How to pay a US company legally from India
The first question for an Indian founder paying a US company is not which payment app to use. It is who is paying and what the money is for. The Foreign Exchange Management Act 1999 (FEMA) governs the relevant foreign-exchange framework. 1 An individual’s overseas remittance can fall within the Liberalised Remittance Scheme (LRS), which has a US$250,000 limit per financial year running April to March. 1 A company or other Indian entity making overseas investment must be considered under the Overseas Investment Directions, where the automatic-route limit is expressed by reference to net worth. 2
That is a real classification fork. A US software invoice paid by an Indian resident individual is not automatically an overseas investment. A payment to subscribe for US-company shares is not automatically an ordinary service purchase. The recipient’s US address does not decide the route. The legal character of the payer and transaction does.
Decide whether you are settling an invoice or funding a US company
Start with the document that created the payment. A service invoice should identify the US legal entity, the service or product, amount, currency, and payment reference. An equity subscription needs subscription or ownership documents. A shareholder loan needs lending documents. A capital contribution should not be described as an ordinary supplier invoice merely because both payments leave India in dollars.
This distinction controls the next question. An individual paying a legitimate invoice may need to consider LRS. A company investing in a US entity needs a separate Overseas Direct Investment analysis. The country record identifies an automatic-route limit of up to 400% of net worth for ODI, with higher amounts requiring Reserve Bank of India approval. 2 Do not take an individual LRS allowance and treat it as a universal business-payment permission. That is exactly the kind of classification error that turns a simple payment into a bad record.
If the payment is mixed—part services, part ownership, or part loan—ask a qualified Indian adviser to separate the components before money moves. The question should name the real facts: Is this payment a current-account expense, an LRS remittance, overseas investment, or a financing arrangement under the current FEMA framework? A generic “Can I pay a US company?” question is not precise enough.
Form A2, PAN, and purpose must describe the real transaction
For LRS purchases of foreign exchange, the Reserve Bank’s guidance identifies Form A2 and requires PAN. 1 The same source material identifies purpose codes, including codes used in medical, education, travel, and investment contexts. 1 The presence of a form or code does not make the payment self-explanatory. It requires the sender to use the classification that matches the transaction.
A founder should therefore prepare the invoice or funding documents before approaching the authorised dealer. If the payment is for services, provide the agreement and invoice that say so. If it is investment, bring the relevant corporate and ownership record. Do not choose a general-purpose code because it looks less complicated; a purpose description should be true before it is convenient.
The right question to the authorised dealer is practical: For this Indian payer, US beneficiary, and documented transaction, which route, form, PAN requirement, and purpose classification apply? The answer will depend on the payer and purpose. It should be obtained from the authorised dealer or a qualified adviser using the current FEMA materials, not from an old payment example.
Foreign-currency balances do not erase the classification question
India permits residents to maintain certain foreign-currency balances through the Exchange Earners’ Foreign Currency arrangement, subject to its conditions; otherwise foreign currency must be converted into rupees within the relevant period. 1 That rule makes it important to distinguish holding dollars from making a new outward payment. A founder who already has a foreign-currency balance still needs to know what the proposed payment represents and whether the account and route support it.
The invoice currency and the source account should be planned together. Confirm the amount the US company expects to receive, the currency that will be debited, and the reference the recipient needs to identify the payment. If conversion is required, the conversion instruction does not replace Form A2 or the underlying transaction documents. If the recipient must receive a specific dollar amount, verify the executing terms before release.
Use an authorised route for the payment you are actually making
The country record identifies AD Category-I banks in the inward-remittance framework and domestic settlement systems including IMPS, NEFT, and RTGS. 1 Those domestic systems are not a solution to the legal route for a payment that will reach a US company. The payment needs to be made through the authorised foreign-exchange channel appropriate to the transaction.
An institution may ask for identity, tax, invoice, relationship, authority, or source-of-funds records. RBI’s KYC direction uses Officially Valid Documents in the identity-verification setting. 3 That does not promise a universal document checklist for every US payment. It tells the founder to prepare the documents that directly explain this particular payment and then obtain the executing institution’s requirements.
PAN is particularly important because it is the tax identifier used by individuals and businesses in the Indian system. 4 Where the payment route calls for PAN, use the correct payer’s PAN and make it consistent with the other documents. Do not use another person’s payment capacity to deal with a company obligation without recording the actual funding or reimbursement arrangement.
A practical sequence for an Indian sender
First, identify the payer: individual, Indian company, or another entity. Second, identify the transaction: invoice settlement, share subscription, loan, capital contribution, reimbursement, or something else. Third, obtain documents that accurately describe that transaction. Fourth, ask the authorised dealer which FEMA route, Form A2, PAN, purpose classification, amount limit, and evidence apply. Fifth, confirm beneficiary details, currency, charges, and the amount the US company must receive. Sixth, retain the payment confirmation with the documents used to support it.
The central discipline is to avoid collapsing LRS and ODI. LRS is an individual route with its own annual allowance and paperwork. ODI is an investment route with a different legal basis and limit structure. 1 2 Once that distinction is correct, the rest of the payment—invoice, purpose, account, currency, and recipient details—can be made to match the true transaction.