- Date : 11/09/2023
- Read: 3 mins
HNI Investment: LLPs empower Indian HNIs to invest beyond the LRS and TCS restrictions. Explore ODI and OPI routes for overseas diversification and tax benefits.
In India, HNI investments abroad have often faced limitations due to the Liberalised Remittance Scheme (LRS) and Tax Collected at Source (TCS) regulations. However, some strategies, such as utilising Limited Liability Partnerships (LLPs) and exploring overseas direct investments (ODI) and overseas portfolio investments (OPI), offer a way around these restrictions, providing an attractive alternative for HNIs looking to diversify their portfolios.
- HNIs can invest beyond the LRS limit using LLPs for global diversification.
- Overseas direct investments (ODI) and OPI open new avenues for HNIs.
- ODI allows four times the LLP's net worth, bypassing the $250,000 cap, and 20% TCS.
- LLP taxation at 30% can benefit HNIs with an income above ₹1 crore.
Where do HNIs invest?
HNI investments typically include equity-oriented mutual funds and ETFs. HNIs can also invest in international markets through global stocks and foreign bonds.
The Challenge: LRS Limit and TCS
HNIs have long been eager to invest outside the country to gain exposure to international markets and assets. However, the LRS, which allows remittance of up to $250,000 per financial year, restricted their investment options. Additionally, the TCS on remittances above ₹7 lahks posed further hurdles for ordinary investors seeking to invest outside the country.
The solution: Utilising LLPs
LLPs, a hybrid business structure combining the features of partnerships and limited liability companies, provide a viable solution for HNIs. Unlike individual investments under the LRS, LLPs can pool resources and invest collectively in foreign assets, including stocks, bonds, and real estate.
ODI and OPI routes
Through ODI and OPI, LLPs can invest outside the country without the limitations of the LRS. Under ODI, the maximum investment is four times the net worth of the LLP, while OPI allows investments up to 50% of the LLP's net worth. Notably, there is no overall cap of $250,000, and TCS at 20% does not apply to these routes.
Advantages of LLP for HNI investments
- No LRS Limit - Unlike individual investors, LLPs are not subjected to the $250,000 LRS limit. This opens doors for HNIs to invest substantial amounts without seeking RBI approval.
- Avoidance of TCS - While individual investors face TCS on remittances above ₹7 lahks, LLPs are exempt from this taxation.
- Tax Benefits - Although the taxation for LLPs is a flat rate of 30%, they offer advantages over individual taxation when income exceeds ₹1 crore.
Further opportunities - Family Investment Fund (FIF)
The government introduced the Family Investment Fund (FIF) in GIFT City for wealthy families looking for a higher investment corpus. FIFs can route global portfolios with a 10-year tax holiday on business income.
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Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.