A US LLC may help you contract with customers or apply for business banking. If you live in India, the first step is checking the Indian investment route, before sending money.
US formation does not settle FEMA compliance, Indian income tax or GST. Use this guide to prepare questions for your Indian chartered accountant (CA) and bank, not as approval for a particular structure.
Confirm two different kinds of residence
Indian tax residence and residence under the Foreign Exchange Management Act (FEMA) are separate tests. Citizenship alone does not decide either.
Tax residence depends on the applicable year’s rules, including presence and special conditions. FEMA also considers why you leave or stay in India, including employment, business and an intended stay for an uncertain period. The RBI’s foreign currency account FAQ sets out the FEMA definition.
Ask your CA to record both conclusions. An Indian citizen living abroad should not automatically follow the resident-individual route described below.
Choose the investment route, not just a remittance limit
The Liberalised Remittance Scheme (LRS) permits specified overseas transactions within its limits. It is not blanket permission to fund any foreign LLC.
Under the Overseas Investment Rules, 2022, acquiring unlisted equity generally falls under overseas direct investment (ODI). Overseas portfolio investment (OPI) is a separate category. A small contribution to your own unlisted LLC does not become OPI merely because the amount is small.
For the ordinary resident-individual ODI route, the foreign entity must be operating and not engaged in financial services. Where the individual controls it, it must not have a subsidiary or step-down subsidiary. Specific acquisition exceptions exist; do not assume they cover forming your own business.
The foreign entity generally needs limited liability. That is a legal-structure requirement, not a US tax election. Prohibited activities include gambling and specified real estate activities; Indian-rupee-linked financial products have separate restrictions. Explain the actual business, including any regulated activity.
| Your proposed arrangement | What to resolve before proceeding |
|---|---|
| You directly own an operating services LLC | Confirm ODI eligibility, limited liability and the funding route. |
| The LLC will provide financial services | Do not assume the ordinary individual route permits it. |
| You control an LLC that will own another company | Resolve the subsidiary restriction before creating that structure. |
| An Indian company or LLP will invest | Apply Indian-entity rules, not your personal LRS allowance. |
| You already owned the LLC before moving to India | Review acquisition history and changed residence separately. |
Speak to your AD bank before funding
Use an authorised dealer (AD) Category-I bank that handles overseas investment. The RBI master direction, updated April 2026, explains its role.
- Give the bank your proposed ownership chart, business activity and funding plan before incorporation or investment.
- Ask which route applies and whether any approval is needed. Describe formation costs, capital, proposed loans and later contributions separately.
- Obtain its document checklist. This may include identity and PAN details, source-of-funds evidence, formation documents, the operating agreement, Form FC, Form A2 and applicable valuation support.
- For initial ODI, arrange Form FC and the foreign entity’s Unique Identification Number (UIN) through the designated bank before the investment/remittance stage. A UIN records the investment; it is not RBI approval.
- Agree who supplies investment evidence and handles later reporting. Confirm Annual Performance Report (APR) requirements, any exemption, supporting accounts and repatriation obligations.
Ask: “Which reports apply to my ownership and control, what records do you need, and when?” Reporting depends on the transaction and facts. Low revenue does not itself remove it.
Work out Indian tax before choosing US tax treatment
A US “disregarded entity” election or default does not dictate India’s classification. Ask your CA whether India treats this LLC as a separate taxable entity or attributes its income to you, and when profit or distributions become taxable.
Under India’s Income-tax Act, 2025, sections 5 and 6, a resident and ordinarily resident individual (ROR) generally faces tax on worldwide income. Resident but not ordinarily resident (RNOR) treatment is narrower. Foreign income from a business controlled in India or a profession set up there can still be included. The new Act applies to tax years beginning April 1, 2026 onwards; earlier years remain under the prior law.
Foreign-company residence needs a separate review. Place of effective management (POEM) concerns where key management and commercial decisions for the company as a whole are actually made. It does not automatically make every Indian-owned LLC Indian-resident. Ask about entity classification, applicable exclusions and decision-making evidence.
The Income Tax Department’s Schedule FA guidance distinguishes foreign-asset disclosure from income tax: Schedule FA is not required for nonresidents or RNORs. An ROR should review foreign ownership interests, accounts and signing authority, even without distributions. Your CA must choose the correct return and reporting period.
Also ask who supplies the service, signs contracts and receives client payments. Indian GST, export-of-services conditions, export receipts and related-party payments need their own analysis. A US bank account does not remove those duties.
Keep the US filings separate
For a foreign-owned disregarded LLC, reportable owner transactions can require Form 5472 with a pro-forma Form 1120 even with zero revenue. Contributions and distributions count under the IRS Form 5472 instructions.
The owner’s Form 1040-NR is different. US business activity and effectively connected income need review; ownership alone does not require that return. A multi-member LLC normally follows Form 1065 partnership rules, unless its classification changes.
The US-India treaty documents require a separate eligibility review. Do not assume a US-transparent LLC automatically receives treaty benefits or matching foreign tax credits in India. Our foreign-owned LLC tax overview explains the broader US framework.
Form the LLC after the India-side review
Once the route is clear, compare formation service scope, document ownership in the operating agreement, and appoint a registered agent.
The agent’s address is not proof of your operating location. Banking providers make independent decisions and may ask where work happens. Read the Mercury application guide; approval is not assured.
Our formation service covers US setup. Our federal tax service prepares supported US returns; Form 1065 is coming soon. These services do not replace Indian tax advice or FEMA reporting through your CA and AD bank.
Frequently asked questions
Can I keep all profits abroad and skip Indian tax?
No. Taxability can arise before remittance or withdrawal. Residence, entity classification and the income’s nature decide the treatment.
Does my bank processing a transfer prove compliance?
Not by itself. Keep the declared purpose, investment documents and reporting records. A successful transfer is not a substitute for meeting the route’s conditions.
Should I form first and ask my CA later?
Start with the CA and AD bank. Changing ownership or funding arrangements afterwards can create extra transactions and reporting.
Sources checked October 2026
- RBI: Foreign currency account FAQ.
- Ministry of Finance: Overseas Investment Rules, 2022.
- RBI: Master Direction, Overseas Investment.
- Income Tax Department: Income-tax Act, 2025, amended by Finance Act 2026.
- Income Tax Department: Schedule FA guidance.
- IRS: Form 5472 instructions.
- IRS: India treaty documents.
