Starting a Business in India as an NRI: Legal Routes, FEMA Rules & Tax Implications

“Synopsis”

India is one of the world’s fastest-growing economies and offers lucrative opportunities for Non-Resident Indians (NRIs) looking to start a business. However, to legally operate, NRIs must follow Foreign Exchange Management Act (FEMA) guidelines, understand permissible business structures, and comply with Indian tax laws. This blog explains the available options for NRIs to start a business in India, including forming a company or LLP, sector-specific restrictions, investment procedures, and related tax considerations.

1. Can NRIs Start a Business in India Legally?

Yes, NRIs are allowed to start and invest in businesses in India, provided they follow the FEMA regulations and sectoral guidelines prescribed by the Reserve Bank of India (RBI) and the Government of India.

2. Legal Business Structures for NRIs

Here are the most common ways NRIs can legally start a business in India:

a. Private Limited Company

Can be formed with a minimum of two shareholders and two directors.
At least one director must be an Indian resident.
100% foreign direct investment (FDI) is allowed under the automatic route in most sectors.
Ideal for tech, services, or scalable startups.

b. Limited Liability Partnership (LLP)

FDI in LLPs is permitted only under the automatic route in sectors where 100% FDI is allowed without performance-linked conditions.
Must have at least one designated Indian partner.
Popular for professional services and low-capital businesses.

c. Sole Proprietorship / Partnership Firm

NRIs cannot start a sole proprietorship or traditional partnership under FEMA.
Only Indian residents are allowed in these structures.
Not a suitable structure for NRIs.

d. Branch Office / Liaison Office / Project Office

Applicable for foreign companies, including NRIs with established businesses abroad.
Subject to RBI approval and sectoral conditions.

3. FEMA Compliance and FDI Rules for NRIs

NRIs must adhere to Foreign Direct Investment (FDI) norms under FEMA:

Automatic Route: No prior government approval needed. Applicable to most sectors like IT, e-commerce (B2B), education, manufacturing, etc.
Government Route: Required in sectors like defense, telecom, real estate (construction), and print media.
Investment must be made in Indian Rupees via inward remittance through NRE/FCNR (B) accounts.

4. Restricted and Prohibited Sectors for NRI Investment

NRIs cannot invest in the following sectors:

Agriculture or plantation (except floriculture, horticulture)
Real estate business (buying/selling land, farmhouses)
Lottery business
Gambling and betting
Chit funds or Nidhi companies (unless specific approval is obtained)

5. Steps for NRIs to Start a Business in India

Choose the business structure (Pvt Ltd, LLP, etc.)
Register the entity with the Ministry of Corporate Affairs (MCA)
Obtain PAN & TAN for the business
Open a current account with a bank in India
Comply with FEMA reporting – file Form FC-GPR for capital infusion
Apply for necessary licenses (GST, FSSAI, IEC, etc., as applicable)

6. Tax Implications for NRI-Owned Businesses in India

a. Corporate Tax

22% (plus surcharge and cess) for domestic companies
15% for manufacturing companies incorporated after Oct 1, 2019

b. LLP Taxation

LLPs are taxed at 30% plus surcharge and cess
No dividend distribution tax applies

c. TDS Requirements

Businesses must deduct TDS on salaries, contractor payments, rent, etc.
NRIs earning income from the business may be subject to withholding tax

d. GST Registration

Mandatory if turnover crosses threshold (₹40 lakhs or ₹20 lakhs for services)
NRIs offering goods/services in India need GST compliance

7. Repatriation of Profits

NRIs can repatriate profits or dividends after taxes:

Profits can be remitted to the NRE or FCNR account
Submit required forms to AD Bank and comply with RBI repatriation norms
CA certificate in Form 15CB and self-declaration in Form 15CA may be required

Conclusion

Starting a business in India as an NRI is entirely possible—and increasingly popular. With proper planning, legal structuring, and FEMA compliance, NRIs can benefit from India’s growing economy. Choosing the right entity type, understanding sectoral FDI rules, and staying compliant with Indian tax laws are key to long-term success. Consulting with legal and financial experts is recommended to ensure smooth business setup and operation.