FEMA Form 2 Filing for LLP
Transfer of Capital Contribution Between Resident and Non-Resident

When a partner in an Indian LLP transfers their capital contribution to another person, and one of the parties (the transferor or the transferee) is a non-resident (foreign company, foreign national, NRI on repatriable basis, or OCI holder), the transfer must comply with FEMA’s regulations and must be reported to the Reserve Bank of India using FEMA Form 2 for LLP on the FIRMS portal at firms.rbi.org.in. FEMA Form 2 for LLP is the “transfer” reporting form — the complement to FEMA Form 1 (which covers primary investment: new capital received by the LLP from a foreign partner). Where Form 1 increases the LLP’s total capital base by bringing in new foreign funds, Form 2 involves no change in the LLP’s total capital — it simply changes the identity of who holds a given share of the capital. The LLP’s total capital stays the same; the partner roster changes. Form 2 is the LLP equivalent of Form FC-TRS (Foreign Currency Transfer of Shares) that applies to companies, just as Form 1 is the LLP equivalent of Form FC-GPR. For the complete Form 1 framework (primary LLP investment), see our FEMA Form 1 Filing for LLP guide

Form 2 must be filed within 60 days of the date of receipt of consideration by the transferor (the partner who is selling their capital share). This 60-day deadline — different from Form 1’s 30-day deadline — is calculated from the date the transferor actually receives payment for the transfer, not the date the transfer agreement is signed. The most common Form 2 scenario is a foreign partner exiting the Indian LLP: the foreign partner (non-resident) sells their capital contribution to a resident Indian partner or a new resident investor. The second most common scenario is a resident Indian partner selling their capital share to a new non-resident incoming investor (which simultaneously triggers both a Form 2 for the transfer and potentially a Form 1 if the NR is making an entirely new capital contribution). Both scenarios have distinct pricing requirements under FEMA: when a non-resident is buying, the price must be at or above fair value; when a non-resident is selling (exiting), the price must be at or below fair value (and generally should not exceed the original acquisition cost).

N D Savla & Associates, Chartered Accountants based in Mumbai, handles the complete FEMA Form 2 compliance package for LLP capital contribution transfers: valuation of the LLP capital contribution at the time of transfer, FEMA Form 2 filing on the FIRMS portal at firms.rbi.org.in within the 60-day deadline, transfer agreement drafting and vetting, repatriation advisory for the exiting foreign partner (including Form 15CB certification and Form 15CA filing), MCA Supplementary LLP Deed and Form 3 filing, and FEMA compounding for delayed or missed Form 2 filings. For the broader FEMA consulting framework, see our FEMA Consultants India guide

Form 1 vs Form 2 — The Core Distinction

The most important conceptual distinction in LLP FEMA compliance is understanding when Form 1 applies and when Form 2 applies:

• Form 1 (Primary Investment): Filed when a FOREIGN PARTNER CONTRIBUTES CAPITAL TO THE LLP and becomes a partner for the first time, OR when an existing foreign partner makes an additional capital contribution to the LLP. The LLP’s total capital increases. New foreign money flows from abroad into the LLP. Form 1 deadline: 30 days from receipt of the capital contribution
• Form 2 (Transfer): Filed when an EXISTING PARTNER transfers their capital contribution to a new person, and at least one of the parties (transferor or transferee) is a non-resident. The LLP’s total capital stays the same. Money flows from the incoming partner to the outgoing partner (not to the LLP itself). Form 2 deadline: 60 days from receipt of consideration by the transferor

Scenarios That Trigger Form 2 (Not Form 1)

