How to Repatriate Profits From Your Indian Subsidiary Back to the US or UK

There is a pattern that plays out in foreign-owned Indian subsidiaries more often than it should. The subsidiary is profitable. It has been profitable for two or three years. The balance sheet shows a healthy retained earnings figure. And yet, not a single rupee has moved to the US or UK parent company.

When the CFO at the parent company is asked why, the answer is usually some variation of: "we're looking into it," or "our India team says it's complicated," or — most revealingly — "we don't know exactly what we need to do to start."

Profit repatriation from an Indian subsidiary to a foreign parent is not complicated. It is a multi-step process with specific documentation requirements, tax implications, and compliance filings — but it is well-supported by Indian law, FEMA regulations, and India's network of Double Taxation Avoidance Agreements. The problem is not the framework. The problem is that nobody owns the process end to end, and every year of delay means the parent company is effectively lending interest-free capital to its Indian entity.

This blog is about making repatriation happen — not just understanding it in theory. It covers the four mechanisms available, the tax cost of each, the documentation that must be in place before money can leave India, and the specific mistakes that cause remittances to stall or be rejected by the AD bank.

The Regulatory Framework: FEMA, Income Tax, and Companies Act

Profit repatriation from India sits at the intersection of three separate regulatory frameworks, and understanding which governs what is the first step to avoiding delays.

FEMA — the Foreign Exchange Management Act, 1999 — governs whether the repatriation is permitted and through which route. The key distinction FEMA makes is between current account transactions and capital account transactions. Dividend payments to foreign shareholders are current account transactions — they are freely repatriable without any prior RBI approval, provided Indian taxes have been paid and the company's FEMA filings are current. Share buybacks and capital reductions are capital account transactions — they require additional regulatory steps including FC-TRS filing and in some cases prior approvals.

The Income Tax Act — now the Income Tax Act, 2025 for transactions from April 1, 2026 — governs how the repatriation is taxed. Every payment going out of India to a foreign company is a remittance to a non-resident, which triggers withholding tax obligations. The Indian subsidiary is responsible for deducting Tax Deducted at Source (TDS) before making the payment. If TDS is not deducted, the subsidiary faces interest and penalty exposure under Section 201 — and the AD bank will often refuse to process the remittance until compliance is confirmed.

The Companies Act, 2013 governs the internal corporate process required before dividends can be declared. A dividend cannot be declared from funds that do not exist as distributable profits. It requires either a board resolution (for interim dividends) or a shareholder resolution at the Annual General Meeting (for final dividends). These are not formalities — they are legally required steps, and the AD bank will ask for the board resolution before processing the wire transfer.

The Four Routes — And Which One Fits Your Situation

Foreign parent companies use four mechanisms to extract value from their Indian subsidiaries. Each has a different tax cost, different documentation requirement, and different suitability depending on the company's structure.

Route 1: Dividend Distribution

Dividends are the most commonly used and most straightforward mechanism for profit repatriation from an Indian subsidiary. The subsidiary declares profits as dividends payable to the foreign parent shareholder.

Since the abolition of the Dividend Distribution Tax (DDT) in April 2020, the tax structure changed fundamentally. The Indian subsidiary no longer pays DDT. Instead, dividends are taxed in the hands of the foreign shareholder through withholding tax. The domestic withholding rate is 20% on the gross dividend amount, plus applicable surcharge and cess — an effective rate of approximately 21 to 23%.

This is where DTAA planning becomes the most powerful tool a CFO can use. India has DTAAs with over 90 countries including the United States, the United Kingdom, Singapore, Germany, Netherlands, and Mauritius. Under most of these treaties, the withholding rate on dividends is significantly lower than the domestic 20%:

India-US DTAA: 15% on dividends where beneficial ownership is at least 10%

India-UK DTAA: 15% on dividends where beneficial ownership is at least 25%

India-Singapore DTAA: 5% or 15% depending on the ownership threshold

India-Netherlands DTAA: 5% where the parent holds at least 10%

India-Mauritius DTAA: 5% where the parent holds at least 10%

The difference between paying 20% and 5% on a ₹5 crore dividend is ₹75 lakh. Over three or four years of accumulated profits, this is a meaningful sum — and it is entirely avoidable with the right documentation in place before the dividend is declared.

