Owning a company abroad as a resident Indian: ODI, LRS and the annual reporting
Before you remit money to a new company abroad, India's Overseas Investment Rules decide whether you can invest, how much, and what you must report every year. Here is the checklist.
Indian founders often focus on comparing licence fees abroad. For a resident Indian, however, the Indian rules can decide the structure. If you are resident in India, the Foreign Exchange Management (Overseas Investment) Rules, 2022 set out whether you may invest in a foreign company at all, the Liberalised Remittance Scheme (LRS) caps how much you can send, and the reporting continues for as long as you hold the investment.
Step 1 — confirm your residence status
The Overseas Investment Rules apply to persons resident in India under FEMA. NRIs investing from their foreign funds are generally outside them. The FEMA test is not the same as the residence test in the Income-tax Act, so someone who has just moved abroad, or is about to, should have their status confirmed before the structure is fixed.
Step 2 — check that the foreign company is eligible
A resident individual may make overseas direct investment (ODI) by way of equity capital only in a foreign entity that is:
- an operating entity;
- not engaged in financial services — meaning an activity that would need registration with, or regulation by, a financial sector regulator if carried out in India; and
- without any subsidiary or step-down subsidiary in which the individual has control.
In addition, ODI is not permitted in real estate activity, gambling in any form, or financial products linked to the Indian rupee without RBI approval. Where the foreign company invests back into India, the structure must not exceed two layers of subsidiaries. Investment in Pakistan, or in a jurisdiction the Central Government specifies, needs prior Government approval. If your bank account is classified as a non-performing asset, you are a wilful defaulter, or you are under investigation by an investigative agency or regulator, you need a no-objection certificate from the lender, regulator or agency before investing.
In practice, a pure holding company — or a foreign company that will own a subsidiary you control — is generally not available to a resident individual. Indian companies follow a separate set of ODI conditions.
Step 3 — plan the remittance
| LRS limit | USD 250,000 per financial year (April to March) per resident individual, across all permitted purposes |
| TCS on remittances for investment | 20% on the amount above ₹10 lakh in a financial year — collected by your bank and creditable against your income tax |
| Source of funds | Investment in a start-up abroad must come from your own funds |
Step 4 — report through your bank
- Form FC is filed through your authorised dealer bank before the investment is made; each later financial commitment is reported at the time of the remittance or the commitment, whichever is earlier. The bank obtains a Unique Identification Number (UIN) for the foreign entity.
- An Annual Performance Report (APR) is generally due by 31 December every year for each foreign entity, based on its latest audited accounts (or accounts certified by a chartered accountant where there is no statutory audit). Small non-controlling holdings below 10% with no other financial commitment, and entities in liquidation, are exempt.
- Disinvestment and restructuring are reported within 30 days.
- Missed a date? A late submission fee is available for up to three years from the due date — ₹7,500 for a late APR, and a formula-based fee for transaction returns. Until a delay is regularised, no further financial commitment or transfer can be made.
Step 5 — the Indian tax side
- Worldwide income. A resident and ordinarily resident individual is taxed on worldwide income. Dividends from the foreign company are taxable at your slab rates, with credit for eligible foreign tax under the applicable treaty or unilateral relief.
- Schedule FA. If you are resident and ordinarily resident, your foreign shareholding is disclosed in Schedule FA of your return. Failure to disclose can attract a ₹10 lakh penalty 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) does not exceed ₹20 lakh.
- Place of effective management. A company incorporated abroad is resident in India if its place of effective management (POEM) is in India. Under CBDT Circular No. 8 of 2017, which continues to apply so far as it is consistent with the new Act, the POEM test does not apply to a company whose turnover or gross receipts are ₹50 crore or less in the financial year. Where key decisions are actually taken still matters — under the POEM test for larger companies, and for any company in deciding whether it has a business connection or permanent establishment in India.
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. Earlier circulars continue to apply so far as they are consistent, but section references have changed — for example, company residence moved from section 6(3) to section 6(10).
A simple compliance calendar
| When | What |
|---|---|
| Before remitting | Eligibility check; Form FC through your bank; UIN issued |
| On remittance | LRS declaration; TCS collected above ₹10 lakh |
| By 31 December, every year | Annual Performance Report for each foreign entity |
| With your income tax return | Schedule FA; foreign income and foreign tax credit claim |
| Within 30 days of a change | Report disinvestment or restructuring |
How we help
We review the proposed structure against the ODI conditions before you commit, coordinate Form FC and the remittance with your bank, prepare the APR each year and handle Schedule FA in your return. For the company abroad, our colleagues set up UAE companies through ProBiz Setup and look after UAE Corporate Tax, VAT and bookkeeping through pbz.ae. See our ODI & FEMA compliance page or ask for a structure review.
Sources: Foreign Exchange Management (Overseas Investment) Rules, 2022 (G.S.R. 646(E), 22 August 2022), Rules 9 and 19 and Schedule III; Foreign Exchange Management (Overseas Investment) Regulations, 2022 (FEMA 400/2022-RB), Regulations 10, 11 and 12; Foreign Exchange Management (Overseas Investment) Directions, 2022 (A.P. (DIR Series) Circular No. 12, 22 August 2022), as amended, including para 18; RBI FAQs on the Liberalised Remittance Scheme; Income-tax Act, 2025, sections 5, 6, 394 and 536; CBDT Circulars No. 6 and 8 of 2017; Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, sections 42 and 43, as amended by the Finance (No. 2) Act, 2024.