Register a Company in India from Nepal

Author: Manu Rao | Updated: March 2026

At a Glance

Why Nepali Investors Are Setting Up Companies in India

India and Nepal share the most deeply intertwined economic relationship in South Asia. Bilateral trade reached USD 8.7 billion in FY 2024-25, with India accounting for over 64% of Nepal's total trade. India exported USD 7.4 billion to Nepal — petroleum products, machinery, vehicles, pharmaceuticals, and construction materials — while Nepal sent back USD 1.3 billion, primarily electricity, agricultural products, and manufactured goods.

The relationship goes beyond trade numbers. Under the 1950 Treaty of Peace and Friendship, citizens of both countries can cross the 1,770-km open border without passports or visas. Tens of thousands cross daily for commerce and work. Approximately 8 million Nepalese live and work in India, and about 700,000 Indians reside in Nepal — many are Marwari business families who have operated in Nepal since the 19th century.

Nepal is a member of SAFTA (South Asian Free Trade Area), which covers tariff preferences on over 5,000 products among SAARC nations. More importantly, the bilateral India-Nepal Trade Treaty (1996, amended 2009) grants Nepal near-unilateral duty-free access to the Indian market for most products. India and Nepal also signed a Bilateral Investment Promotion and Protection Agreement (BIPPA) in October 2011, providing legal protections for cross-border investments.

Indian companies are the largest source of FDI in Nepal, accounting for 30-35% of Nepal's total FDI stock, with cumulative Indian investment estimated at USD 750-800 million across 150+ ventures. Key sectors include banking and financial services (SBI, Punjab National Bank, Bank of Baroda all operate in Nepal), hydropower, telecom (Bharti Airtel's Ncell), manufacturing, and hospitality.

For Nepali investors looking the other way — into India — the opportunity is enormous. India's roughly USD 4 trillion economy, its manufacturing push under Make in India, and the cultural familiarity make it a natural destination. But one regulation changes the entire calculus: Press Note 3.

Press Note 3: The Regulation Every Nepali Investor Must Understand

If you are investing in India from Nepal, Press Note 3 (2020) is the single most important regulatory hurdle. Full stop.

Issued by DPIIT on 17 April 2020 (and given effect through the FEMA Non-Debt Instruments amendment notified on 22 April 2020), Press Note 3 mandates that any entity from a country that shares a land border with India — China, Bangladesh, Pakistan, Nepal, Myanmar, Bhutan, and Afghanistan — must obtain prior government approval for ALL foreign direct investment, regardless of sector or amount. This applies even to sectors where 100% FDI is otherwise permitted through the automatic route.

The restriction goes further. If the beneficial owner of an investing entity is a citizen of, or an entity of, any of these bordering countries, the government approval route applies. So a Nepali national investing through a Singapore holding company is still caught — unless that Nepali beneficial ownership is non-controlling and does not exceed 10% (see the March 2026 amendment below).

Why does this matter for Nepal? Before Press Note 3, Nepali investors could use the automatic route for most sectors — IT, manufacturing, services. Now, every single investment requires filing with the Department for Promotion of Industry and Internal Trade (DPIIT), review by the concerned administrative ministry, and clearance that can take 4-8 weeks on top of the standard incorporation timeline.

The March 2026 Amendment: Press Note 2 (2026), issued on 15 March 2026 and given effect by an amendment to the FEMA Non-Debt Instruments Rules notified on 2 May 2026, narrows Press Note 3 — but not in the way it is usually reported. The relaxation applies only where the investing entity is NOT from a land-border country and the Nepali connection exists purely at the beneficial-ownership level: if that Nepali beneficial ownership is non-controlling and does not exceed 10%, the investment may proceed under the automatic route, subject to sectoral caps and to reporting under a standard operating procedure to be issued by DPIIT. Direct investment by a Nepali citizen or a Nepal-incorporated entity still requires prior government approval, no matter how small the stake. Press Note 2 also anchors the meaning of beneficial owner to the definition under the Prevention of Money-Laundering Act, 2002.

Separately, the Cabinet announcement accompanying the reform promises a 60-day fast-track approval timeline for land-border investments in specified manufacturing sectors — capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer — where majority shareholding and operational control remain with resident Indians. That timeline was not written into Press Note 2 itself, so treat it as administrative intent rather than an enforceable entitlement.

Choose Your Entity Type

Four main options exist for Nepali investors entering India.

Private Limited Company — the most practical choice for Nepali investors. Requires at least two directors (one must be an Indian resident who stayed 182+ days in India during the financial year). Allows 100% FDI subject to government approval under Press Note 3. Full limited liability. Mandatory statutory audit every year. Given the deep economic ties and open border, many Nepali business families establish wholly-owned subsidiaries in Indian border states like Bihar, Uttar Pradesh, and West Bengal.