To access the DTAA rate, the foreign parent must provide the Indian subsidiary with:

— A valid Tax Residency Certificate (TRC) issued by the tax authority of the home country

— A completed Form 10F filed electronically on the Indian income tax portal

— A No Permanent Establishment declaration confirming the parent does not have a taxable presence in India

These documents must be in the subsidiary's possession before the dividend is declared and TDS is deducted. Applying the DTAA rate without possessing the TRC exposes the subsidiary to penalties for TDS short-deduction. Getting the TRC after the fact does not retroactively validate a reduced withholding that was applied without it.

Route 2: Management Fees and Technical Service Fees

The Indian subsidiary pays the foreign parent for management, consultancy, or technical services provided by the parent. This route has a significant advantage over dividends: the management fee or technical service fee is a deductible expense for the Indian subsidiary, reducing its taxable profit in India before corporate tax is applied. This can lower the total tax burden on the group compared to paying corporate tax in India and then withholding tax on the dividend.

The withholding rate on management fees and fees for technical services under most DTAAs is 10% to 15%. Under the India-US DTAA, for instance, fees for technical services attract 15% withholding.

The constraints: management fees must be supported by actual services being rendered. A fee that is not backed by documented service delivery — a management services agreement, invoices, evidence of work — will be re-characterised by the Indian tax authority as a disguised profit distribution, with back-taxes, interest, and potential penalties. Transfer pricing documentation is mandatory for any intercompany transaction between the Indian subsidiary and its foreign parent. The management fee must be benchmarked at arm's length pricing, and Form 3CEB (the accountant's report on international transactions) must be filed with the income tax return if the transaction value exceeds ₹1 crore.

For GCCs and IT subsidiaries where the parent provides genuine management oversight, technology licensing, or shared service functions, this route is both commercially logical and tax-efficient.

Route 3: Royalties for Intellectual Property Use

If the Indian subsidiary uses intellectual property owned by the foreign parent — software, brand names, patents, proprietary processes — it pays royalties to the parent for that use. These royalties are deductible for the subsidiary and constitute income for the parent.

Royalties to a non-resident are subject to withholding tax at 10% under domestic Indian tax law (Section 115A of the Income Tax Act). Under DTAA, this may be reduced — the India-US DTAA, for instance, provides for a 10% rate, while some treaties provide 10% to 15%.

The RBI imposes caps on royalty payments under automatic route approval: royalties on technology agreements are generally capped at a percentage of domestic sales or production, though the specific limits have been liberalised over the years. Any royalty payment must be backed by a technology transfer or licensing agreement in place before the payments begin, with Transfer Pricing documentation supporting the arm's length rate.

Route 4: Loan Repayment (External Commercial Borrowing)

If the Indian subsidiary was originally funded through External Commercial Borrowing from the foreign parent rather than through equity FDI, repayment of that ECB principal is a capital account transaction — it is not a profit extraction mechanism but a return of capital. Interest on the ECB is a current account transaction, taxable at withholding rates under DTAA (typically 10 to 15%), and is a deductible expense for the subsidiary.

ECB repayment is governed by RBI's FEMA (External Commercial Borrowings) Regulations and requires quarterly reporting through Form ECB-2 on the RBI's FIRMS portal.

The Documentation Sequence: What Must Be Done Before The Money Moves

This is where most repatriations fail — not because the legal framework does not permit them, but because the documentation is incomplete or sequenced incorrectly when the AD bank request is made.

The step-by-step sequence for a dividend repatriation is:

Step 1 — Collect TRC and Form 10F from the foreign parent before declaring the dividend.

Step 2 — Pass the board resolution (for interim dividend) or convene the AGM and pass the shareholder resolution (for final dividend). The resolution must specify the amount per share and the record date.

Step 3 — Compute TDS at the applicable rate — domestic 20% plus surcharge and cess, or the DTAA rate if TRC and Form 10F are in hand.

Step 4 — Have the company's Chartered Accountant prepare Form 15CB — the certificate that confirms the nature of the payment, applicable DTAA provisions, and that taxes have been correctly computed.

Step 5 — File Form 15CA Part C on the income tax portal, referencing the Form 15CB acknowledgment number. This filing is mandatory for all remittances above ₹5 lakh to non-residents.

Step 6 — Deposit TDS with the government within the prescribed timeline — 7th of the following month for most non-government deductors.

Step 7 — File Form 27Q — the quarterly TDS return for payments to non-residents — by the 15th of the month following the end of the quarter in which TDS was deducted.

