Can NRI start a proprietorship firm in India

“Mani, I just want to start a small consulting business in India. Nothing fancy. Do I really need to register a whole company?”

I get asked this question constantly in our WhatsApp groups. And I completely understand why.

A proprietorship is the simplest business structure in India. No board of directors. No annual filings with the Ministry of Corporate Affairs. No minimum capital requirements. Just you and your business.

For NRIs thinking of starting something small – maybe a freelance practice, an online store, or a consulting service – it feels like the obvious choice.

But the answer to “can an NRI start a proprietorship firm in India?” isn’t a simple yes or no.

It’s a “yes, but…”

And that “but” involves some important FEMA rules that most NRIs don’t know about until it’s too late.

The Short Answer

Yes, NRIs and OCI cardholders can invest in and operate a proprietorship firm in India.

But there’s a major catch.

It can only be done on a non-repatriation basis.

This means any money you invest in the proprietorship, and any profits you earn from it, cannot be sent back to your country of residence. The funds stay in India, in your NRO account.

If you want to be able to repatriate your business profits back to the US, UK, UAE, or wherever you live – you’ll need prior RBI approval. And that approval is neither guaranteed nor easy to get.

This is the single most important thing to understand before you go any further.

The Legal Framework (Simplified)

I know FEMA regulations can put anyone to sleep. But let me break this down in plain English.

The rule comes from FEMA (Non-Debt Instruments) Rules, 2019, Schedule IV, read with Rule 12(2).

Here’s what it says:

An NRI or OCI can invest in the capital of a proprietorship firm or partnership firm in India, subject to these conditions:

What’s allowed:

• Investment through inward remittance via normal banking channels
• Or by debiting your NRE, FCNR(B), or NRO account maintained with an authorized dealer bank in India
• No limit on the amount of capital you can contribute
• No prior RBI approval needed (for non-repatriation basis)

What’s restricted:

• Investment must be on a non-repatriation basis (unless you get prior RBI approval)
• The business cannot be in these prohibited sectors: agricultural or plantation activities, real estate business (other than development of townships and construction), or print media
• No foreign company, trust, or non-individual entity can invest in a proprietorship – only NRI/OCI individuals
• A Power of Attorney holder cannot invest on your behalf – the investment must come directly from you

What happens to profits:

• All disinvestment proceeds go to your NRO account
• The capital you invested, along with any appreciation, cannot be repatriated abroad

For detailed information on NRI account types and how they work, check our separate guide.

Why So Many People Say “NRIs Can’t Start a Proprietorship”

You’ll find plenty of articles online that flatly say NRIs cannot start a proprietorship firm in India. Even some chartered accountants will tell you this.

Why the confusion?

Because they’re talking about FDI (Foreign Direct Investment) on a repatriable basis.

Under FDI rules, proprietorships and partnership firms are NOT eligible business structures. FDI is only allowed in:

• Private Limited Companies
• Public Limited Companies
• LLPs (in sectors where 100% FDI is allowed under automatic route)

So if you’re thinking of starting a business where foreign investment flows in on a repatriable basis – proprietorship is genuinely not an option.

But FEMA’s Schedule IV creates a separate pathway specifically for NRIs and OCIs (not foreign companies or foreign nationals without Indian connection) to invest on a non-repatriation basis. Under this pathway, proprietorships are permitted.

The distinction matters. Non-repatriation investment is treated as domestic investment – essentially at par with investments made by resident Indians.

When Does a Proprietorship Make Sense for NRIs?

Based on conversations with hundreds of NRI entrepreneurs in our community, here are the scenarios where a proprietorship works well:

Good fit:

You’re planning to return to India soon. If you’re moving back within a year or two, starting a proprietorship now as an NRI (on non-repatriation basis) and then continuing it as a resident after you return makes practical sense. Once you become a resident Indian again, the non-repatriation restriction no longer matters.

You’re starting small and testing an idea. A proprietorship has almost zero setup cost and minimal compliance. If you want to test a consulting practice or freelance business before committing to a full company structure, it’s a reasonable starting point.

You don’t need to send profits abroad. If you have family in India, or you’re building savings for your eventual return, keeping the money in your NRO account works fine.

You want to run a small local business. Think: a tuition center managed by your parents in India, a small retail shop, or a rental management business for your properties.

Not a good fit:

You need to repatriate profits. If you’re sitting in the US or UK and want your Indian business earnings sent back to you – a proprietorship creates a dead end. A Private Limited Company or LLP is better.

You want to scale up and raise investment. Proprietorships can’t bring in investors, issue shares, or raise venture capital. If growth is the plan, start with a Private Limited Company from day one.

You want limited liability. In a proprietorship, there’s no separation between you and the business. If the business owes money, your personal assets are at risk.

You’re in a prohibited sector. Agricultural businesses, real estate trading, and print media are off the table for NRI proprietorships.

