NRI Taxation and Compliance (Part 6): Investing in Indian Startups, Companies and LLPs
How NRIs can invest in Indian companies and LLPs: repatriation vs non-repatriation, FC-GPR, resident director, pricing and tax on returns.
An NRI engineer in Austin wants to put USD 100,000 into his brother’s Hyderabad startup and join as a director. Which account should the money come from, what must be reported, who is the resident director, and how will the returns be taxed?
- Part 1: Residential status
- Part 2: Income taxation
- Part 3: Property
- Part 4: Banking and investments
- Part 5: Returning to India
- Part 6: Investing in Indian businesses (you are here)
- Part 7: Gifts, inheritance and succession
- Part 8: TDS, Section 195 and Forms 15CA/15CB
- Part 9: Return filing, refunds and notices
1. The two routes
| Non-repatriation basis | Repatriation basis | |
|---|---|---|
| Treated as | Domestic investment (NDI Rules, Schedule IV; confirm) | Foreign direct investment |
| Funds from | NRO account or rupee funds | Inward remittance or NRE / FCNR(B) account |
| Sale proceeds | Credited to NRO; repatriation limited to USD 1 million per financial year after tax | Can be repatriated, subject to tax and documents |
| Sector and pricing rules | Largely as for residents, but prohibited activities still apply (confirm) | Entry route, sectoral cap and pricing guidelines apply |
| Reporting | Generally no FEMA reporting for the issue (confirm) | FC-GPR within 30 days of allotment; FC-TRS for transfers; annual FLA return by 15 July |
2. Which vehicle?
| Vehicle | NRI point |
|---|---|
| Private limited company | Most common for startups; NRIs can hold shares and be directors; resident director needed |
| LLP | NRI contribution allowed where the sector permits FDI under the automatic route and with no FDI-linked performance conditions; forms LLP(I) within 30 days and LLP(II) for disinvestment (confirm) |
| Partnership firm or proprietorship | NRI can invest only on a non-repatriation basis (confirm) |
| Wholly owned subsidiary of a foreign company | Route for those who run a foreign company and want an Indian arm, covered in the FEMA series |
3. Company law points for an NRI investor or director
- Resident director: at least one director must have stayed in India for 182 days or more in the previous calendar year (Section 149(3), with a proportionate rule for new companies).
- DIN and DSC: an NRI director needs a DIN and digital signature; identity and address documents are notarised and apostilled or consularised where required (confirm).
- Registered office: must be in India; an NRI cannot use a foreign address.
- Share allotment: follow Part 4, including valuation and filing PAS-3.
- Director duties: an NRI director faces the same liabilities as any director (Part 3).
ComplianceKart structures the investment, prices the shares, files FC-GPR and sets up the resident director route, so the NRI investor is compliant from day one. See our FEMA and NRI compliance service.
4. Pricing and valuation
For a repatriation investment in an unlisted company, the issue price must not be less than fair value determined by a Chartered Accountant or a SEBI-registered merchant banker using an internationally accepted pricing methodology. Allotment must be completed within 60 days of receiving the funds, or the money must be refunded (confirm). Keep the valuation certificate with the FC-GPR documents.
5. Tax on the returns
| Income | NRI position (confirm for the year) |
|---|---|
| Dividend | Taxable in India; TDS applies; treaty rate may be lower with a tax residency certificate and Form 10F |
| Gain on unlisted shares held more than 24 months | Long-term capital gain at 12.5% without indexation |
| Gain on unlisted shares held 24 months or less | Short-term gain at slab rates |
| Interest from the company | Taxable; TDS under the non-resident provisions |
| Remuneration as director | Taxable if earned for services in India or accruing in India |
Payments to an NRI attract TDS under Section 195, and Forms 15CA and 15CB for outward remittance. See Part 2 for the wider tax position.
6. Mistakes NRIs make
- Sending funds from the wrong account and later expecting repatriation.
- Missing the FC-GPR 30-day deadline.
- No resident director, leading to a compliance default.
- Pricing shares at face value without a valuation.
- Investing in a prohibited sector through a nominee or relative.
- Not obtaining the Tax Residency Certificate for treaty benefit.
Why work with ComplianceKart
ComplianceKart is a boutique practice bringing Chartered Accountants, Company Secretaries and advocates under one roof. Think of a multi-speciality hospital: the physician, the radiologist and the pharmacist read from one patient file, so you never carry reports between buildings. An NRI investment touches FEMA, company law and tax at once. A team of Chartered Accountants, Company Secretaries and advocates under one roof handles all three in one plan.
Frequently Asked Questions
Can an NRI start a company in India?
Yes, as a shareholder and director, with one resident director on the board.
Do I need to report an NRI investment to RBI?
For repatriation investments, yes: FC-GPR through the AD bank. Non-repatriation investments generally need no FEMA reporting (confirm).
Can I take my investment back abroad later?
Repatriation-basis investment: yes, subject to tax. Non-repatriation: only through the NRO limit of USD 1 million per financial year.
Can an NRI invest in an LLP?
Yes, in sectors that allow FDI under the automatic route, with the LLP forms.
Is a valuation always required?
For unlisted shares issued under the repatriation route, yes, a fair value certificate is needed.
Sources
- FEMA (Non-debt Instruments) Rules, 2019, Schedules I, IV and VI (LLP) and the Master Direction on Foreign Investment in India
- Companies Act, 2013, section 149(3) and Companies (Appointment and Qualification of Directors) Rules, 2014
- Income-tax Act provisions on non-resident taxation and DTAA (confirm applicable Act and section for the year)
Ready to act? Start with our FEMA and NRI compliance service, check pricing, or contact us.
WhatsApp usEmail team@compliancekart.comCall 9959536391
Educational article, last updated 11 November 2026. General information, not advice on a specific case. Laws and due dates change; confirm on the date you act. Items marked (confirm) came from secondary sources and need checking against the official text.
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