In a flipped startup, the US company owns the Indian entity, and the Indian entity usually earns its revenue by billing the parent for engineering, R&D or support. Those invoices are exports of services, so the Indian subsidiary files a monthly EDF with its AD bank, listing each invoice to the parent as a row, exactly as it would for an unrelated client. The differences lie in how the invoice amount is set (often cost-plus), how intra-group payments are timed, and how carefully transfer pricing, GST and FEMA records have to agree.
Key takeaways
- An Indian subsidiary billing its US parent is exporting services. The EDF applies to it like any other exporter.
- Cost-plus invoices are common. The EDF simply records the invoice amount; how that amount is set is a transfer pricing matter for your CA.
- Likely SAC codes: 998314 (IT design and development) or 998313; likely purpose codes: P0807 or P0802, or P1008 for R&D services. Confirm with CA and bank.
- Parents sometimes "forget" to pay subsidiaries on time. The 9-month realisation window still applies.
- GST export status needs care for related parties. Check the Section 2(6) conditions with your CA.
Why flipped startups need to pay attention
Many founders think of the Indian entity as "just the engineering team" and treat inter-company billing as an accounting entry. Under FEMA, every invoice from the Indian company to the US parent is a service export. It goes on the EDF, the bank tracks it in EDPMS, and it must be realised within 9 months from the invoice date.
The problems we see most often are not exotic. Invoices raised quarterly with no matching payment for months. Parent payments that do not correspond to any invoice. Codes on receipts that say "investment" when the money is for services. Each creates questions that are harder to fix later than to prevent now.
The typical billing model
| Feature | Common practice | EDF impact |
|---|---|---|
| Who is billed | US parent, sometimes another group entity | Recipient name and country in Part 2B |
| Pricing | Costs of the Indian team plus a markup | Invoice amount goes in; method is a TP matter |
| Frequency | Monthly or quarterly | Each invoice is a row in its own month |
| Currency | USD | Amount in USD in Part 2B |
| True-ups | Year-end adjustment invoice or credit note | Adjust in the month the document is raised |
| Payment | Parent wires funds from US bank | Purpose code must reflect services |
Transfer pricing determines whether your markup is arm's length; we do not cover that here, and your CA should. From the EDF's point of view, the invoice is just an invoice.
Choosing codes
The Indian entity's work in a flipped startup is usually product engineering, sometimes R&D, sometimes customer support for the parent's users.
- Product engineering: SAC 998314 is common; purpose code P0807 (off-site software exports) or P0802.
- R&D services: purpose code P1008 (R&D services) may be more accurate for genuine research work. Ask your CA about the SAC.
- Customer support or operations: codes depend on the nature of the work; confirm with your CA and bank.
The parent's finance team usually controls the outward wire, so tell them which purpose code you need on every payment. Write it into your intercompany agreement or a standing instruction.
Worked example: Kalpa Systems India Pvt Ltd
Kalpa Systems Inc. (Delaware) owns 100% of Kalpa Systems India Pvt Ltd in Bengaluru. The Indian entity has 40 engineers and bills the parent monthly at cost plus an agreed markup.
For October 2026, Indian costs come to ₹2.8 crore. With the agreed markup, the invoice is raised at ₹3.08 crore, expressed in USD at the book rate of ₹84: USD 366,667 (rounded). Invoice date 31 October.
The October EDF has one row: recipient Kalpa Systems Inc., USA, invoice KSI/IC/2026-10, USD 366,667, NRV same, description "Software product engineering services under intercompany services agreement dated 01-04-2024", SAC 998314, contract reference to the intercompany agreement. Field 1.22: ₹3,08,00,000. Due by 30 November 2026.
Kalpa India also fills fields 1.15 and 1.16 only if someone other than the parent will pay; here the parent pays directly, so they stay blank.
In March, a year-end true-up adds USD 18,000. That is a new invoice dated in March, on the March EDF. If the true-up had gone the other way, a credit note would reduce the value, and Kalpa India would inform the bank.
Making sure the parent actually pays
Intra-group payments are where flipped startups get into trouble. The parent might be waiting on a funding round, or the CFO might prefer to fund the subsidiary by equity rather than by paying invoices. FEMA does not care about group convenience: each invoice must be realised within 9 months of its date.
Practical steps:
- Agree payment terms in the intercompany agreement (e.g. 60 days) and stick to them.
- Match each wire to specific invoices. Ask the parent's finance team to quote invoice numbers in the payment reference.
- Do not mix equity and service payments. Money sent as share capital is a different transaction with its own reporting. Keep it separate.
- Watch the clock. If a payment will slip past 9 months, ask your AD bank for an extension with reasons before the deadline. Our realisation extension request letter helps.
GST on intercompany exports
Section 2(6) of the IGST Act lists the conditions for an export of services, including that the supplier and recipient are not merely establishments of a distinct person. A separately incorporated Indian subsidiary and its US parent are usually distinct legal entities, but the classification of services, place of supply and related-party valuation all need checking. Discuss with your CA. Export under LUT where appropriate, with the LUT wording on invoices.
The EDF does not change GST or income-tax obligations. Our article on intra-group cross charges and cost-plus billing looks at the same issues for larger captives. This is general information, not legal or tax advice.
Frequently asked questions
Does an Indian subsidiary need to file the EDF for invoices to its US parent?
Yes. Invoices for services to a foreign parent are exports of services. Each month's invoices go on one EDF to the AD bank where the parent pays.
How does cost-plus billing work with the EDF?
The EDF records the invoice amount, however you arrived at it. Cost-plus is a pricing method governed by transfer pricing rules. Make sure the invoice, the EDF row and your transfer pricing documentation all show the same figure.
Which purpose code should the US parent use when paying?
For product engineering, P0807 or P0802 are commonly used; for genuine R&D work, P1008 may fit. Confirm with your bank and give the parent a standing instruction so every wire carries the right code.
What if the parent pays a lump sum that does not match invoices?
Ask the parent to specify which invoices the payment covers, and give your bank the split in writing. Unmatched lump sums make it hard for the bank to close EDPMS entries.
Can the parent fund the Indian entity instead of paying invoices?
Equity funding is a separate transaction with its own FEMA reporting, and it does not settle service invoices. Unpaid invoices remain open and must be realised within 9 months unless the bank grants an extension.
Bottom line
Treat every intercompany invoice as a real export: declare it, code it and collect it. Our free EDF form generator handles a one-row monthly form in minutes, and the due date calculator keeps your filing date in view.
This guide is general information for Indian businesses, not legal or tax advice. Rules and bank processes change — confirm specifics with your AD bank or chartered accountant.