How an Indian Founder Can Fund an Overseas Company
LRS or Overseas Investment Through Your Indian Company?
An Indian founder can fund an overseas company in two ways: personally, under the Liberalised Remittance Scheme (LRS), up to USD 250,000 a year, or through their Indian company as overseas direct investment, up to 400% of its net worth. The personal route is limited to operating businesses with no controlled subsidiaries; the company route is broader.
Key points
A resident individual can invest in a foreign company only within the LRS limit of USD 250,000 per financial year, which covers all their other LRS remittances too.
Personally, you can invest only in an operating foreign entity that is not in financial services and has no subsidiary or step-down subsidiary where you have control. You cannot lend to it.
Remittances under LRS above ₹10 lakh a year attract 20% TCS under section 394(1) of the Income-tax Act 2025. It is credited against your tax, but it is a cash-flow cost.
An Indian company can invest up to 400% of its net worth, lend, give guarantees and own step-down subsidiaries, and it pays no TCS.
Both routes need Form FC, evidence of investment within six months and an Annual Performance Report every year.
Can I invest in a foreign company under LRS?
Yes. A resident individual can set up or buy shares in a foreign company under LRS, as long as the investment follows Schedule III of the Foreign Exchange Management (Overseas Investment) Rules, 2022. Under the RBI's LRS FAQs, resident individuals can remit up to USD 250,000 per financial year (April to March) for permitted current and capital account purposes.
That USD 250,000 is one combined limit. Money you send for a child's education, a property deposit or a foreign brokerage account in the same year reduces what is left for your company.
The scheme is for individuals only. The RBI says LRS "is not available to corporates, partnership firms, HUF, Trusts etc.", so a company investing abroad uses the corporate overseas investment route instead. Our overseas investment rules guide explains that framework in full.
What conditions apply when an individual invests abroad?
A founder investing personally faces four restrictions that do not apply to an Indian company:
Operating entity only. The foreign company must carry on a real operating business. You cannot use LRS to make overseas direct investment in a company engaged in financial services activity, outside the IFSC exception.
No controlled subsidiaries. The foreign company cannot have a subsidiary or step-down subsidiary in which you have control. If you invest without control and the company later sets up a subsidiary, the RBI Master Direction says you cannot then acquire control.
No loans or guarantees. Individuals can invest only in equity. Working capital has to come as further equity, not as a shareholder loan.
Own funds for start-ups. An investment in a foreign start-up must come from your own funds, not borrowed money.
The general prohibitions also apply: no overseas investment in real estate activity, gambling or rupee-linked financial products, and no structure that results in more than two layers of subsidiaries investing back into India.
The no-subsidiary rule surprises most founders. If you plan a Dubai company that will later own a UK or Saudi subsidiary, personal ownership will not work for that structure, and a resident individual cannot hold a foreign company that owns your Indian business.
How is investing through your Indian company different?
An Indian company investing abroad has far more room. Under the RBI Master Direction on Overseas Investment, updated on 1 April 2026, an Indian entity can make financial commitments of up to 400% of its net worth, can fund the subsidiary with loans and guarantees once it holds equity and control, and the foreign company can have its own subsidiaries.
Example: a Bengaluru SaaS founder whose company earns ₹60 Cr a year wants a Dubai sales company with a starting budget of USD 150,000. Personally, that fits within LRS, but 20% TCS applies on the amount above ₹10 lakh, and any later plan to add a Saudi subsidiary would breach the individual rules.
Through the Indian company, the same USD 150,000 sits well within 400% of net worth, carries no TCS, and the Dubai company can later hold subsidiaries. Our guide to setting up a UAE subsidiary of an Indian company walks through that route.
Is TCS payable on money sent abroad for overseas investment?
Yes, for individuals. Under section 394(1) of the Income-tax Act 2025, which replaced section 206C(1G) of the 1961 Act from 1 April 2026, your bank collects 20% TCS on LRS remittances for investment purposes above ₹10 lakh in a financial year.
The Union Budget 2026–27 cut TCS to 2% for education and medical remittances, but investment remittances stay at 20%.
TCS is not an extra tax. It appears in your tax statement and is credited against your income tax for the year, with any excess refunded after you file your return. On a USD 250,000 remittance, though, roughly ₹40 lakh can be tied up until the refund arrives.
Family members can combine their LRS limits for a capital account investment only if they are co-owners. The RBI FAQs state that clubbing is not permitted for investment "if they are not the co-owners/co-partners". A founder and spouse who both subscribe for shares can each use their own USD 250,000 limit.
What reporting does an individual need for overseas investment?
The reporting for a personal overseas investment is close to what a company files, and it continues as long as you hold the shares.
Late filings can be regularised with a late submission fee for up to three years, but further investment is blocked until then.
Which route should a founder choose?
Use the company route when the overseas company is an extension of the Indian business; consider LRS only for a small, standalone operating company that you want to own separately.
The company route usually fits when the foreign company will sell the Indian company's products or services, will need loans or bank guarantees, or will one day own subsidiaries. That covers most founders going to Dubai or setting up a UK subsidiary of an Indian company.
The LRS route can fit when the business is unrelated to the Indian company, is modest in size and will not need debt. Even then, think about what happens if you later move abroad, raise investors or sell. Licensing and setup steps are the same either way, as our guide on how to start a business in Dubai from India explains. We compare these ownership choices in who should own your Dubai company.
Two practical points apply to both routes. A personally owned Dubai company whose decisions are taken by you in India can be treated as Indian resident under the place of effective management test. And UAE banks will ask how the shareholder funded the company, so keep the remittance trail, as covered in our guide to opening a UAE corporate bank account for an Indian-owned company.
The Greenwolf view
Funding is the last decision, not the first. Commercial design comes first; tax follows functions, risks and substance. Before choosing LRS or the company route, we ask founders:
What will the overseas company do? A sales arm of the Indian business belongs with the Indian business; a separate venture may not.
Will it ever own anything? Subsidiaries, IP or a future acquisition rule out the individual route. Our article on holding vs operating companies explains why separation matters.
How will cash come back? Dividends to a resident founder are taxed at slab rates; dividends to the Indian company can be passed on with relief under section 148. Our guide on dividends, service fees and royalties compares the routes.
Where will you live in three years? A move abroad changes your FEMA status and the tax on everything you hold.
Author – Team Greenwolf
10 October, 2026 | 7 Min Read
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