US LLC for founders in India

What Indian rules apply to forming the LLC?

A resident individual who invests in a foreign entity makes an overseas investment under India's Foreign Exchange Management (Overseas Investment) Rules, 2022. Direct investment in a foreign operating business by a resident individual is generally allowed under the automatic route, subject to conditions, including that the entity is not in financial services and does not have subsidiaries the individual would control through it. The investment is made through an authorised dealer bank, with the required ODI reporting, and funded within the Liberalised Remittance Scheme limit of US$250,000 per financial year. Talk to your bank and a chartered accountant before sending money to the LLC.

How do you set one up from India?

1. Check the ODI conditions

   With your bank and CA, before forming or funding.

2. Form the LLC

   Online, through a registered agent in the chosen state.

3. Get the EIN

   Without an SSN or ITIN, by fax, mail or phone.

4. Fund it through your bank

   As an overseas investment, with the ODI reporting your bank requires.

5. Keep books and a transfer log

   For Form 5472, ODI reporting and your Indian return.

See how to open a US LLC from outside the US and EIN without an SSN or ITIN.

What does the US require?

A single-member LLC owned by an Indian resident is disregarded. Without a US office, staff or dependent agents, it usually has no effectively connected income and owes no US income tax. It files Form 5472 with a pro forma Form 1120 each year it has transactions with you; the penalty for each missing form is $25,000. The US-India tax treaty can reduce US withholding on dividends, interest and royalties and limit US tax on business profits without a US permanent establishment. Indian authorities have at times questioned treaty claims made through US LLCs, because the LLC itself is not taxed in the US. See Form 5472 and tax treaties and your US LLC.

How is the income taxed in India?

India taxes its residents on worldwide income for the financial year from April to March. From April 1, 2026, the Income-tax Act, 2025 replaced the 1961 Act; the main rules are similar, but section numbers have changed, so check references in older material. Points to settle with your CA:

• How the LLC's profit is taxed in your hands: as business income each year, or as income from a foreign company.
• Place of effective management: a foreign company whose key management and commercial decisions are made in India can be treated as resident in India and taxed there.
• Transfer pricing, if you also run an Indian business that deals with the LLC.
• GST, if you or an Indian business provide services to the LLC.

See US LLC and tax in your home country.

What must be reported in India?

Residents must declare foreign assets, including shares or interests in foreign entities and foreign bank accounts, in Schedule FA of the income tax return, even where no income arises. Failing to disclose foreign assets can bring heavy penalties under India's black money law. ODI investments also carry annual reporting through your bank.

How should money flow?

• Into the LLC: as an overseas investment through your bank, within the LRS limit.
• Back to India: distributions or payments for services, through banking channels, with records that match your books and Indian return.

See taking money out of a US LLC.

What are the common mistakes?

• Funding the LLC without following the overseas investment rules.
• Skipping Form 5472 because there was no US tax.
• Leaving the LLC out of Schedule FA.
• Running every decision from India without considering the place of effective management rule.

This guide is general information. It is not tax or legal advice for your situation.