FEMA & RBI Rules for Indians Owning an Australian Company ODI, DTAA & Profit Repatriation (2026)

FEMA & RBI Rules If you are an Indian resident who owns or plans to own a company in Australia, you are operating at the intersection of two regulatory regimes: Australian corporate law on one side, and India’s Foreign Exchange Management Act (FEMA) framework on the other. Getting this wrong is expensive FEMA penalties can reach three times the amount involved in the violation.

This guide answers the most critical questions: Can an Indian resident legally own an Australian company? What is ODI and how do you file Form ODI? How does profit repatriation work? How do franking credits interact with the India-Australia Double Tax Avoidance Agreement (DTAA)? And what must you disclose in your Indian income tax return?

This is not generic information. This is the specific, actionable compliance roadmap for Indian founders, HNIs, and businesses with Australian subsidiaries or wholly owned entities.

Can an Indian Resident Legally Own a Company in Australia?

Yes absolutely legal. An Indian resident individual or company can own shares in, or wholly control, an Australian company. However, this ownership must be structured and reported correctly under FEMA 1999 and the RBI’s Overseas Direct Investment (ODI) framework. Ownership itself is not the issue non-compliance with reporting is.

Who Can Invest? The Two Categories Under FEMA

Permissible Sectors Under the Automatic ODI Route

Most business sectors in Australia are open under the automatic route technology, manufacturing, services, consulting, retail, e-commerce, and more. The automatic route means RBI approval is not needed before investing; you file Form ODI within the prescribed timeline.

Sectors that require prior RBI approval (specific approval route) include financial services companies, companies investing in Pakistan or FATF non-compliant jurisdictions, and certain strategic industries. Australia does not fall into any restricted category.

Key Conditions for Indian Resident Individuals (LRS Route)

• Maximum remittance of USD 250,000 per individual per financial year (April–March)
• Purpose must be declared as ‘overseas direct investment’ or ‘overseas portfolio investment’
• Funds must be remitted through an Authorised Dealer (AD) bank in India
• Repatriation of earnings back to India is mandatory within the stipulated period
• Investment in real estate or financial products (securities other than equity in operating companies) has restrictions

Form ODI Step-by-Step Filing Process

Form ODI (Overseas Direct Investment) is the primary regulatory filing through which an Indian company reports its investment in a foreign entity to the RBI. It is filed through your Authorised Dealer (AD) bank, not directly with RBI. As of the revised ODI framework (2022), Form ODI is now part of a broader Overseas Investment (OI) reporting structure, but the practical process remains similar.

What Is ODI?

Overseas Direct Investment refers to investment by an Indian resident entity in a foreign company where the Indian entity holds 10% or more of the paid-up equity capital, or holds board representation, or exercises management control. Owning an Australian subsidiary (wholly or majority) is always classified as ODI.

Step-by-Step Form ODI Filing Process

Documents Required for Form ODI Filing

• Board resolution of the Indian company authorising the overseas investment
• Audited financial statements of the Indian company (last 3 years)
• CA certificate certifying net worth as per last audited balance sheet
• Certificate of Incorporation of the Australian company (from ASIC)
• Memorandum of Association or Constitution of the Australian company
• Valuation report (if investment is by way of share swap or non-cash consideration)
• Declaration that the investee company is not in the restricted list (negative list check)
• Self-declaration on FEMA compliance and no outstanding FEMA violations

The 400% Net Worth Limit Calculation & Worked Example

Under the ODI framework, an Indian company can invest up to 400% of its net worth in overseas entities under the automatic route (without prior RBI approval). This is a cumulative cap across all overseas investments not per transaction or per country.

How Net Worth Is Calculated

Net worth for ODI purposes is calculated from the last audited balance sheet of the Indian investing company.

What If You Exceed the 400% Limit?

If your planned investment exceeds 400% of net worth, you must apply for specific RBI approval through the Reserve Bank of India (Foreign Exchange Department). This requires additional justification, business case documentation, and RBI scrutiny. The approval process can take 3–6 months.

Exceeding the limit without RBI approval is a FEMA violation and carries penalties of up to three times the amount involved.

Annual Reporting Obligations APR & FLA Returns

Once the ODI investment is made and operational, Indian investing entities must comply with two primary annual reporting requirements: the Annual Performance Report (APR) and the Foreign Liabilities and Assets (FLA) Return.

