Cross-Border Investment Management for Indian Founders

LRS, ODI and moving capital across borders

Last updated: September 2026. Reviewed against RBI, DPIIT and Income Tax Department notifications current as of this date.

Cross-border investing gets more complicated once money starts moving between India and another country. If you are an Indian founder funding a US LLC, setting up a UAE company, or managing a business across multiple jurisdictions, you need to understand how money can move out of India, what reporting applies, and how funds can return to India.

This guide explains the key rules around LRS, ODI, remittances, foreign investments, and bringing business profits back to India—so you can plan your cross-border transactions with greater clarity.

What Cross-Border Investment Management Means for a Founder

For most people, investing overseas means buying US stocks through an app or putting money into an international mutual fund. That is personal portfolio investment, and India regulates it differently from what a founder does when they fund a business they control.

When you fund your own company abroad, you are capitalising a business, not diversifying a portfolio. The money can move in several forms: an equity contribution for shares, a loan to the entity, working capital transfers, and later, profits or repayments flowing back the other way. Each form carries different reporting rules, and mixing them up is where founders run into trouble.

Under FEMA, overseas business investment falls into one of two tracks. Overseas Direct Investment (ODI) covers unlisted equity, control, or 10 percent or more of a listed entity. Overseas Portfolio Investment (OPI) covers listed securities below 10 percent with no control. A founder setting up and running a US LLC or UAE company is almost always in ODI territory.

The route that actually applies, though, depends on more than just "is this a business or a portfolio." Who is investing, what the foreign entity does, how much control you are taking, and the purpose of the transaction all factor in. If you are weighing entity types before you even get to funding, our comparison of a US subsidiary vs a branch office and our US LLC vs UK Ltd guide for UAE residents cover that decision. Confirm the specifics of your own structure with your AD bank or advisor before relying on a general rule of thumb, including the ones in this article.

LRS vs ODI: Which Route Applies to You?

What Is LRS?

The Liberalised Remittance Scheme (LRS), set out in RBI's Master Direction on the subject, lets a resident individual remit up to USD 250,000 per financial year for a defined list of permitted transactions, including investing in shares of a foreign company. You declare the purpose on Form A2 at your bank, and the AD bank processes the remittance, subject to Tax Collected at Source where applicable.

LRS suits smaller, individual-capacity investments: initial incorporation costs, a modest equity stake, or seed capital before the company has meaningful revenue. It is available to individuals only. If your Indian company or LLP wants to invest in the foreign entity directly, LRS does not apply.

What Is ODI?

Overseas Direct Investment applies once you are acquiring control, unlisted equity, or 10 percent or more of a foreign entity, whether you invest as an individual or through an Indian company. This is the route most founders setting up a genuine operating subsidiary fall under.

ODI sits under the Foreign Exchange Management (Overseas Investment) Rules, 2022 and the accompanying Regulations and Directions, which replaced the older ODI and JV/WOS framework from August 2022. Indian entities (companies, LLPs, partnership firms) can invest up to 400 percent of their net worth under the automatic route, without prior RBI approval, subject to sectoral conditions.

That 400 percent figure applies to entities with a balance sheet and calculable net worth. A resident individual making an ODI-type investment, such as taking a controlling stake in their own foreign company, remains bound by the same USD 250,000 LRS ceiling used for any other outward remittance. In practice, this means an individual founder cannot simply invoke the 400 percent entity limit to send more than their LRS cap allows; larger capital typically has to come through the Indian company itself, structured and reported as its own ODI.

ODI also brings more paperwork than LRS. Expect a Unique Identification Number (UIN) registration through RBI's Overseas Investment application, a valuation report where shares are issued or transferred, and an Annual Performance Report filed each year by the Indian party.

LRS vs ODI: Quick Comparison

Factor	LRS	ODI
Who can use it	Resident individuals, for personal-capacity remittances	Individuals and Indian entities, once control or 10%+ of a foreign entity is involved
Typical use case	Small remittance, early-stage or minority investment	Setting up or funding a controlled foreign subsidiary
Annual ceiling	USD 250,000 per individual per financial year	Up to 400% of net worth on the automatic route, for entities; individuals remain capped by their own LRS limit
Core paperwork	Form A2 with purpose code, KYC	UIN registration, valuation report, Annual Performance Report
Best suited for	Modest, individual-capacity investment	Genuine business ownership or control abroad, especially at scale

Which route actually applies depends on the transaction's facts, not a label you choose. When the answer is not obvious, confirm it with your AD bank or a FEMA advisor before you remit, not after.

