ODI, LRS and FEMA compliance for your company abroad
Before money leaves India for a new company, the Overseas Investment Rules, the LRS limit and the TCS rules all apply — and the reporting continues every year.
The framework
Overseas investment by persons resident in India is governed by the Foreign Exchange Management (Overseas Investment) Rules, 2022, the Overseas Investment Regulations, 2022 and the Reserve Bank of India's Overseas Investment Directions, 2022 (as amended). Resident individuals fund their investment through the Liberalised Remittance Scheme (LRS), which allows up to USD 250,000 per financial year (April to March).
Conditions for resident individuals
| Type of entity | An operating foreign entity, not engaged in financial services activity |
| Subsidiaries | The foreign entity must not have a subsidiary or step-down subsidiary where the individual has control |
| Form of investment | Equity capital, within the LRS limit; individuals cannot lend to the foreign entity as ODI |
| Prohibited sectors | Real estate activity, gambling in any form, and INR-linked financial products without RBI approval |
| Layers | If the foreign entity invests into India, the structure must not exceed two layers of subsidiaries |
| Restricted countries | Investment in Pakistan, or in jurisdictions the Government specifies, needs prior Government approval |
| No-objection certificate | Needed from the lender, regulator or agency if your account is a non-performing asset, you are a wilful defaulter, or you are under investigation |
Different rules apply where shares come by inheritance, as sweat equity, as qualification shares or under an employee scheme, and to investment in an International Financial Services Centre.
Reporting
- Before you invest: Form FC is filed through your authorised dealer bank before the investment is made, and the bank obtains a Unique Identification Number (UIN) for the foreign entity. Each later financial commitment is reported at the time of the remittance or commitment, whichever is earlier.
- Every year: an Annual Performance Report (APR) is generally due by 31 December for each foreign entity, based on its latest accounts (certified by a chartered accountant where there is no statutory audit).
- Changes: disinvestment and restructuring are reported within 30 days.
- Late filings: a late submission fee is available for up to three years from the due date — ₹7,500 for a late APR. Until a delay is regularised, no further financial commitment or transfer can be made.
Tax in India
- TCS: LRS remittances for investment attract tax collected at source of 20% on the amount above ₹10 lakh in a financial year; it can be credited against your income tax.
- Worldwide income: a resident and ordinarily resident individual is taxed on worldwide income, including dividends from the foreign company, with credit for eligible foreign tax.
- Place of effective management: a foreign company is resident in India if its place of effective management is in India. Under CBDT Circular No. 8 of 2017, the POEM test does not apply to a company with turnover or gross receipts of ₹50 crore or less in the financial year.
- Schedule FA: if you are resident and ordinarily resident, foreign shareholdings are disclosed in Schedule FA of the return. Non-disclosure can attract a ₹10 lakh penalty under the Black Money Act, with relief since 1 October 2024 where the aggregate value of foreign assets (other than immovable property) does not exceed ₹20 lakh.
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026, so older section numbers (for example section 6(3) on company residence) now have new equivalents.
NRIs and Indian companies
NRIs investing from foreign funds are generally outside the Overseas Investment Rules, but the residence test under FEMA differs from the Income-tax Act test, so we confirm status first. Indian companies invest under their own set of ODI conditions, which allow structures that are not available to individuals.
How we help
- ODI eligibility review of the proposed structure
- Form FC and remittance coordination with your bank
- APR preparation and certification support every year
- Schedule FA and foreign tax credit in your income tax return
- Governance planning to manage place-of-effective-management risk
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.