Annual Performance Report (APR)

Foreign Liabilities and Assets (FLA) Return

Other Reporting Triggers

• Form ODI (Part II) report any additional investment, disinvestment, or change in share capital of the Australian entity
• Share transfer reporting if any shares in the Australian company are transferred (sold, gifted, inherited)
• Pledge or security creation if shares of the Australian entity are pledged as security for any loan
• Winding up or liquidation must be reported and proceeds repatriated within 60 days

Profit Repatriation Franking Credits Explained for Indian Shareholders

When your Australian company earns profit and distributes it as dividends to the Indian parent or individual shareholder, two tax systems interact: Australia’s dividend imputation system (which generates franking credits) and India’s income tax system. Understanding this interaction is essential for tax-efficient repatriation.

How Dividends Work in Australia

Australia operates a dividend imputation system, meaning that when an Australian company pays company tax (at 25% or 30%), it generates “franking credits” equal to the corporate tax already paid. These credits can be passed to shareholders with dividends.

Withholding Tax on Dividends to India

When an Australian company pays dividends to a non-resident shareholder (i.e., an Indian resident), Australia levies Dividend Withholding Tax (DWHT). The rate depends on whether the dividend is franked:

Can Indian Shareholders Claim Franking Credits?

This is one of the most misunderstood aspects of Australian-Indian tax planning. Non-resident shareholders including Indian companies cannot directly claim a refund of franking credits from the ATO. However, the benefit of franking credits for Indian shareholders is indirect: a fully franked dividend is exempt from Australian Dividend Withholding Tax (DWHT), which is equivalent to saving 15% under the DTAA on the gross dividend.

The franking credit itself does not flow into the Indian tax computation as a credit. What does flow is the treatment under the India-Australia DTAA for purposes of Foreign Tax Credit (FTC) in India.

India-Australia DTAA & Foreign Tax Credit (FTC) Section 90 Worked Example

India and Australia have a Double Tax Avoidance Agreement (DTAA) in force (Convention for the Avoidance of Double Taxation, entered into force 1991, updated via protocol). The DTAA ensures that income earned in Australia by Indian residents is not taxed twice once in Australia and again in India.

How the DTAA Works Key Provisions

Section 90 of the Income Tax Act, 1961 The FTC Mechanism

Section 90 of the Income Tax Act enables Indian taxpayers to claim a Foreign Tax Credit (FTC) for taxes paid in a DTAA country, including Australia. The credit is claimed in the Indian tax return for the year in which the foreign income is included. The FTC cannot exceed the Indian tax liability on the foreign income.

Rule 128 Foreign Tax Credit Filing Requirements

• File Form 67 before or simultaneously with the Indian income tax return
• Form 67 must be filed on the income tax e-filing portal (incometax.gov.in)
• Attach proof of Australian tax paid (ATO assessment, PAYG payment summary, or annual tax statement)
• FTC is allowed on a source-by-source, country-by-country basis
• Excess FTC (where Australian tax > Indian tax on that income) cannot be carried forward

Disclosure in Indian Tax Return Schedule FA & Schedule FSI

Every Indian resident who owns foreign assets including shares in an Australian company must disclose these assets in their Indian income tax return. Failure to disclose is treated as a violation of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, which carries severe penalties.

Schedule FA Foreign Assets Disclosure

Schedule FA (Foreign Assets) must be completed in the Indian income tax return (ITR-2 for individuals with foreign assets; ITR-6 for companies). It requires disclosure of:

Schedule FSI Foreign Source Income Disclosure

Schedule FSI (Foreign Source Income) must report all income received from foreign sources during the year, including.

• Dividends received from the Australian company
• Director’s fees or salary paid by the Australian company
• Interest income from Australian bank accounts
• Capital gains from the sale of shares in an Australian entity
• Management fees or royalties received from the Australian company

Applicable ITR Forms

Penalties for FEMA Non-Compliance

FEMA violations related to overseas investments are treated seriously by the Enforcement Directorate (ED) and the RBI. Unlike earlier exchange control laws, FEMA violations are civil (not criminal) in nature by default, but deliberate, willful, and repeated violations can result in criminal prosecution.

Compounding of FEMA Violations

If you have committed a FEMA violation (even inadvertently), the best course of action is voluntary compounding. FEMA provides a compounding mechanism where violations can be regularised by paying a compounding amount to the RBI. This closes the matter and protects against future enforcement action. Compounding is not available for second-time violations or violations involving prohibited sectors.

Repatriation of Proceeds Timeline Rules

• Dividends received by the Australian entity must be repatriated to India within 60 days of distribution
• Proceeds from sale of the Australian company or its assets must be repatriated within 90 days
• Proceeds from winding up: within 60 days of receipt
• Income from service contracts or management fees: within 60 days of invoice

Frequently Asked Questions (FAQ)

Quick Reference: India-Australia Cross-Border Compliance Summary