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When a foreign-owned subsidiary in India turns profitable, the question of moving profits back to the parent becomes important to any investment review. The repatriation of profits in India is not simply a transfer instruction to a bank. It involves Indian corporate tax already paid at the subsidiary level, withholding tax on the distribution itself, foreign exchange compliance under FEMA, and RBI reporting requirements that sit alongside all of this. Since the Finance Act 2020 removed the Dividend Distribution Tax and made dividends taxable in the hands of the recipient, the entire compliance chain changed, and it has continued to evolve.
The tax cost of repatriation varies considerably depending on the jurisdiction of the parent, the route chosen, and the quality of documentation submitted. A foreign parent with access to a favourable Double Taxation Avoidance Agreement (DTAA) and the right paperwork in place pays a fraction of what a poorly prepared one pays at the same statutory withholding rate. That gap is the practical reason this subject warrants careful attention.
Profits distributed to a foreign parent have already been taxed once in India before the withholding question even comes up. The Income-tax Act, 2025 came into force on 1 April 2026 and sets the base corporate rate at 30%. Companies with turnover under INR 400 crore pay 25%, and those on the concessional regime pay 22%, though most deductions go out of the window at that rate. This makes corporate tax in India the first major cost to consider before any profit is repatriated.
The 22% option tends to suit foreign subsidiaries well, unless the business relies heavily on deductions the regime does not permit. Surcharge sits at 0%, 7%, or 12% depending on income, and a 4% health and education cess applies on the total of tax and surcharge.
Under the Finance Act, 2026, MAT came down from 15% to 14%. It is applicable from tax year 2026-27. Unused MAT credit can now be carried forward for 15 years. For companies shifting to the concessional regime, accumulated MAT credit remains usable but is capped at 25% of normal tax liability in any single year.
The practical point is this: corporate tax and withholding are not one cost but two, applied one after the other. What the parent receives depends on what survives both.
Dividends are how most foreign parents actually get money out of India. Since 1 April 2020, that dividend lands as taxable income in the shareholder’s hands, and the Indian subsidiary withholds tax before the payment even leaves the country. This makes dividend tax India foreign companies a key issue in any profit repatriation plan, especially for businesses managing company registration in India or operating through an Indian subsidiary.
Section 115A sets the withholding rate for non-resident shareholders and foreign companies at 20%. Surcharge and cess pile on top of that. There is no de minimis threshold here, unlike the position for resident shareholders. The clock starts at the first rupee. Companies without a PAN registered in India face the same 20% default, or higher if the prescribed rate demands it.
A DTAA changes this materially. Where a treaty applies and offers a lower rate, that rate governs, and surcharge and cess do not follow it. The numbers make this concrete: on a dividend of INR 10 crore, the statutory route costs INR 2 crore in withholding before surcharge and cess are even counted. A treaty rate of 10% halves that to INR 1 crore. For any parent running a return calculation, that INR 1 crore gap is not a rounding difference.
Treaty rates are not applied automatically. Under the Income-tax Rules, 2026, Form 10F must be filed online on the Income Tax Department portal by all non-resident shareholders seeking treaty benefits, even where the Tax Residency Certificate (TRC) already contains the required information. This is a change from the earlier position, where Form 10F was only needed if the TRC was deficient. Because treaty relief directly affects dividend withholding, these documents should be reviewed before the dividend is declared by the Indian subsidiary, not after the remittance process has started.
Beyond that, the Supreme Court of India has held that a TRC is an eligibility condition, not conclusive proof of treaty entitlement. Authorities may probe the parent’s actual tax residency, its liability to tax in its home jurisdiction, and whether it has genuine commercial substance there. Before any dividend is declared, a foreign parent should confirm the following are in order:
India has concluded DTAAs with over 90 countries, making its treaty network one of the most extensive in Asia. For foreign parents, the dividend withholding rate available under the applicable treaty is often the single most significant variable in the effective cost of repatriation.
Treaty dividend rates follow a broadly consistent pattern: lower rates for substantial shareholders who meet a defined ownership threshold, and a general rate that applies to all other qualifying recipients. The table below sets out indicative treaty rates for key investor jurisdictions, sourced from the Income Tax Department’s published comparison of Income Tax Act rates against tax treaties.
| Parent Jurisdiction | General Treaty Rate | Lower Rate (Substantial Holding) | Holding Threshold |
|---|---|---|---|
| United Kingdom | 15% | 15% | — |
| United States | 25% | 15% | 10% voting stock |
| Singapore | 15% | 10% | 25% shareholding |
| UAE | 10% | 10% | — |
| Netherlands | 10% | 10% | 10% shareholding |
| Mauritius | 5–15% | 5% | 10% shareholding |
| Germany | 10% | 10% | 10% shareholding |
Source: Income Tax Department – Tax Rates as per Income Tax Act vis-a-vis Tax Treaties
These rates continue to shift. The Ministry of Finance signed an amending protocol to the India-France DTAA on 23 February 2026, introducing tiered dividend rates linked to shareholding thresholds. The amended India-Oman DTAA took effect from 1 April 2026, reducing royalty and fees for technical services withholding to 10%. Parent companies should verify the current notified treaty text for their jurisdiction rather than relying on older summaries, since treaty amendments take immediate effect once notified.
Dividends are the starting point for most foreign parents, but other routes exist and each carries its own tax treatment and compliance obligations.
