Capital and profits are freely repatriable under automatic route sectors in India. The operational constraint is tax withholding, DTAA treaty documentation, and bank clearance.
Under FEMA regulations, foreign investors in automatic-route sectors have a guaranteed right to repatriate profits, net of applicable Indian taxes. Four primary mechanisms exist to transfer funds from an Indian subsidiary to its foreign parent.
| Repatriation Route | Corporate Approval | Tax Treatment in India | Transfer Pricing Impact |
|---|---|---|---|
| Dividend Declaration | Board & AGM Resolution out of profits | Taxed in shareholder's hands; TDS u/s 195 (or DTAA rate 5%-15%) | N/A (Profit distribution) |
| Royalties & Tech Fees (FTS) | Executed License Agreement | Deductible expense for WOS; TDS u/s 195 (or DTAA rate ~10%) | High — Requires Form 3CEB & ALP justification |
| Management / Service Fees | Executed Service Agreement | Deductible expense for WOS; Subject to PE & DTAA examination | High — Requires benefit test & cost-plus ALP |
| Shareholder Loan Repayment | ECB Loan Agreement under RBI rules | Principal repayment tax-free; Interest subject to TDS | Interest rate benchmarked to SOFR / Arm's Length |
To claim lower withholding tax rates under a Double Taxation Avoidance Agreement (e.g. 5%–10% dividend tax under India-Germany or India-UAE DTAA), the non-resident parent must supply:
Every outward foreign remittance requires Form 15CA (online declaration) accompanied by Form 15CB (certified by a Chartered Accountant u/s 195 confirming correct tax withholding). Under the Income-tax Act, 2025 (effective 1 April 2026), these are renumbered as Form 145 and Form 146. Read full details on our NRI Taxation & 15CA/15CB practice page.
We evaluate DTAA tax residency documentation, verify Section 195 compliance, and issue Form 15CB (Form 146) certificates for fast bank clearance.
