Indian founders setting up US entities or expanding globally must comply with the Liberalised Remittance Scheme (LRS) under FEMA rules when transferring personal funds abroad.
In 2025, key changes in FEMA LRS guidelines affect how resident individuals, including start-up founders, can fund their foreign subsidiaries.
This blog explains the updated rules and practical steps founders must take to remain compliant.
Legal Reference
- Foreign Exchange Management Act (FEMA), 1999
- Liberalised Remittance Scheme (LRS), RBI Master Directions 2024
- Finance Act 2025 provisions on TCS and LRS threshold updates
What is FEMA LRS?
Under LRS, Indian residents (individuals) are allowed to remit up to USD 250,000 per financial year abroad for:
- Education, travel, medical purposes
- Investment in shares, real estate, debt instruments
- Setting up or funding overseas entities
Prior RBI approval is required for remittance exceeding USD 250,000, or for certain restricted activities.
2025 Changes in LRS for Founders
- Threshold monitoring tightened: Cumulative transactions across banks will now be tracked centrally
- Mandatory purpose tagging: Every LRS transfer must clearly specify the purpose (investment vs. education vs. maintenance)
- Additional TCS (Tax Collected at Source):
- 5% TCS above ₹7 lakh for education/medical
- 20% TCS for other remittances including investments
- Remittance for business investments: Treated separately from personal investments if through company accounts
Key Rules for Funding US Subsidiaries
- Only personal funds of resident individuals allowed under LRS
- Maximum USD 250,000 per founder per financial year
- Must file Form A2 and LRS Declaration with authorized dealer bank
- RBI approval needed if remittance exceeds limit or for restricted sectors (defense, lottery, real estate trading)
Example: Founder Investing in US Subsidiary
Mr. Rajesh (India):
- Wants to fund a Delaware C-Corp set up to expand SaaS operations
- Remits USD 200,000 from personal account via LRS
- Tags transaction under “Investment in Overseas Entity”
- Files Form A2, pays applicable TCS, reports in AIS (Annual Information Statement)
Fully compliant.
Compliance Steps for Resident Founders
- Check available LRS limit with all banks cumulatively
- Prepare Form A2 and LRS Application through the bank portal
- Disclose foreign entity ownership in ITR under Schedule FA (Foreign Assets)
- Report receipt of shares or ownership certificates after funding
- Maintain documentation: remittance advice, shareholder register, bank filings
Important Notes
- Remitting funds through corporate accounts follows ODI route, not LRS
- TCS is adjustable against final tax liability while filing ITR
- Remittance for gifting purposes to overseas relatives has separate RBI limits
Conclusion
FEMA LRS compliance is now tightly monitored for resident founders funding overseas subsidiaries.
Early planning, correct documentation, and tax compliance ensures smooth global expansion without regulatory hurdles.
Call to Action and Disclaimer
Need help funding your US company or filing correct FEMA LRS documents?
Schedule a meeting with our Chartered Accountant, Anshul Goyal, by visiting:
Disclaimer: I am Anshul Goyal, a Chartered Accountant licensed with ICAI, India. This blog is for educational purposes and not a substitute for personalized legal or tax advice.
Frequently Asked Questions
1. Can I remit more than USD 250,000 in a year under LRS?
Only with prior RBI approval.
2. Is TCS refundable if remitting under LRS?
Yes, TCS can be claimed as a tax credit while filing ITR.
3. Do I need to inform RBI separately for each remittance?
No. Authorized banks handle LRS filings unless specific approval is needed.
4. Does LRS apply to corporate funding of foreign entities?
No. Corporate remittances follow ODI rules, not LRS.
5. Should I disclose foreign subsidiaries in my Indian tax return?
Yes, under Schedule FA in ITR.