• Foreign partner EXIT: A non-resident partner in an LLP decides to exit. They transfer/sell their capital contribution to a resident Indian (existing partner or new entrant). Consideration flows from the resident buyer to the non-resident seller. Form 2 required within 60 days of the NR receiving payment
• Resident partner selling to Non-Resident: An existing resident Indian partner sells their capital share to a new non-resident investor. The NR pays the resident, acquires the capital, and becomes a partner in the LLP. Form 2 required. Note: if the NR also contributes additional fresh capital to the LLP beyond what they paid the resident, that incremental fresh capital also needs Form 1
• Change in profit-sharing ratio without fresh capital: If an existing foreign partner’s profit-sharing ratio increases (and correspondingly the Indian partner’s decreases) without any new capital being brought in, this may be treated as a transfer of value and require Form 2 — verify with FEMA counsel
• Corporate restructuring: Where a group restructuring results in the holding entity for the LLP capital changing from one non-resident group entity to another (NR to NR transfer), Form 2 reporting may be required
• Death of foreign partner: On the death of a foreign partner, the deceased’s legal heirs inherit the capital contribution. If the legal heir is a resident Indian, the transfer from deceased NR to resident heir may require FEMA compliance and Form 2 filing — consult FEMA counsel for estate-related transfers

One of the most critical and frequently misunderstood aspects of FEMA Form 2 compliance is the pricing requirement. Every transfer involving a non-resident must comply with FEMA’s pricing framework. The logic: FEMA prevents both under-pricing (giving an NR a bargain below fair value when they are buying from a resident, which would effectively be a concealed transfer of value abroad) and over-pricing (paying the exiting NR above the fair value or their original cost, which would be over-invoicing capital exit repatriation):

Determining Fair Value for LLP Capital Contribution Transfer

Fair value for the purpose of LLP capital contribution transfer is typically determined using:

• Net Asset Value (NAV) method: Total assets of the LLP minus total liabilities, divided by the total capital units (if the LLP has defined capital units). For most professional services and trading LLPs, NAV is the primary method
• Discounted Cash Flow (DCF) method: Where the LLP has significant future cash flows (technology, services with recurring contracts), DCF may be used to establish a fair value that is higher than NAV, reflecting the going concern value
• The valuation must be performed by a SEBI-registered Category I Merchant Banker or a Chartered Accountant. The valuation report must be contemporaneous with the transfer (not backdated) and must use an internationally accepted pricing methodology
• For the Form 2 transfer to be FEMA-compliant, the agreed transfer price must fall within the FEMA-permitted range established by the valuation: at or above fair value (for NR buying) or at or below fair value / original cost (for NR selling)

• Transfer agreement / Assignment of Capital Contribution: the signed agreement between the transferor (selling partner) and the transferee (buying partner) documenting the agreed transfer price, payment terms, date of transfer, and the number of capital units or percentage of capital being transferred
• FIRC (Foreign Inward Remittance Certificate): required when the consideration for the transfer is paid by the non-resident from abroad to the resident transferor in India. For NR-to-resident transfers (where the resident pays the NR in India): the bank evidence of payment from India to the NR’s foreign account
• Valuation certificate: from a SEBI-registered Category I Merchant Banker or CA, certifying the fair value of the LLP capital contribution on the date of transfer, using NAV or DCF methodology. Valuation must be current (not older than a reasonable period from the transfer date)
• KYC of both parties: Know Your Customer report from the Authorised Dealer bank for the non-resident party (whether transferor or transferee). For the resident party, KYC from their bank may also be required
• NOC / Consent from other partners: most LLP Agreements require the consent of all existing partners for admission of a new partner or transfer of capital. An NOC or consent letter from all non-transferring partners is required to document compliance with the LLP Agreement’s transfer conditions
• Previous FEMA Form 1 acknowledgment: the Form 2 filing must reference the original Form 1 under which the non-resident partner originally invested (showing the original acquisition price and Form 1 acknowledgment number). This is used to verify that the NR’s exit price does not exceed the original entry price (for NR-to-resident transfers)
• LLP Agreement / Supplementary Deed: the executed Supplementary LLP Deed reflecting the transfer and the change in partner roster, dated after the transfer agreement is executed
• Capital contribution certificate of the transferee: after the transfer is complete and Form 2 filed, the LLP should issue a capital contribution certificate to the new partner confirming their holding