Limited Liability Partnership (LLP) — lighter compliance burden, no mandatory audit below certain thresholds. However, FDI in LLPs is allowed only under the automatic route in sectors where 100% FDI is permitted. Since Press Note 3 moves Nepali investors to the government route, LLP formation requires additional approvals. The designated partner must have stayed in India for 120 days (not the 182-day tax residency threshold).

Branch Office — approved by RBI under FEMA regulations. Can carry out activities the parent company in Nepal performs. Profits are taxable in India. Useful for Nepali companies testing the Indian market without full incorporation. RBI approval is required, and Press Note 3 scrutiny applies here too.

Liaison Office — the most restricted option. Cannot earn any income in India. Limited to market research, communication, and promotional activities. RBI permission granted for 3 years, renewable. For Nepali businesses exploring the market before committing capital, this is a low-risk entry point.

FDI Route and Sector Rules

Nepal shares a land border with India. That single fact triggers Press Note 3 for every Nepali investor.

Government Approval Route (mandatory for all direct Nepali investment): All direct FDI from Nepal — whether in IT, manufacturing, e-commerce, healthcare, or any other sector, and at any stake size — requires prior government approval via the Foreign Investment Facilitation Portal (FIFP). The application goes to DPIIT, which routes it to the concerned administrative ministry. Processing takes 4-8 weeks, with a 60-day fast-track promised for specified manufacturing sectors.

Automatic Route (indirect beneficial ownership only): Per the March 2026 amendment, the automatic route opens only where the investing entity is from a non-border country and Nepali beneficial ownership in it is non-controlling and no more than 10% — subject to reporting to DPIIT and compliance with sectoral caps. A Nepali citizen or Nepal-registered company cannot use it for a direct stake, however small.

Sectors allowing 100% FDI (with government approval for Nepali investors) include IT and software, manufacturing, food processing, renewable energy, single-brand retail (up to 100%), healthcare, and construction-development (townships).

Government approval is required regardless of origin for defence beyond 74%, print media, multi-brand retail, and broadcasting.

Prohibited sectors remain off-limits: atomic energy, lottery, gambling, chit funds, Nidhi companies, tobacco manufacturing, and real estate (with exceptions for townships).

Step-by-Step Registration Process

The process for Nepali investors is longer than for non-bordering countries because of the mandatory government approval step.

Document Checklist for Nepali Investors

For the director or shareholder based in Nepal:

• Passport (color scan, all pages) — Nepali passport or citizenship certificate
• Address proof — utility bill or bank statement not older than 2 months
• Passport-size photograph
• Board resolution from Nepal parent company authorizing India investment (if applicable)
• Certificate of Registration of Nepal parent company (embassy attested)
• Memorandum and Articles of the Nepal company (embassy attested)
• Bank statement showing source of funds
• Government approval letter from DPIIT/FIFP (required for any direct investment from Nepal, at any stake size)
• Investment plan and business rationale document

Since Nepal is not a Hague Convention member, the apostille process does not apply. Documents must go through the longer embassy attestation route: Nepali notary → Nepal Ministry of Foreign Affairs → Embassy of India, Kathmandu. Budget 1-2 weeks for the full process.

Common mistakes: skipping the Nepal MoFA authentication step (Embassy of India will reject unattested documents), providing expired address proof, and not including the FIFP approval letter with SPICe+ filing.

DTAA Tax Rates: India-Nepal

The India-Nepal DTAA was signed on 27 November 2011 in Kathmandu and entered into force on 16 March 2012. Here are the applicable withholding tax rates:

To claim treaty benefits, the Nepali entity must obtain a Tax Residency Certificate (TRC) from Nepal's Inland Revenue Department. The DTAA also includes provisions for elimination of double taxation via credit method.

Note: The India-Nepal DTAA does not contain a specific article on Fees for Technical Services (FTS). Such payments are therefore either taxed as business profits (if the Nepali entity has a permanent establishment in India) or at domestic withholding rates.

Realistic Timeline

Total: 10-16 weeks from start to operating status. Here is the honest breakdown.

• DSC + DIN: 1-3 days
• Name reservation: 1-4 days
• Government approval via FIFP: 4-8 weeks (this is the biggest bottleneck)
• Document preparation + embassy attestation in Nepal: 2-3 weeks
• SPICe+ filing to Certificate of Incorporation: 5-15 working days
• Bank account opening: 2-4 weeks (enhanced KYC for foreign-owned entities from bordering countries)
• GST registration (if needed): 1-3 weeks

Competitors quoting "7-15 days" are hiding the government approval step and the embassy attestation process. For Nepali investors, 10-16 weeks is realistic. The government approval and document attestation steps alone add 6-11 weeks compared to investors from non-bordering countries.

Post-Registration Compliance

Once your Indian company is incorporated, compliance obligations start immediately.