How to Fund Your US or UAE Company From India

Equity Contribution

You send money in exchange for shares or membership interest. This needs correct reporting and, under ODI, a valuation at an arm's length price.

Loan or Debt Funding

Some founders fund part of the entity through a loan instead of equity, often for flexibility in how funds are eventually repaid. This changes both the reporting requirements and how repayments are treated later, so decide it upfront with your advisor rather than by default.

Personal Funds vs Business Funds

Whether the money comes from your personal account or an existing Indian business changes which route applies. LRS covers individuals only. If an Indian company wants to invest in your foreign subsidiary, it has to go through ODI directly, in the company's own name, with its own compliance trail.

What Your Bank May Ask For

Business FX payments of this kind are not a routine international wire. Depending on the transaction and the bank, expect to provide Form A2 with the correct purpose code, KYC documents, the foreign company's certificate of incorporation, ownership details, and, for ODI, the UIN and valuation documentation. If you have not yet formed the entity or obtained its US EIN, or set up a registered agent, sort that first; banks generally will not process a remittance into an entity that cannot yet document itself.

Getting the purpose code wrong on Form A2 is one of the most common, avoidable causes of delay. If you are unsure how a corporate FX transaction works end to end for your specific structure, ask your AD bank to walk through it before you initiate the transfer, not after.

What Happens When Money Comes Back to India?

Money returning from your foreign company is not one category. How it is taxed and reported depends on what kind of payment it actually is.

Salary or Remuneration

Taxed as regular income in your hands, generally with foreign withholding already applied depending on the country and any applicable tax treaty.

Dividends

Taxed as income in your hands at applicable slab rates, with credit available for foreign tax paid where a tax treaty applies. Under the ODI framework, the Indian party is also required to repatriate dividends and other eligible proceeds from the foreign entity within the timeline set by the Overseas Investment Regulations, rather than letting them sit abroad indefinitely.

Loan Repayment

Generally treated as return of principal and not taxable, but only if the original outward transfer was documented as a loan at the time it was made, not recharacterised later.

Sale Proceeds or Return of Capital

Taxed as capital gains, with the holding period and cost of acquisition determining the applicable rate.

Foreign Asset Reporting

Separate from how a receipt is taxed, any foreign equity, ODI investment or foreign bank account held during the year needs disclosure in Schedule FA of your Indian income tax return, whether or not it generated income that year. If your structure also involves US-side filings, our guide to foreign-owned LLC reporting and Form 5472 covers the US compliance half of the same picture. Penalties for non-disclosure under the Black Money Act are considerably steeper than a routine tax notice, so this step matters even in a year with no foreign income.

Round-Tripping and India–US/UAE Structures

Round tripping describes money that originates in India, moves into a foreign entity, and eventually flows back into an Indian entity, forming a loop. A founder with a US or UAE holding company that also invests in an Indian operating entity is, technically, running a round trip structure, even where nothing about it is improper.

Since August 2022, Rule 19(3) of the Overseas Investment Rules has expressly permitted round trip structures on the automatic route, provided they do not create more than two layers of foreign subsidiaries above the Indian entity that ultimately receives the investment. Legal commentary notes some ambiguity in exactly how the "two layers" are counted in edge cases, so a structure close to that line is worth confirming with an advisor rather than assuming. Banking companies, NBFCs, insurance companies and government companies are exempt from this particular restriction.

A separate and independent test also applies to the inbound leg of any round trip. Following DPIIT's Press Note 2 (2026 Series), issued 15 March 2026, and the Ministry of Finance's Foreign Exchange Management (Non-Debt Instruments) (Amendment) Rules, 2026, notified 2 May 2026, any investment where a beneficial owner from a country sharing a land border with India (China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar or Afghanistan) sits anywhere in the ownership chain is now subject to a defined beneficial-ownership test. Investment can still proceed on the automatic route if that beneficial ownership stays within thresholds set under Rule 9(3) of the PMLA Maintenance of Records Rules and does not carry the ability to exercise control; beyond that, government approval is required. Pakistan-linked ownership faces additional, tighter restrictions.

This matters if your cap table includes any investor connected, even indirectly, to those jurisdictions. It is a genuinely technical area with two independent tests running in parallel (the FEMA layer test and the beneficial-ownership test), and satisfying one does not automatically clear the other, or clear separate income tax and anti-money laundering exposure on the same structure. Confirm your specific structure against RBI and DPIIT's current notifications, or with an advisor, rather than relying on a general description, including this one.

