US Tax for Indian Founders Running US LLCs

The US tax exposure of an Indian-resident-owned single-member US LLC turns on one question: does the LLC carry on a US trade or business (USTB) generating effectively connected income (ECI). For an Indian founder operating the LLC entirely from India — services performed in India, no US office, no US employees, no US dependent agent habitually concluding contracts — the LLC generally has no USTB, no ECI, and therefore owes no US federal income tax on its business profits. Form 5472 with a pro-forma Form 1120 remains due as information reporting (USD 25,000 penalty per failure under IRC Section 6038A), not a tax liability. The exception is US-source FDAP income (US-company dividends, certain interest): the default 30% withholding is reduced under the India-US DTAA to 25% for an individual beneficial owner (the 15% rate applies only to a company holding at least 10% of the payer's voting stock).

On the India side, India taxes its residents on worldwide income, so the LLC's profits are in substance the resident's income. The India-US Double Taxation Avoidance Agreement (1989) Article 7 assigns the taxing right over business profits to India where the enterprise has no US permanent establishment — the typical fact pattern for a remotely-operated LLC. At the highest band those profits meet a top marginal rate of 39.0% under the new regime (surcharge capped at 25%) or 42.744% under the old regime (37% surcharge), each inclusive of the 4% health-and-education cess; most sub-$500K-revenue founders sit well below this, nearer 34–36% effective. Where any US tax has been paid (for example FDAP withholding), a foreign tax credit is available under Section 90 read with Rule 128, claimed on Form 67 — which, since Notification 100/2022, may be filed up to the end of the assessment year rather than before the return. One genuinely unsettled point: India has no statutory CFC regime and no binding rule classifying a US LLC as transparent or opaque, so whether the profits are taxed as they accrue or only on remittance is fact-dependent and best confirmed with a chartered accountant experienced in the cross-border layer.

**Sources cited above:** IRC Sections 864(b) / 882 (USTB / ECI), Section 6038A (Form 5472, USD 25,000 penalty), India-US DTAA (1989) Articles 5, 7, and 10, Income Tax Act Section 90 + Rule 128 + Form 67 (timing per Notification 100/2022), surcharge / cess schedules under the Finance Act (top marginal 39.0% new regime, 42.744% old regime). Last verified 2026-06-01.