Proprietorship vs Other Business Structures for NRIs

Here’s a quick comparison to help you decide:

Factor	Proprietorship	Private Limited Company	LLP
Can NRI start?	Yes (non-repatriation basis)	Yes (100% FDI allowed)	Yes (in automatic route sectors)
Can repatriate profits?	No (unless RBI approves)	Yes	Yes
Minimum people required	1 (you)	2 directors, 2 shareholders	2 partners (1 must be Indian resident)
Indian resident needed?	Not mandatory (but practically helpful)	Yes (at least 1 resident director)	Yes (at least 1 designated resident partner)
Setup cost	Rs 2,000-15,000	Rs 15,000-50,000	Rs 10,000-30,000
Annual compliance	Minimal (ITR, GST if applicable)	Heavy (ROC filings, audit, board meetings)	Moderate (Statement of Accounts, ITR)
Personal liability	Unlimited	Limited to shares	Limited to contribution
FDI reporting (FIRMS portal)	Not required (non-repatriation)	Required	Required
Best for	Small, local, India-based businesses	Scalable ventures, foreign investment	Professional services, mid-size

For a deep dive into all your options, our guide on starting a business in India covers each structure in detail.

How to Actually Set Up a Proprietorship as an NRI

If you’ve decided a proprietorship is right for your situation, here’s the step-by-step process.

Step 1: Get Your PAN Card

A proprietorship uses the owner’s personal PAN for all transactions. If you don’t have a PAN card yet, apply through the NSDL or UTIITSL portal.

Check our guide on PAN card for NRIs for the full process.

Step 2: Open or Activate Your NRO Account

Your business transactions will flow through your NRO account (since this is a non-repatriation investment). Make sure your NRO account is active and KYC-updated with an authorized dealer bank.

Step 3: Choose Your Business Name

Pick a name that reflects your business. Unlike a company registration, you don’t need to check name availability with the MCA. But do a quick trademark search at ipindia.gov.in to avoid conflicts.

Step 4: Get a Business Address

You need a physical address in India for your business. This could be:

• Your own property
• A rented office (get a rent agreement + NOC from landlord)
• A virtual office address (accepted for GST in some states)
• A family member’s address

Step 5: Register Under the Shop and Establishment Act

If your business operates from a physical location, register with the local municipal authority under the Shop and Establishment Act of your state. Fees are typically Rs 500-3,000.

Step 6: Register for GST (If Required)

GST registration is mandatory if:

• Your annual turnover exceeds Rs 40 lakh (goods) or Rs 20 lakh (services)
• You’re selling across state borders
• You’re operating through e-commerce platforms

Important for NRIs: The GST registration application for a non-resident must be signed by an authorized signatory who is a person resident in India with a valid PAN. This means you’ll likely need a trusted person in India (family member, CA) to be your authorized signatory.

Step 7: Open a Current Account

Banks will ask for proof of your business (GST certificate, Shop Act license, or Udyam registration) to open a current account in your proprietorship’s name.

Practical note: Many banks create friction when NRIs try to open business current accounts. ICICI, HDFC, and SBI tend to be more NRI-friendly, but the process depends heavily on the branch.

Step 8: Get Udyam Registration (Optional but Recommended)

Udyam registration (MSME) is free and gives your business access to government subsidies, easier loan terms, and credibility. Apply online at udyamregistration.gov.in.

Step 9: Obtain Industry-Specific Licenses

Depending on your business type:

• Food business: FSSAI license
• Import/export: IEC code from DGFT
• Professional services: Relevant professional body registration

Tax Implications for NRI Proprietors

Since a proprietorship has no separate legal entity, the business income is your personal income. It gets taxed under the Income Tax Act at applicable slab rates.

Key points:

Income tax: Business profits are added to your total income and taxed at NRI slab rates. Under the new tax regime (which most NRIs should evaluate), rates range from 0% to 30% based on income.

GST: If registered, you’ll need to file GST returns (monthly/quarterly depending on scheme chosen). Compliance can be managed by a CA or GST practitioner in India.

TDS: If you make payments to contractors, rent, or professional services above specified thresholds, you must deduct TDS and deposit it with the government.

Advance tax: If your total tax liability for the year exceeds Rs 10,000, you need to pay advance tax in quarterly installments.

Double taxation: If you’re also paying tax on this income in your country of residence, check the DTAA provisions between India and your country to claim relief.

ITR filing: As a proprietor, you’ll file ITR-3 or ITR-4 (if opted for presumptive taxation under Section 44AD). Our ITR guide for NRIs walks through the process.

The Practical Challenges (What Nobody Tells You)

Let me be real about the ground-level challenges NRIs face when running a proprietorship from abroad.

Managing from a Distance

A proprietorship requires hands-on management. Unlike a Private Limited Company where you can appoint directors and managers with defined roles, a proprietorship is literally just you.