The Finance Act, 2026 changed how buy-back proceeds are treated in the hands of shareholders. From tax year 2026-27, proceeds from a share buy-back are no longer classified as dividend income, which means the withholding framework under Section 115A does not apply to them. The foreign parent’s tax position now falls to be assessed under the capital gains provisions and whichever DTAA article covers capital gains for that jurisdiction. The effective cost and the relevant treaty article will both differ from what applied before 2026-27, so this is not a position that can be carried forward from earlier analysis without review.
Royalties and fees for technical services are frequently used as a secondary repatriation channel, covering payments for intellectual property, brand rights, and technical know-how. Since the Finance Act, 2023, the domestic withholding rate on these payments to non-residents doubled from 10% to 20%. Treaty relief is available in most cases, but the classification of a payment as FTS is regularly disputed. Treaties with the United States, United Kingdom, and Canada include a “make available” clause, which restricts FTS treatment to payments where the service actually transfers technical knowledge the Indian entity can use on its own. Routine services fall outside that boundary. All royalty and FTS payments between associated enterprises must also be priced at arm’s length, with transfer pricing documentation maintained for transactions above prescribed thresholds.
When a subsidiary is wound up, any surplus distributed to the foreign parent after liabilities are settled goes through a separate tax and regulatory analysis. Capital gains may arise depending on the cost base and how long the shares were held. The process involves considerably more regulatory engagement than a dividend payment and requires full compliance with both the Income-tax Act and the exit procedures under the Foreign Exchange Management Act, 1999.
FEMA governs the repatriation of profits in India and other outward remittances from India. For most foreign parents, dividends on equity shares, branch office profits, and routine current account remittances can move freely under the Automatic Route, as long as taxes have been paid and the transfer goes through an Authorised Dealer (AD) bank.
Not every transaction qualifies for the Automatic Route. Remittances above USD 1 million ((approximately INR 8.5 crore) per year from non-ordinary resident accounts, capital reduction involving foreign shareholders, and share transfers outside recognised stock exchanges all require RBI approval before funds can move.
In March 2026, the RBI issued amended guidelines for foreign bank subsidiaries (RBI/DOR/2025-26/233), confirming that dividends from wholly owned subsidiaries of foreign banks are repatriable under FEMA. The amendment also brought their dividend declaration norms in line with those of domestic banks.
Before an AD bank processes any outward remittance, the Indian subsidiary must:
Annual reporting obligations, including the Annual Return on Foreign Liabilities and Assets (FLA Return), must be filed within prescribed timelines post-remittance. Companies that have received foreign investment should also track related compliance such as FC-GPR reporting in India and annual FLA reporting where applicable.
Management fees, royalties, and service charges paid to a foreign parent are all subject to India’s transfer pricing rules. Every such cross-border transaction between associated enterprises must be priced at arm’s length, with supporting documentation maintained in proportion to transaction value. If the Income Tax Department disputes the pricing and makes an adjustment, penalties and interest form part of the resulting demand.
The issue of beneficial ownership sits alongside this. Indian tax authorities scrutinise whether the foreign parent receiving dividend or royalty income is its genuine beneficial owner or is acting as a conduit for an entity in a third jurisdiction. The Multilateral Instrument (MLI), which India ratified in June 2019 and which took effect from 1 April 2020, introduced a principal purpose test into a substantial portion of India’s treaty network. Under this test, a treaty benefit may be denied if one of the principal purposes of a structure or transaction was to obtain that benefit.
A foreign parent must be able to demonstrate actual tax residency, real liability to tax in that jurisdiction, and genuine economic ownership of the income other than having the right paperwork.
The withholding cost of repatriation depends heavily on both the nature of the payment and the treaty position of the foreign parent. The rates below reflect the current statutory position alongside the treaty range available to qualifying recipients.
| Payment Type | Domestic Statutory Rate | Indicative Treaty Range | Key Conditions |
| Dividend (non-resident) | 20% + surcharge & cess | 5% – 25% | TRC, Form 10F, beneficial ownership |
| Royalties / FTS | 20% (Finance Act 2023 onwards) | 10% – 15% in most treaties | “Make available” clause; arm’s-length pricing |
| Interest | 20% | 10% – 15% in most treaties | Instrument classification; recipient type |
| Buy-back proceeds (FY 2026-27 onwards) | Assessed under capital gains provisions | Treaty capital gains article | Finance Act, 2026 reclassification |
Disclaimer- All rates are indicative. Surcharge, cess, and individual treaty conditions apply. Verify against the current notified treaty text and the Finance Act for the relevant tax year.
The compliance sequence for repatriation of profits in India is well-defined, but it requires preparation well ahead of the intended payment date. Foreign parents should work through the following before any distribution is declared.
Repatriation of profits in India is operationally straightforward when the groundwork has been done. The entry routes are defined, the compliance steps are known, and the treaty network gives many foreign parents a viable path to a materially lower withholding rate. Problems tend to surface when repatriation is treated as a one-time transaction rather than a process. Starting the documentation after the board resolution is already signed, or discovering a treaty amendment after the payment instruction has gone in, are the kinds of gaps that create delays and unnecessary cost.
The Finance Act, 2026 changed several parameters that foreign parents may have treated as settled: buy-back proceeds are now assessed under capital gains provisions rather than as dividend income, MAT rates have been revised downward, and treaty documentation requirements under the Income-tax Rules, 2026 are more demanding than before. The India-France and India-Oman treaties have both been amended this year. None of this is unmanageable, but it does require that the applicable rules are reviewed before each distribution, not once at the time of initial investment.
Note: The Automatic Route under FEMA allows certain eligible foreign exchange transactions to be carried out without obtaining prior approval from the Reserve Bank of India (RBI), provided the applicable regulatory conditions, documentation, and reporting requirements are met.
