How a US LLC Is Taxed When the Owner Lives in India (2026): US Filings, Indian Income Tax, Foreign Tax Credit, Schedule FA and FAST-DS

"Is my US LLC tax-free?" is the most common question Indian founders ask, and the honest answer has two halves. In the US, an LLC owned by someone who lives and works in India often owes no US income tax at all, but it still has a federal return to file every year. In India, you are taxed on your worldwide income, so the profits are taxable here, and the real questions are when, in whose hands and at what rate.

This guide walks through both halves for a resident of India who owns a US LLC (and, briefly, a US corporation), with worked examples in rupees. Indian tax on a foreign LLC is an area where practice differs, so read it as a map for a conversation with your chartered accountant, not as a substitute for one.

Short answer: a single-member US LLC owned by an Indian resident who does the work in India usually has no US income tax, because the income is not connected with a US trade or business. It must still file Form 5472 with a pro forma Form 1120 every year (the penalty for missing it starts at $25,000). In India, the profits are taxable: most CAs tax them in your hands as business income in the year they are earned, at your slab rate; a minority treat the LLC as a foreign company, which brings questions about a permanent establishment in India. With no US tax paid there is no foreign tax credit. Your LLC and its bank accounts go in Schedule FA every year, and anyone who missed that can use the FAST-DS 2026 window, open until 31 December 2026.

Two countries, two different views of the same LLC

The confusion starts because each country looks at an LLC through its own rules.

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. It uses "tax year" in place of "previous year" and "assessment year", and section and form numbers have changed, but the principles in this guide carry over.

The US side: why there is often no US tax

The US taxes a foreign owner of a disregarded LLC only on income that is effectively connected with a US trade or business (ECI), plus certain US-source investment income. Whether your income is ECI depends mainly on where the work is done and whether you have people or an office in the US.

• You are a designer, developer or consultant working from India, and the LLC has US clients: the services are performed outside the US, so the income is generally foreign-source and not ECI. No US income tax.
• You sell products online with stock in a US warehouse such as Amazon FBA, or you have a US employee or dependent agent: the position changes, and some or all of the income may be ECI, taxed at graduated rates with a federal return for the owner. See effectively connected income explained.
• You travel to the US and work there for clients: income for work done in the US is US-source and can be taxable.

What does not change is the information return. A US LLC owned by a foreign person files Form 5472 attached to a pro forma Form 1120 every year by 15 April (extendable to 15 October), reporting transactions between you and the LLC, including the money you put in and take out. The penalty for not filing is $25,000 per form, per year. The details are in Form 5472 explained.

Two more US points:

• No US withholding on your withdrawals. Money you take out of a disregarded LLC is not a dividend for US purposes, so no US tax is withheld.
• State taxes. Wyoming, New Mexico and a few other states have no state income tax on an LLC; others charge franchise or minimum taxes regardless of income. See state taxes for foreign-owned LLCs.

The Indian side: two approaches you will meet

Because the Income-tax Act has no rule written for a US single-member LLC, two approaches are used in practice. Which one fits your facts is the first thing to settle with your CA, and whichever you choose, use it consistently every year.

Approach 1: the LLC's profit is your business income

The LLC is treated as a vehicle through which you carry on your profession or business. Its income and expenses are included in your own return as business or professional income in the year they are earned, whether or not you move the money to India.

• Profit is taxed at your slab rate, with normal business deductions for real expenses (software, contractors, the LLC's annual costs).
• Eligible professionals, including IT professionals, can look at presumptive taxation, where 50% of receipts is taken as profit if receipts are within ₹75 lakh and cash receipts are within 5%. Whether your CA is comfortable using it for receipts that flow through a foreign LLC is a judgement call.
• Because the income is already taxed in your hands, moving the money from the LLC's US account to your Indian account later is not taxed again.
• It matches how the IRS sees the LLC, and it keeps the question of a permanent establishment (below) out of the picture, which is why many CAs prefer it for one-person service businesses.

