when
| When | What | Who files |
|---|---|---|
| At the time of investment | ODI reporting of the remittance | Your AD bank, with your documents |
| Within about 6 months | Evidence of the investment, such as the LLC's membership certificate or share certificate | You, through your AD bank |
| Every year by 31 December | Annual performance report (APR) for each foreign entity, based on its financial statements | You or your Indian company, through the AD bank |
| Every year with your income tax return | Schedule FA: your interest in the US company, and any foreign bank account where you are an owner or signatory | You, with your CA |
| When anything changes | Further investment, new partners, transfer of interest, restructuring or closing (disinvestment) | Through your AD bank |
The APR is due for every year you hold the investment, whether the US company made a profit, a loss or nothing at all. Because many US LLCs have no audit requirement, the APR is generally based on the company's financial statements as prepared; ask your CA what your AD bank expects.
Schedule FA follows the calendar year (January to December) rather than the Indian financial year, and missing it can bring penalties under the Black Money Act, so it is worth getting right every year. Your US company's records, including its yearly federal return, are what your CA uses for both the APR and Schedule FA, which is one reason we keep them in order. See US tax filing checklist for foreign-owned LLCs.
If you formed a US company and never did the ODI
This is common, and it can usually be put right. The rules allow late reporting with a late submission fee, and an AD bank will not process later transactions, such as further investment or closing, while earlier reporting is pending. The usual steps, handled by your CA and bank:
- Collect the US company's formation documents, EIN letter and bank statements.
- Work out what was invested and when, and what reporting was missed.
- Make the late filings through the AD bank and pay the late submission fee.
- Bring the APR and Schedule FA up to date.
On the US side, we can bring the company itself up to date if its federal returns or state reports were also missed. See missed US tax filing: what to do and reinstating a dissolved US LLC.
Closing the US company
When you close a US company you invested in from India, the Indian side has its own step: disinvestment reporting through your AD bank, usually within a short time after receiving any proceeds, with the final APR as advised. Close the US company properly first, with final returns and the state dissolution, so the Indian filings match. See closing a US LLC from abroad.
Indian income tax, in brief
FEMA tells you how to invest; income tax decides how the profit is taxed. The main questions for your CA are how India classifies a US LLC (a transparent LLC in the US may be treated as a company in India), whether the company is effectively managed from India, and how US tax, if any, is credited. Our main India guide covers these: registering a US company from India.
Worked examples
These are illustrative examples, not client cases.
Example 1: the Bangalore freelancer. A developer forms a Wyoming LLC for US contracts and sends $1,000 from India as initial capital. Her AD bank reports the ODI, she files the APR each December and lists the LLC and its US account in Schedule FA. The LLC's own revenue from clients never uses her LRS limit.
Example 2: the Pune agency owned by a private limited company. The Indian company invests in a US LLC that signs US retainers. The Indian company makes the ODI, files the APR, and invoices the LLC for the work done in India under a services agreement priced at arm's length.
Example 3: the founder who did nothing. A founder in Delhi formed a Delaware LLC three years ago and funded it from his savings account through his bank's online remittance, coded as a general transfer. His CA prepares the late ODI reporting with the late submission fee, catches up the APRs and revises Schedule FA. We file the LLC's missing Form 5472 returns on the US side.
Example 4: the trader. A resident wants a US LLC to trade US options. Because an individual cannot make ODI in an entity engaged in financial services activity, his CA advises against the structure and he invests in his own name under LRS portfolio rules instead.
Common mistakes
- Treating the US company as "just a US thing" with nothing to report in India.
- Remitting capital with the wrong purpose code.
- Missing the 31 December APR in a year the company was dormant.
- Leaving the US company or US bank account out of Schedule FA.
- Setting up a US company to trade securities or crypto as an individual's ODI.
- Closing the US company without the Indian disinvestment reporting.
Frequently asked questions
Is a US LLC an ODI for an Indian resident? Usually yes, when you hold 10% or more or control it, which is the case for almost every founder-owned LLC.
How much can I invest in my US company? As an individual, within the LRS limit of $250,000 per financial year, across all your LRS remittances. An Indian company can invest up to 400% of its net worth.
Is TCS charged on money I send to my US company? On investment remittances above ₹10 lakh in a financial year, at 20%. It is credited against your income tax.
What is the APR deadline? 31 December every year, for each foreign entity, through your AD bank.
Do I need an ITIN? Not for the company, its EIN or most bank accounts. See what is an ITIN and who needs one.
How UCB helps
We form and run the US side for Indian founders: a Wyoming LLC with EIN is $249 all-in, a Delaware corporation with EIN is $308, and our formation, EIN and bank account package is $348. Each year we keep the company active and file its federal return through our US tax filing service, and we give your CA the documents needed for the ODI reporting, APR and Schedule FA. See also Delaware parent for an Indian startup, Wyoming LLC from India and Delaware company from India.
Forming or fixing a US company from India? WhatsApp us at +91 8105 199 399 or email enquiries@ucbsolutions.com, and we will tell you what the US side needs and what to ask your CA.
Let our experts handle it for you
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This article is general information for non-resident business owners and is not legal or tax advice. Rules and fees change; contact us to confirm what applies to your situation.
