📋 Compliance · all 4 routes

NRI startup tax · LTCG, DTAA, US PFIC

Whichever route you pick (angel platform, AIF, direct equity, or listed), tax + compliance applies. What you owe India, how to offset under DTAA, US PFIC overlap.

⚡ Forms check ↗ Route 1 · Angel → Route 2 · AIF → Route 3 · Direct →

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Long-term capital gains

LTCG · 12.5% on unlisted equity

Held > 24 months

Unlisted Indian equity (your startup investments) qualifies for LTCG if held more than 24 months. Rate is 12.5% flat on gains above ₹1.25 lakh exemption (post-2024 budget). No indexation benefit for NRIs.

Example: Invest ₹10L, exit at ₹50L after 36 months → ₹40L gain → ₹39L taxable (after ₹1.25L exemption) → ₹4.88L tax
TDS: Buyer/AIF deducts TDS at 12.5% on payout
NRO route: Net gain credited to NRO account; subject to ₹1cr/yr repatriation cap with Form 15CA/CB

⚠ Watch for

Holding period starts from share certificate date, not term-sheet/wire date. Get it on paper.

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Short-term capital gains

STCG · 20% on unlisted equity

Held < 24 months

Sold within 24 months of buying? You pay STCG at 20% (post-2024 budget hike from 15%). No exemption threshold. Rare for startup investments — most exits take 5+ years — but applies if you sell early on a secondary or buyback.

Example: Bridge round → secondary exit at 18 months → 20% on full gain
Workaround: Time exits past 24-month mark for the 12.5% LTCG rate

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Double Taxation Avoidance

DTAA · India tax credit overseas

Country-specific

India has DTAAs with 90+ countries. The Indian tax you pay on capital gains is creditable against the equivalent foreign tax — you won't pay twice on the same gain.

US: Form 1116 (Foreign Tax Credit) — claim ₹4.88L Indian tax against US capital gains tax
UK: Foreign tax relief on Self Assessment
Canada: Foreign tax credit on T1
Australia: Foreign Income Tax Offset on annual return

📋 Document trail

Keep TDS certificate (Form 16A from buyer/AIF) — your foreign accountant needs it to claim the credit.

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US tax overlap

PFIC · Form 8621 reporting

US persons only

If you're a US tax resident (citizen, green card, substantial presence), your Indian startup holdings may be classified as a PFIC (Passive Foreign Investment Company) if the company has >75% passive income or >50% passive assets. Most operating startups are NOT PFICs, but check.

If PFIC: Annual Form 8621 required; election options (QEF, mark-to-market, default)
FBAR: Indian investments > $10K aggregate at any point during the year → FinCEN Form 114
FATCA Form 8938: If specified foreign financial assets > $50K (single) / $100K (joint, abroad)

⚠ Most start-ups are NOT PFICs

Operating tech startups generating SaaS/product revenue typically pass the income/asset tests. Real-estate or holding-co structures are more likely to trigger PFIC. Verify with your CPA before filing.

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SEBI AIF · pass-through

AIF tax pass-through · investor's rate

Cat I & II

SEBI AIFs Cat I (VC funds) and Cat II (PE/credit funds) have pass-through tax status — gains aren't taxed at the fund level. They flow through to LPs and you pay at YOUR tax rate.

For NRIs: 12.5% LTCG on portfolio company exits (post-24-month hold)
Distributions: Quarterly K-1-equivalent statements show your share of gains
Cat III (hedge funds): NOT pass-through — fund-level tax applies, then distribution is post-tax

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Repatriating exits

NRO → overseas · 15CA / 15CB

$1M/yr cap

Net proceeds (post-TDS) land in your NRO account. To wire them out:

Form 15CA Part C: Self-declaration with payment details
Form 15CB: Chartered Accountant certificate confirming taxes paid
Form A2: RBI form for purpose of remittance
Annual cap: $1M/year per NRI on NRO repatriation (separate from LRS)

⚡ Run the repatriation readiness check →

⭐ Our take

Time exits past 24 months. Use DTAA credits. Get a US-India CPA before your first exit.

The single highest-leverage tax move is timing: 24-month hold flips the rate from 20% → 12.5%. The second is documentation: keep TDS certificates and AIF distribution statements organized so DTAA credit claims are straightforward. The third is professional help: a US-India CPA charges ~$1,500/year and saves you 5x that the first time you have a meaningful exit.

Three patterns we see

Pre-exit · documentation hygiene

Keep share certificates, term sheets, and bank wires organized

Date discrepancies between term sheet, wire, and certificate can shift your LTCG/STCG status by months. NRIs who keep clean records claim DTAA credits in 1-2 weeks; those who don't take 6+ months and often miss claims.

At exit · time the wire

Push past the 24-month mark before signing the SHA

If you're 23 months in and a buyback offer comes through, pause. The 7.5% rate difference (12.5% vs 20%) on a ₹50L gain = ₹3.75L. Worth a one-month delay in 95% of cases.

Post-exit · file in both countries

India return + foreign return + DTAA reconciliation

File your Indian ITR-2 with the capital gains schedule first (deadline 31 July). Then file your foreign return (US 1040 / UK SA / etc.) claiming DTAA credit. Keep the Indian Form 16A for 7 years.

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Repatriation Readiness · 60 seconds