Step 8 — Instruct the AD Category-I bank with the board resolution, Form 15CA, purpose code (S0901 for dividends), and SWIFT details of the foreign parent's account.

The AD bank performs its own KYC and compliance checks. If the company has any pending FEMA filings — FC-GPR not filed, FLA return overdue, or FC-TRS filings outstanding — the bank will flag these and refuse to process the remittance until they are rectified. This is the most common cause of unexpected delays.

The Five Mistakes That Cause Repatriation TO Stall

After seeing the same problems repeat across foreign-owned Indian subsidiaries, these are the five that cause the most friction:

Mistake 1: Applying the DTAA rate without possessing the TRC first.

The reduced withholding rate is not automatic. It requires the TRC from the parent company's home-country tax authority. Without it in hand before TDS is deducted, the domestic rate applies. Retroactive TRC collection does not undo a TDS shortfall.

Mistake 2: Trying to repatriate dividends when FLA or FC-GPR filings are outstanding.

The AD bank checks the company's FEMA compliance status before releasing any outward remittance. A single unfiled FLA return — due July 15 every year — can block a dividend remittance indefinitely. Regularise all FEMA filings before initiating the process.

Mistake 3: Declaring a dividend without sufficient distributable profits.

Under the Companies Act, dividends can only be paid from current year profits or accumulated retained earnings after providing for depreciation. Declaring a dividend that exceeds distributable profits is a legal violation — the Companies Act prescribes penalties for directors in such situations.

Mistake 4: Not having a transfer pricing study for management fees.

Any intercompany payment between the Indian subsidiary and the foreign parent above ₹1 crore in a financial year triggers transfer pricing documentation obligations, including Form 3CEB. A management fee paid without TP documentation invites addition by the Indian tax authority and potential disallowance of the deduction.

Mistake 5: Using the wrong purpose code with the AD bank.

Every outward remittance must be tagged with the correct RBI purpose code — S0901 for dividends, S1302 for technical service fees, S1301 for royalties. Incorrect coding creates reconciliation mismatches between RBI and income tax databases and can trigger regulatory queries.

How The Foreign Parent Claims Credit For Indian Tax Paid

Withholding tax paid in India is not a permanent cost for the foreign parent — it is creditable against the tax liability in the parent's home country, subject to that country's foreign tax credit rules.

For a US C-Corporation receiving dividends from an Indian subsidiary, the Indian TDS is creditable against US federal corporate tax under the foreign tax credit provisions of the US Internal Revenue Code (Form 1118). For a UK company, Indian withholding tax is creditable against UK corporation tax on the same income under UK's foreign tax credit framework. The credit prevents double taxation — the combined Indian withholding plus the home-country top-up should not exceed what would have been payable in the home country alone.

This is why the DTAA rate matters at the point of deduction: over-withholding in India creates a refund situation — getting excess TDS back through the Indian income tax refund process can take 12 to 24 months, tying up capital that should be with the parent.

How Accorp Partners Helps

For foreign-owned Indian subsidiaries that have not yet moved profits to the parent company — or that have tried and found the process stuck at the AD bank — Accorp Partners provides end-to-end repatriation support: computing the applicable DTAA withholding rate, coordinating TRC and Form 10F collection, preparing Form 15CB, filing Form 15CA and Form 27Q, and coordinating the full documentation package with the AD bank.

For Indian subsidiaries with accumulated retained earnings, Accorp also advises on the most tax-efficient combination of dividend, management fee, and royalty payments to minimise the total tax cost of repatriation across the group.

Learn more about Accorp Partners' India incorporation and compliance services here:

https://accorppartners.com/services/incorporation/india-incorporation

Frequently Asked Questions

Q: Does the Indian subsidiary need RBI approval to pay dividends to its foreign parent?

A: No. Dividend payments to foreign shareholders are classified as current account transactions under FEMA and are freely repatriable without prior RBI approval. The process is handled entirely through the company's Authorised Dealer (AD) Category-I bank, provided all Indian taxes have been paid and FEMA filings are current.

Q: What is the withholding tax rate on dividends paid by an Indian subsidiary to a US parent company?

A: Under domestic Indian tax law, the withholding rate is 20% plus applicable surcharge and cess — approximately 21 to 23% effective. Under the India-US DTAA, the rate reduces to 15% where the US parent holds at least 10% of the voting shares of the Indian subsidiary. To apply the 15% rate, the US parent must provide a valid Tax Residency Certificate and Form 10F before the dividend is declared.