• FC-GPR filing with RBI — within 30 days of share allotment to the foreign investor. Mandatory under FEMA. Particularly scrutinized for bordering-country investors.
• Board meetings — 4 per year for a Private Limited company. First meeting within 30 days of incorporation.
• Annual General Meeting — by September 30 each year.
• AOC-4 filing — financial statements filed with MCA within 30 days of the AGM.
• MGT-7 annual return — filed within 60 days of the AGM.
• Statutory audit — mandatory every year, regardless of turnover.
• Income tax return — due by October 31 for companies subject to statutory audit, and by November 30 where a transfer pricing report in Form 3CEB is required (common for cross-border structures).
• GST returns — monthly or quarterly if registered.
• Transfer pricing documentation — required for related-party transactions between the Nepal parent and Indian subsidiary. Indian tax authorities apply heightened scrutiny to transactions with bordering-country entities.

Bank Account Opening

Plan for 3-5 weeks. Foreign-owned companies from bordering countries face the most stringent KYC requirements.

You will need FATCA/CRS declarations, verification through an Authorized Dealer (AD) bank, and the AD bank will thoroughly scrutinize the source of initial capital — especially given the open border and the informal money-transfer channels between India and Nepal.

The NPR is pegged to the INR at a fixed rate of 1.6 NPR = 1 INR. This simplifies currency conversion but does not eliminate the need for proper banking channels and RBI-compliant remittance documentation.

Banks with experience handling Nepal-origin companies include SBI (which has extensive Nepal operations), HDFC Bank, and ICICI Bank. Start the bank account process the day you receive your Certificate of Incorporation.

Profit Repatriation

Getting money back to Nepal requires careful compliance with repatriation rules under FEMA.

Dividends — the most common method. Withholding tax at 5% under the DTAA (if the Nepali parent owns 10%+ of the Indian company). Process: declare dividend, deduct TDS, issue Form 16A, obtain CA certificate (Form 15CB), file Form 15CA with the income tax portal, instruct the AD bank to remit.

Royalties — 15% WHT under the DTAA. Requires a proper intercompany agreement and arm's-length pricing documentation.

Interest — 10% WHT under the DTAA for loans from the Nepali parent to the Indian subsidiary.

Share buyback — the company stopped paying buyback distribution tax under Section 115QA for buybacks on or after 1 October 2024. Buybacks completed between 1 October 2024 and 31 March 2026 were taxed as a deemed dividend on the full consideration in the shareholder's hands, at the 5% or 10% DTAA dividend rate for a Nepali parent, with the cost of the bought-back shares becoming a capital loss. Since 1 April 2026, buyback proceeds are once again taxed as capital gains under the Income-tax Act, 2025: long-term gains (shares held over 24 months) at 12.5% plus surcharge and cess, short-term gains at the ordinary 35% foreign-company rate plus surcharge and cess, since the India-Nepal DTAA leaves capital gains taxable in the source country under domestic law. A Nepali parent holding more than 10% of an unlisted Indian company is treated as a "promoter" and pays an additional 17.5% tax on long-term gains.

Given the NPR-INR peg, exchange rate risk is minimal. However, you must still route all remittances through banking channels via an AD bank. Informal hawala or cross-border cash transfers will trigger anti-money laundering enforcement.

Exit Strategy

If your India venture does not work out, two options exist.

Strike-off under Section 248 of the Companies Act, 2013 — for dormant companies with no assets or liabilities. File STK-2 with MCA. Takes 3-6 months. You need nil tax liabilities and closed bank accounts.

Voluntary liquidation under the Insolvency and Bankruptcy Code, 2016 — for active companies. Requires a special resolution, appointment of a liquidator, and completion within 12 months (extendable). More involved but cleaner for companies with actual operations.

Note: Repatriation of exit proceeds back to Nepal will require RBI compliance and proper documentation of the liquidation or strike-off.

How Beacon Filing Helps

We handle the complete India entry process for investors based in Nepal — including the Press Note 3 government approval that other firms gloss over.

• FDI advisory and Press Note 3 compliance — FIFP application preparation, government approval navigation, sector analysis, and RBI compliance
• Resident Director services — appointment of a qualified Indian resident director who meets the 182-day requirement
• Company setup and incorporation — SPICe+ filing, DSC, DIN, name reservation, embassy attestation coordination, and Certificate of Incorporation
• DTAA and tax advisory — treaty benefit structuring, TRC guidance, transfer pricing documentation, and annual compliance
• Accounting and statutory audit — bookkeeping, financial statements, ROC filings, and GST returns

Related Country Guides

Setting up from a different country? These guides cover similar territory:

• Register a Company in India from Bangladesh
• Register a Company in India from Sri Lanka
• Register a Company in India from China
• Register a Company in India from Thailand
• Register a Company in India from Vietnam
• Register a Company in India from Indonesia

Get in Touch

Setting up an Indian company from Nepal? Talk to us. We know the Press Note 3 process inside out and have helped investors navigate the government approval route efficiently.

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