Approach 2: the LLC is a foreign company

The LLC is treated as a separate foreign company. Its profits are not yours until it distributes them, and a distribution is taxed in your hands as dividend income at your slab rate. This approach is closer to the LLC's legal form (Indian tribunals have accepted that a US LLC is a separate "person"), but it raises two questions when the owner works from India:

• Permanent establishment. If the LLC's business is carried on through you, in India, the LLC itself can have a permanent establishment or business connection here. Profit attributable to it is then taxable in India in the LLC's hands at the foreign company rate of 35% plus cess, before anything reaches you.
• Place of effective management. A foreign company managed from India can be treated as resident in India. CBDT guidance keeps companies with turnover or gross receipts of ₹50 crore or less in a year outside this test, so for most small LLCs this is a background point, but it is tested year by year.

Approach 2 is more often relevant where the LLC has real operations of its own outside India, such as US staff, a US warehouse or several owners, rather than a single founder doing all the work from Pune or Bengaluru.

Worked example 1: a developer in Bengaluru

Arjun is resident in India and owns a Wyoming single-member LLC. In tax year 2026-27 his US clients pay the LLC $60,000. The LLC's expenses (software, hosting, the registered agent and the US return) are $6,000. He does all the work from Bengaluru. Figures use an illustrative ₹88 to the dollar and the new regime slab rates.

US: the work is done in India, so the income is not ECI. US income tax: nil. The LLC files Form 5472 and a pro forma 1120.

India, Approach 1 (actual profit): profit is $54,000, or ₹47.52 lakh.

That is an effective rate of about 22% on the profit. There is no foreign tax credit, because no US tax was paid.

India, Approach 2: suppose Arjun leaves the profit in the LLC and takes out $30,000 (₹26.4 lakh) as a distribution. On its own, that dividend would cost him about ₹3.87 lakh at slab rates. But because the whole business is carried on by Arjun in India, the LLC can be said to have a permanent establishment here. If the full ₹47.52 lakh profit were attributed to it, the LLC would owe about ₹17.3 lakh (35% plus cess) before his dividend is taxed. This is why Approach 2 is rarely the cheaper or simpler choice for a one-person service business run from India.

Worked example 2: two founders and an Amazon store

Meera (Mumbai) and Rahul (Delhi) own a Delaware LLC 50:50. It sells products on Amazon US, with stock in Amazon warehouses.

• US: a multi-member LLC is a partnership by default. With inventory held in the US for sale, the income is likely ECI. The LLC files Form 1065, gives each founder a Schedule K-1, and must withhold US tax on each foreign partner's share of effectively connected income (under section 1446). Each founder files a Form 1040-NR, which needs an ITIN.
• India: each founder reports their share of the profit. Because US tax was paid on it, each can claim a foreign tax credit in India under the India-US tax treaty, limited to the Indian tax on that income.

The foreign tax credit is claimed by filing the foreign tax credit statement (Form 67 under the former rules) with or before the Indian return, with proof of the US tax paid, such as the 1040-NR and payment records.

If the US company is a corporation

A US C-Corporation is a separate taxpayer in both countries, so there is no debate about approach:

• The corporation pays 21% US federal corporate tax on its profit (plus state tax where applicable).
• Dividends to an Indian resident individual carry US withholding of 25% under the India-US treaty (instead of 30%), and the dividend is taxed in India at your slab rate, with a foreign tax credit for the US tax withheld. Credit for the corporation's own 21% is not available to you as an individual.
• A salary from the corporation for work done in India is generally taxed in India, not the US.
• Place of effective management and permanent establishment questions apply in the same way as for Approach 2 above.

The double layer of tax is why founders who do not need investors usually prefer an LLC. Founders raising venture capital usually need a Delaware corporation anyway; see Delaware parent for an Indian startup and LLC vs Inc for non-residents.

Disclosure in India: Schedule FA

Whatever approach you take for income, your US company must be disclosed in your Indian return. Resident individuals report foreign assets in Schedule FA, which follows the calendar year ending in the tax year (for tax year 2026-27, January to December 2026). For a US LLC founder, that typically means:

• your interest in the LLC or corporation, with its name, address, the date you acquired it and the amount invested;
• the LLC's US bank account, and any foreign account you have signing authority over, even if it belongs to the company;
• foreign payment accounts that hold balances, such as Wise or Payoneer balances.

