India rules · all investors

Repatriating Profits: India rules for foreign companies

CA Utsav Dogra, Chartered Accountant, ICAI M. No. 542375

Dividends can be paid only out of profits after providing for depreciation and losses, so a young company may not be able to pay one for several years. Interim dividends are declared by the board; final dividends by shareholders at the AGM.

Planning distributions

Royalties and service fees can move money earlier, but only where there is a genuine licence or service, an agreement and arm's-length pricing. They are deductible in India if they meet these tests, while dividends are not.

Every outward remittance needs withholding at the right rate, the residency documents and the remittance forms filed through the bank. Keeping these in one file each year makes the parent's foreign tax credit claim straightforward.

Checklist

Distributable profits computed
Board or AGM approval
Withholding and treaty documents
Remittance forms through the bank
Certificates sent to the parent

Common mistakes

Paying dividends before losses are absorbed
Charging management fees without services
Missing remittance forms
No intercompany agreement for royalties

How this applies to your country

Our service: Corporate tax, GST and transfer pricing

Questions

Is dividend distribution tax still payable?

No. Dividends are taxed in the hands of the shareholder, with withholding by the company.

Can the Indian company return capital?

Through a buyback or capital reduction, each with company-law, tax and FEMA requirements.

Which route is cheapest?

It depends on the parent's home-country position and the substance behind each charge; dividends are simplest, fees and royalties need contracts and transfer pricing support.

Queries

Send the firm a query

Tell us briefly what you need. A member of the team will get back to you.

WhatsApp: Message us on WhatsApp
Telephone: +91-9999010513