If you’re living in the US and your business is in Bangalore, someone in India needs to handle day-to-day operations, bank visits, GST filings, and government interactions on your behalf.

Many NRIs rely on:

• A trusted family member
• A chartered accountant
• A local business manager

Give them a proper Power of Attorney for operational tasks. But remember – for FEMA purposes, your investment must come directly from you, not through a POA holder.

Banking Hassles

Opening and operating business bank accounts from abroad is one of the biggest pain points our community members report. Branch-level understanding of NRI proprietorship rules is often poor. Be prepared for multiple visits (by your representative) and repeated document submissions.

Compliance from Abroad

Even though proprietorship compliance is simpler than a company, you still need to:

• File ITR annually
• File GST returns (if registered)
• Keep proper books of accounts
• Respond to any tax notices

Having a reliable CA in India is non-negotiable. If you need help finding one, our guide on hiring a personal finance advisor has useful pointers.

Community Insights

Here are real experiences shared by members of our BacktoIndia community:

Shayna from New Jersey: “I started a proprietorship for my consulting practice in 2022 while still in the US. The plan was always to move back. The non-repatriation part didn’t bother me because I was building my India base. When I moved back in 2024, I just continued the business as a resident. Smooth transition.”

Lina from Dubai: “I tried setting up a proprietorship for my online handicrafts business. The GST registration was the hardest part – I needed someone in India with a PAN to be my authorized signatory. My brother helped. But honestly, for the amount of hassle, I sometimes wonder if I should’ve just done an LLP.”

Suvith from London: “Made the mistake of not knowing about the non-repatriation rule. Set up a proprietorship, earned decent revenue in the first year, and then realized I couldn’t transfer the profits to my UK account. Had to restructure the whole thing into a Private Limited Company. Cost me time and money. Learn from my mistake.”

Frequently Asked Questions

Can an OCI cardholder start a proprietorship in India?

Yes. The same FEMA Schedule IV rules apply to OCIs. Investment is permitted on a non-repatriation basis in the same manner as NRIs.

Can I convert my proprietorship to a Private Limited Company later?

Yes. Many NRIs start with a proprietorship and convert to a Pvt Ltd Company as the business grows. The process involves incorporating the new company and transferring assets and liabilities. It’s not automatic, but your CA can handle it.

Do I need to be physically present in India to start a proprietorship?

Not necessarily. Most registrations (PAN, GST, Udyam) can be done online. But practically, having someone on the ground in India helps enormously – especially for bank account opening, Shop Act registration, and dealing with local authorities.

Is there a minimum investment required?

No. There’s no minimum capital requirement for a proprietorship. You can start with any amount.

Can I hire employees in my proprietorship?

Yes. A proprietorship can have employees. You’ll need to comply with applicable labor laws, PF, ESI (if employee count exceeds threshold), and professional tax requirements based on your state.

What if I want to do real estate business?

Real estate trading (buying and selling property) is a prohibited sector for NRI investment in proprietorships. However, real estate development (construction of townships, residential, and commercial premises) is permitted. This is a nuanced distinction – consult a FEMA expert before proceeding.

Can I claim DTAA benefits on proprietorship income?

Yes. If you’re a tax resident of a country that has a Double Taxation Avoidance Agreement with India, you can claim relief to avoid being taxed twice on the same income.

What happens to my proprietorship if I become a resident Indian?

Once you become a resident Indian (by staying in India for more than 182 days in a financial year), the FEMA restrictions on non-repatriation no longer apply. Your NRI status changes, and the business continues as a normal resident proprietorship.

My Honest Recommendation

Here’s my personal take, based on years of watching NRIs navigate this.

If you’re planning to return to India within 1-2 years and want to start something small while you’re still abroad – a proprietorship on non-repatriation basis is a perfectly reasonable choice. It’s simple, cheap, and you can keep running it after you return as a resident.

If you’re staying abroad and want to run a business in India remotely – a Private Limited Company is almost always the better choice. Yes, it costs more to set up and maintain. But you get limited liability, the ability to repatriate profits, and a structure that can grow with you.

If you’re starting a professional services firm (consulting, freelancing, advisory) and don’t mind keeping the money in India – a proprietorship works. But consider an LLP for the limited liability protection.

The worst thing you can do is start a proprietorship without understanding the non-repatriation restriction and then be stuck when you want to move money back home.

Know the rules. Pick the right structure. And if you’re unsure, spend Rs 2,000-5,000 on a one-hour consultation with a CA who understands FEMA. It’ll save you lakhs down the road.

If you’re planning your move back or starting a business in India, join our WhatsApp community at https://backtoindia.com/groups – 20,000+ NRIs helping each other with real, lived experience. It’s free and volunteer-run.

Disclaimer: This article provides general information based on FEMA regulations and RBI guidelines as of 2026. Business regulations change frequently. Always consult a qualified chartered accountant or FEMA expert before making investment decisions. This is not legal or financial advice.