When a foreign partner exits the LLP by selling their capital contribution to a resident Indian, the sale proceeds received by the foreign partner can be repatriated to their overseas bank account. The repatriation framework depends on how the original investment was made:

• If the original investment was on REPATRIABLE basis (from NRE/FCNR-B funds): the sale proceeds can be freely repatriated without any ceiling, after payment of applicable Indian taxes. This includes both the original capital investment amount and any capital gain above the original cost
• If the original investment was on NON-REPATRIABLE basis (from NRO funds): the repatriation is subject to the USD 1 million per financial year cap from NRO accounts (after paying taxes)
• TDS on LLP capital exit proceeds: the resident buyer (or the LLP on behalf of the buyer) must deduct TDS under Section 195 of the Income Tax Act on the capital gain component of the payment to the foreign partner (the amount above the original cost). TDS rate: the domestic rate or applicable DTAA rate (whichever is lower, on production of Tax Residency Certificate by the foreign partner)
• Form 15CB and 15CA: the LLP’s CA issues Form 15CB certifying the nature of the remittance, applicable tax, and DTAA analysis. The foreign partner (or the LLP on their behalf) files Form 15CA online on the Income Tax portal before the bank processes the overseas remittance
• Capital gain computation: for the foreign partner, the capital gain from exit = sale price per unit − original acquisition cost per unit. If held for more than 36 months, Long-Term Capital Gain (LTCG); if less, Short-Term Capital Gain (STCG). Tax rates: LTCG at 20% with indexation (or 10% without indexation, whichever is lower, for non-residents in some cases — subject to DTAA). STCG at the applicable rate for non-residents

FEMA Form 2 is the RBI compliance aspect of an LLP capital transfer. Simultaneously, the LLP must also complete the MCA (Ministry of Corporate Affairs) compliance for the change in partner composition:

• Form 3 (LLP Agreement Supplementary Deed): every change in the LLP Agreement must be filed in Form 3 on the MCA portal at
• mca.gov.in. For a partner transfer, the Supplementary LLP Deed is executed to reflect the change and Form 3 is filed within 30 days of execution. Penalty for late Form 3 filing: Rs. 100 per day of delay
• Form 11 (Annual Return of LLP): filed annually within 60 days of the close of the financial year (30 May for 31 March year-end). Form 11 must reflect the updated partner roster as on the closing date of the financial year. If the transfer occurred mid-year, the outgoing partner’s exit date and the incoming partner’s admission date must be accurately reflected
• Form 8 (Statement of Accounts and Solvency): annual filing reflecting the LLP’s financials. No specific change needed for a partner transfer, but the partner capital accounts in the balance sheet will reflect the change in partner composition
• Capital Contribution Certificate: issue a Capital Contribution Certificate to the new partner (transferee) confirming their capital holding, profit-sharing ratio, and the date of their admission as a partner
• Register of Partners: update the LLP’s Register of Partners (or equivalent LLP record) to record the outgoing partner’s exit date and the incoming partner’s admission date and capital holding

For the Exiting Foreign Partner (Seller of Capital)

• Capital gain tax: the foreign partner is taxable in India on capital gains arising from the transfer of their LLP capital contribution. India has taxing rights on capital gains arising from assets situated in India (the LLP capital is an asset situated in India)
• Classification: Long-Term Capital Gain (LTCG) if the capital was held for more than 36 months; Short-Term Capital Gain (STCG) if held for 36 months or less
• Tax rate for LTCG: 20% with indexation (or the applicable DTAA rate, if a Tax Residency Certificate is provided). For STCG: the applicable rate for the non-resident's income category
• TDS deduction: the resident buyer (transferee) or the LLP is required to deduct TDS on the capital gain component under Section 195 of the Income Tax Act before making payment to the foreign partner

For the Resident Incoming Partner (Buyer of Capital)

