• The Shareholder of Private Ltd firm (Canadian citizen) wants to Invest

There is a new private limited company that's formed. The initial capital is INR 100,000.

One of the partner is Canadian citizen. He is more like an investor. He would wire transfer INR 8,00,000 ($10K) into the account. The Indian partner would not match the amount.

The shareholding is 50% each i.e 50% for Canadian citizen and 50% for Indian.

My questions are:
1. How to show this incoming wire transfer? Can we simply show as investment.
2. Can we pay this back from Indian company when Indian company starts making money and can Canadian citizen just show as return of money and not pay tax on it?
Asked 12 months ago in Corporate Tax

1. Excess Rs.7 lacs will be treated as loan. Draft proper loan agreement between co. and him.

2. Yes Indian Co. can pay back as per the terms of loan agreement. It would not be treated as income of the foreign investor. Interest earned on such loan would be his Indian income and taxable in India. Deduct TDS on interest.

For foreign investment, compliance under FEMA is also required.


For detailed discussion, you may opt for phone consultation.

Vivek Kumar Arora
CA, Delhi
4748 Answers
980 Consultations

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The investment can be deone subject to FEMA sectoral caps. This company under FEMA would be considered as Foreign Owned or Controlled Company. Further, the borrowings would be subject to External Commercial Borrowings Guidelines under FEMA. For this detailed understanding of business is required. 


From Tax stand point, 

The interest on the debt needs to be given and that would be considered as taxable in India, on which taxes would be deducted. 


Kindly reach out for detailed understanding. 

Prerna Peshori
CA, Pune
179 Answers
9 Consultations

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Indian company not allowed to take loan thus we have to issue shares for such amount and need to complete FEMA and RBI Compliance for this transaction 

Lalit Bansal
CA, Delhi
769 Answers
61 Consultations

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It can be taken by way of issue of redeemable preference shares or debentures. The company would have to file FCGPR form for the investment received. A valuation report would be required for filing. We may discuss the issues further.

Lakshita Bhandari
CA, Mumbai
5687 Answers
895 Consultations

5.0 on 5.0

Dear Sir,


Hope you are doing well !!


It is advisable to take a phone consultation for detailed discussion.




Payal Chhajed
CA, Mumbai
5188 Answers
284 Consultations

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Canadian Citizen can become a shareholder to the extent of his stake. For example, he may invest Rs 5 L towards capital for say 25% stake holding. The Indian shareholders will have to invest Rs 15 L towards equity. The authorised will then have to be increased to Rs 20L. The remaining Rs 3 L may then be in the form of a borrowing.

1 The purpose of transfer can be investment and loan. Let there be two separate transfers for investment and loan components.

2 Only the loan amount can be repaid whether or not the company makes profits.   The company can only pay dividends on the equity component. 

The Indian shareholders may buy back the shares as and when needed.

There will be tax liability on interest credited and also on the dividends paid. He may make payments and investments u/s 80C to reduce tax liability.

You need to appoint statutory auditor within one month of incorporating the company. You may check with him for regulatory compliances

B Vijaya Kumar
CA, Hyderabad
994 Answers
124 Consultations

5.0 on 5.0

you can not accept that amount from only candian partner if indian partner is not matching it and its not part of your capital of company since it amount to Extenral commercial borrowing and required specialy approval from RBI


The best way to structure is 


- Have 2 indian partners in the company and than take fund from foreign partner with security premium or 7,50,000/- INR


- you can not show it as reptrate of the amount

Vishrut Rajesh Shah
CA, Ahmedabad
918 Answers
37 Consultations

5.0 on 5.0

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