Not disclosing foreign assets can attract a penalty of ₹10 lakh under the Black Money Act. Since 1 October 2024 that penalty does not apply where the aggregate value of foreign assets other than immovable property is ₹20 lakh or less at all times in the year, but the disclosure is still required.

Capital you send to the company is also an overseas direct investment under FEMA, with its own reporting through your bank and an annual performance report due by 31 December. That is a separate law from income tax; see ODI and FEMA rules for Indian residents.

Missed Schedule FA in earlier years? The FAST-DS 2026 window

The Finance Act, 2026 created a one-time scheme, the Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 (FAST-DS 2026). Declarations are filed online from 16 August 2026 to 31 December 2026, with assets valued as on 31 March 2026. It has two categories:

For a founder who paid Indian tax on the LLC's income but never listed the LLC or its bank account in Schedule FA, the second category is the one to look at. A valid declaration gives protection from tax, penalty and prosecution under the Black Money Act for what is declared. It does not settle FEMA matters such as a missed ODI filing, which is regularised separately through your bank with a late submission fee.

GST, if an Indian business is involved

If you, as a proprietor, or your Indian private limited company or LLP invoices the US LLC or US clients for the work, those invoices are an export of services, which is zero-rated under GST when you file a letter of undertaking (LUT). Exports count towards the ₹20 lakh aggregate turnover threshold for GST registration. The "two-company model" (the Indian entity does the work and invoices the US LLC at an arm's-length fee) changes how the profit is split between the two companies, and your CA will look at the pricing between them. See US LLC for freelancers and consultants.

Common mistakes

• Believing "no US tax" means "no tax". India taxes the profit even when the US does not.
• Skipping Form 5472 because the LLC had no US tax to pay. The return is about the foreign owner's transactions, and the penalty is $25,000.
• Waiting to bring money home before reporting. Under Approach 1, profit is taxed when earned, not when remitted.
• Switching approach between years, for example taxing profit as earned one year and as dividends the next.
• Leaving the LLC and its bank account out of Schedule FA, or forgetting accounts you only sign on.
• Forgetting the permanent establishment question when treating the LLC as a foreign company that keeps its profit abroad.
• Not keeping the US paperwork your CA needs: the LLC's bank statements, invoices, Form 5472 and any US tax returns, in rupees at a consistent conversion rate.

Frequently asked questions

Is a US LLC tax-free for an Indian resident? No. It may owe no US income tax when you do the work in India, but the profit is taxable in India, and the LLC still files a US information return every year.

Do I pay tax in both the US and India? Usually only India, for a service business run from India. Where the US does tax the income, for example an e-commerce business with US inventory, India gives a foreign tax credit for the US tax under the treaty.

Is the LLC's income taxed in India only when I bring it to India? Under the approach most CAs use, no: it is taxed in the year it is earned, wherever the money sits. Under the foreign company approach, you are taxed on distributions, but the LLC itself may be taxable in India if the business is run from here.

Can I use presumptive taxation for my LLC income? Possibly, if you are an eligible professional, receipts are within ₹75 lakh and your CA treats the LLC's income as your professional income. It is a judgement call to make with your CA.

Where do I show the US LLC in my Indian return? Your income goes in the business income or other income schedules, depending on the approach, and the LLC and its bank accounts go in Schedule FA every year.

I never reported my LLC in Schedule FA. What now? Look at the FAST-DS 2026 window, open until 31 December 2026. Where the income was already taxed in India, the second category costs a flat ₹1 lakh. Your missed ODI reporting under FEMA is handled separately through your bank.

Does a US corporation work better for tax? For most solo founders, no: the corporation pays 21% US tax and dividends carry 25% US withholding before Indian tax. It is the right choice when you need investors.

How UCB can help

We form and maintain the US side for Indian founders and file the LLC's annual Form 5472 and pro forma 1120 through our US tax filing service, and we give your CA the US documents needed for your Indian return. For the Indian return itself, work with your chartered accountant. See also how to register a company in the USA from India and moving money from your US company to India.

Questions about the US filings for your LLC? WhatsApp us at +1 315 961 2956 or email enquiries@ucbsolutions.com.