Foreign Currency Risk Management for Cross-Border Businesses

Once you run costs or revenue in more than one currency, currency movement stops being background noise. An INR/USD or INR/AED swing of a few percentage points over a quarter can turn a healthy month into a break-even one, particularly for an early-stage company on thin margins.

A natural hedge is the simplest protection: keep revenue and costs in the same currency where possible, so movements cancel out rather than compound. Where that is not realistic, forward contracts booked through an AD bank let you lock in a conversion rate ahead of a known future payment or investment tranche, whether that is a business FX payment to a supplier or an FX international payment into your own subsidiary.

Track your effective conversion cost too, not just the headline exchange rate. Bank spreads, transfer fees and timing can meaningfully worsen the rate you actually get, especially on smaller, frequent transfers rather than one consolidated remittance.

TCS on Overseas Investment Remittances

When you remit money abroad for investment under LRS, your bank collects Tax Collected at Source (TCS) once your total LRS remittances for the financial year, across all purposes and all banks against your PAN, cross ₹10 lakh. This threshold was raised from ₹7 lakh, effective 1 April 2025.

For investment remittances specifically, the rate remains 20 percent above that threshold. This is separate from education and medical remittances, where the rate dropped to a flat 2 percent effective 1 April 2026 under the Finance Act, 2026; investment, gift and property remittances did not get that reduction. Effective the same date, this provision moved from Section 206C(1G) of the old Income-tax Act, 1961 to Section 394 of the new Income-tax Act, 2025, with the rates and thresholds otherwise unchanged.

TCS is not an extra tax. It is a prepaid credit against your total tax liability for the year, reflected in your Form 26AS, and you claim or adjust it when filing your return. The real impact is cash flow: you need 20 percent more available at the time of remittance than the amount you are actually investing, and you recover that portion only at filing.

2026 Regulatory Changes Indian Founders Should Know

This is a genuinely fast-moving area. Here is what is actually in force versus what is still on paper, as of this article's last update.

Effective Now

●       Wider LRS reporting access (effective 1 January 2026): AD Category-II banks and Full-Fledged Money Changers gained direct access to RBI's Centralised Information Management System (CIMS) to file LRS daily returns and check PAN-wise cumulative remittances themselves, rather than routing that data through an AD Category-I bank first. CIMS itself is RBI's data warehouse and has been used for LRS reporting by AD Category-I banks since December 2023; the 2026 change closes a reporting gap for the smaller category of remitters, it does not introduce PAN-wise tracking for the first time.

●       Land-border beneficial ownership test (Press Note 2, 2026 Series, issued 15 March 2026; notified via the FEMA (NDI) Amendment Rules, 2026 on 2 May 2026): tightens and clarifies when investment connected to a land-border country needs government approval, as described above.

●       FEMA (Non-Debt Instruments) Third Amendment Rules, 2026 (effective 12 June 2026): tightened individual and aggregate investment caps for portfolio investment in India-listed companies by persons resident outside India, with mandatory divestment within five trading days of breaching a cap.

Still a Draft, Not Yet Law

RBI released a draft of the Foreign Exchange Management (Foreign Investment) Rules, 2026 on 21 July 2026, proposing to replace the existing FEMA (Non-Debt Instruments) Rules, 2019 entirely with a simplified FDI and FPI framework and a redefined test for what counts as a foreign controlled entity. The comment window closed 31 August 2026. Until formally notified, the existing NDI Rules, 2019 remain the operative law. Treat this draft, and any description of it including this one, as not yet binding.

Practical Cross-Border Investment Compliance Checklist

Before You Send Money

●       Confirm whether the transaction falls under LRS or ODI, based on the actual stake and control involved, not just the amount.

●       Identify the source of funds and whether they are personal or belong to an Indian business entity.

●       Check that the intended activity is permitted under the applicable route; some sectors, including financial services and real estate trading, carry restrictions.

●       Talk to your AD bank about documentation before initiating the transfer.

While the Investment Is Active

●       Keep records of every transaction, including Form A2 copies and the purpose codes used.

●       File ODI reporting on time, including the Annual Performance Report, to avoid Late Submission Fees, which start at ₹7,500 and scale with the transaction amount and delay.

●       Maintain updated ownership and cap table documentation for the foreign entity.

When Money Comes Back

●       Identify exactly what kind of payment it is (salary, dividend, loan repayment, capital return) before assuming the tax treatment.

●       Disclose all foreign assets and accounts in Schedule FA, even in years with no foreign income.

●       Keep repatriation records matched against the original outward remittance.

