How HNIs can invest abroad without the LRS limit or TCS
₹7 lakh in a year. The TCS rate was hiked from 5% to 20% in Budget 2023. Indian residents are also subject to a limit of $250,000 on remittances under the Liberalised Remittance Scheme (LRS) per year.
But, where rules are concerned, there is always some loophole that can be exploited. And, incorporating a Limited Liability Partnership (LLP) offers a way around these restrictions. Needless to say, this can only be done by high networth individuals or wealthy families.
LLPs are permitted to invest abroad via two modes: overseas direct investments (ODI) and overseas portfolio investments (OPI). The restriction on ODI is a maximum of four times the net worth of the LLP. In case of OPI, the limit is 50% of the LLP net worth.
Besides, there is no overall cap of $250,000. Nor does TCS of 20% apply. Here’s how it works.
Let’s say you incorporate an LLP. Do note that incorporating an LLP requires at least two people as partners. You can hold 99% stake in the LLP and the remaining 1% can be held by your spouse or a trusted friend.
You then infuse ₹1 crore of your money into the LLP. Alternatively, you can use the LLP as a vehicle to pool money from investors and infuse capital from various investors. You can then remit this money for investing in overseas stocks.
Since this LLP is registered as an ‘Indian entity’ as per the Reserve Bank of India (RBI) circular of August 2022, it is not subject to the usual LRS rules and TCS on remittances above ₹7 lakh. However, the benefits of slab-wise taxation that individuals get is not applicable to an LLPs and its income will be taxed at a flat 30%. So, for example, if you get dividends or capital gains on your investments, the LLP will have to pay 30% tax.
Read more on livemint.com