• No immediate tax on acquisition: the resident partner buying the LLP capital does not have an immediate income tax liability on the acquisition itself
• Section 56(2)(x) consideration: if the resident partner acquires the LLP capital at a price significantly below its fair value (inadequate consideration), the difference may be taxable in the hands of the resident buyer under Section 56(2)(x) of the Income Tax Act as “income from other sources.” This adds another reason to ensure the transfer price meets fair value requirements
• Future profit share: the incoming resident partner will receive future profit allocations from the LLP as per their profit-sharing ratio. LLP profit allocated to partners is tax-exempt in the hands of the partners (Section 10(2A)) if the LLP has paid tax at the LLP level

For the Indian LLP

• The LLP itself has no direct tax liability on the capital transfer between partners
• The LLP must withhold TDS (deduct and deposit) on payments to the exiting non-resident partner, issue Form 16A (TDS certificate), and file the quarterly TDS return in Form 27Q (for payments to non-residents)
• The LLP should update its capital accounts in the books: close the outgoing partner’s capital account and open the incoming partner’s capital account

• Wrong deadline: calculating the 60-day deadline from the transfer deed date instead of the payment receipt date. The 60 days run from the date the consideration is RECEIVED by the transferor, not from the contract/deed date. A transfer deed signed on 1 April but payment received on 15 May means the 60-day deadline is 14 July (60 days from 15 May)
• Price above original cost for NR exit: the exiting NR partner receiving more than their original acquisition cost is a FEMA pricing violation (in most interpretations). Always check the original Form 1 acknowledgment for the acquisition cost before agreeing the exit price
• No FIRC for NR-to-Resident payment: when a resident pays an NR for their capital contribution, the payment goes from the resident’s Indian bank account to the NR’s foreign bank account. The LLP or transferee must retain evidence of this outward payment (bank transfer record, SWIFT copy) as the equivalent of an FIRC for Form 2 documentation purposes
• LLP Agreement not amended: failing to execute a Supplementary LLP Deed and file Form 3 with MCA after the transfer. The LLP’s partner roster in the MCA records must match the actual partners — an MCA record showing the old (exited) foreign partner as still active is a compliance deficiency
• FLA not updated: after a foreign partner fully exits, the FLA Annual Return must reflect the exit in the year it occurs. Some LLPs continue filing FLA with the old partner’s capital even after exit, or fail to update the re-invested earnings calculation
• TDS not deducted on NR’s capital gain: the resident buyer or the LLP must deduct TDS under Section 195 on the capital gain component paid to the exiting NR. Missing TDS deduction makes the deductor liable for the TDS amount plus interest under the Income Tax Act
• Form 2 confusion with Form 1: when a resident partner sells their capital to an NR AND the NR also contributes additional fresh capital, both Form 2 (for the transfer) AND Form 1 (for the fresh capital) may be required simultaneously. Treating both as a single Form 1 filing is incorrect

LLP FDI Framework Evolution

The FEMA reporting framework for LLP investments evolved alongside the LLP Act, 2008 and subsequent liberalisations of FDI in LLPs. Initially, there was no specific standardised form for LLP capital transfers under FEMA — LLPs were expected to report through their Authorised Dealer banks with ad hoc documentation. The FEMA NDI Rules, 2019 codified the LLP investment framework comprehensively, and the FIRMS portal subsequently introduced structured LLP-specific reporting forms (Form 1 for primary investment, Form 2 for transfers), bringing clarity and standardisation to LLP FEMA compliance.

FC-TRS Analogy and LLP Distinction

Form FC-TRS (Foreign Currency Transfer of Shares) for companies has been a well-established FEMA form since the early 2000s. When LLPs became eligible for FDI in the 2010s, the need for a transfer reporting form analogous to FC-TRS was recognised. Form 2 for LLP is this analogue, adapted to the LLP’s specific characteristics: capital contribution (not shares), profit sharing ratios (not share percentages), and the LLP Agreement (not share certificates and company registers). For the company FC-TRS framework, see our FDI Filing with RBI guide