Common Mistakes Indian Founders Make

●       Treating every overseas transfer as an LRS remittance, even after the stake crosses into ODI territory.

●       Assuming incorporation is the end of compliance rather than the start of an ongoing reporting obligation.

●       Skipping ODI reporting because the amount feels too small to matter.

●       Forgetting Schedule FA disclosure in a year the foreign company made no profit.

●       Ignoring currency exposure until a bad quarter makes it impossible to ignore.

●       Using the wrong purpose code on Form A2, which can delay or flag a transaction unnecessarily.

●       Moving money between related entities, such as an Indian company and its US subsidiary, without documenting whether it is a loan, equity, or an expense reimbursement.

●       Assuming profits can simply be wired back without first working out whether the payment is a dividend, a loan repayment, or something else entirely.

When Should a Founder Get Professional Help?

The LRS route is manageable on your own for a first, modest remittance. It gets harder alone once you are setting up a real operating subsidiary, structuring ownership between an Indian and a foreign entity, repatriating meaningful profits, or dealing with a cap table that spans more than one country.

At that point, founders usually benefit from coordinated support across company formation, banking setup and compliance, rather than piecing advice together from a bank, an accountant and a lawyer separately. Internation Corpus works with non-resident founders on exactly this combination, including ongoing RBI and FEMA compliance for Indian founders with a US LLC: setting up the US or UAE entity, opening the right business accounts, and keeping FEMA and ODI reporting on track as the business grows. Get a quote if you want to talk through your specific structure.

Frequently Asked Questions

What is cross-border investment management?

It covers how money moves across countries for investment purposes, including personal portfolio investment and, for founders, funding and receiving returns from a business owned abroad. The applicable rules, limits and reporting requirements differ depending on which of these you are doing.

Can an Indian resident invest in a US company?

Yes. A resident individual can invest through LRS, up to USD 250,000 a year, or through the ODI route if the investment involves control, unlisted equity, or 10 percent or more of the company. Either way, an individual's outward investment stays capped by the LRS ceiling.

Should an Indian founder use LRS or ODI?

It depends on the size and nature of the stake, and on who is investing. A small, individual-capacity investment can often go through LRS. Setting up or funding a controlled operating subsidiary, especially at scale through an Indian company, generally falls under ODI. Confirm with your AD bank when the line is unclear.

Can I use LRS to fund my overseas company?

You can use LRS for a smaller, individual-capacity contribution, within your USD 250,000 annual limit. Once the investment gives you control or a stake of 10 percent or more, it needs to be reported as ODI rather than a routine LRS remittance.

What documents does a bank require for an overseas investment?

It varies by transaction and bank. Typically expect Form A2 with the correct purpose code, KYC documents, and details of the foreign company, including its certificate of incorporation and ownership structure. ODI transactions additionally need UIN registration and, where shares are valued, a valuation certificate.

What happens when profits from a foreign company come back to India?

It depends on the nature of the payment. Salary is taxed as income, dividends are taxed in your hands, properly documented loan repayments are generally not taxable, and sale proceeds are taxed as capital gains. All foreign holdings also need disclosure in Schedule FA regardless of whether they generated income.

What is round-tripping under FEMA?

Money that originates in India, moves through a foreign entity, and flows back into an Indian entity, forming a loop. It has been permitted on the automatic route within a two-layer foreign subsidiary structure since 2022, under Rule 19(3). A separate beneficial-ownership test added in 2026 can require government approval where a land-border-country entity holds sufficient ownership or control anywhere in the chain.

Is TCS applicable to overseas investment remittances?

Yes, at 20 percent on LRS remittances for investment purposes above ₹10 lakh in a financial year. It is a prepaid tax credit, not an extra cost, and you claim or adjust it when filing your income tax return.

What is the ODI automatic route?

It lets Indian entities make overseas direct investments up to 400 percent of net worth without prior RBI approval, subject to the other conditions in the Overseas Investment Rules, 2022. Individuals investing in their personal capacity remain bound by their LRS limit rather than this entity-level threshold.

Do I need to report my foreign assets in India?

Yes. Any foreign equity, ODI investment or foreign bank account held during the year must be disclosed in Schedule FA of your income tax return, even in years with no foreign income. Penalties for missing this are significantly steeper than for a typical filing error.

This article provides general information current as of its last-updated date and does not constitute legal, tax or financial advice. Requirements can vary based on the specific transaction, entity structure and jurisdictions involved, and FEMA, RBI and tax rules referenced here are subject to change. Confirm the current position with your AD bank or a qualified advisor before acting.