Key takeaways
- Dividends to a foreign company: 20% plus surcharge and cess, or the lower treaty rate with a TRC and Form 41.
- Service fees and royalties are deductible in India if at arm's length, but carry withholding.
- From 1 April 2026, buybacks are taxed as capital gains rather than dividends.
The five routes
| Route | Deductible for the Indian company? | Indian withholding (domestic) |
|---|---|---|
| Dividend | No — paid from post-tax profit | 20% plus surcharge and cess |
| Service / management fee | Yes, if at arm’s length and the service is real | Fees for technical services 20%; often nil or 10–15% under treaties |
| Royalty / licence fee | Yes, if at arm’s length | 20%; usually 10–15% under treaties |
| Interest on an intercompany loan | Yes, within interest-limitation rules | Depends on the loan; treaty rates commonly 10–15% |
| Buyback of shares | No | Capital gains in the parent’s hands from 1 April 2026 |
Dividend withholding by country
| Parent company in | Treaty rate on dividends |
|---|---|
| United States | 15% with 10%+ of voting stock; otherwise 25% |
| United Kingdom | 10% (15% in some cases) |
| Singapore | 10% with 25%+ shareholding; otherwise 15% |
| UAE, Japan, Germany, Netherlands | 10% |
| No treaty / documents missing | 20% plus surcharge and cess |
Treaty rates need a tax residency certificate, Form 41 and beneficial ownership of the dividend; anti-abuse rules (the MLI principal purpose test) can deny them. Check the treaty and its protocols for your case.
The paperwork for every remittance
- From the parent: a tax residency certificate, Form 41 (formerly 10F) and, for fees and royalties, a no-PE declaration.
- From the Indian company: withholding under section 393(2), Form 145 online and a CA certificate in Form 146 where required, then the bank remittance.
- Board approvals for dividends; intercompany agreements and transfer-pricing support for fees, royalties and interest; ECB rules for loans.
Choosing the mix
- Dividends are simple but come from post-tax profit; fees and royalties reduce Indian tax but invite transfer-pricing scrutiny.
- Withholding on fees can often be credited in the parent’s country — check your foreign tax credit position.
- Since April 2026, buybacks are taxed as capital gains (on the gain, not the whole payout) — worth modelling against a dividend.
We handle this for foreign parents — see Indian subsidiary compliance. US parent? Read the India–US tax treaty guide.
Sources
- Income-tax Act, 2025 — section 207 (Taxsutra)
- Income Tax Department — Form 41 note
- Vinod Kothari — buyback taxation (Feb 2026)
Frequently asked questions
How much tax is withheld on dividends paid to a foreign parent from India?
20% plus surcharge and cess under domestic law, reduced by the treaty — for example 15% for a US parent holding at least 10%, and 10% for UK, UAE, Japanese, German or Dutch parents — with a tax residency certificate and Form 41.
Can an Indian subsidiary pay management fees to its foreign parent?
Yes, if the services are real, priced at arm's length and documented. Withholding applies under section 393(2), often at a reduced treaty rate, and the fees are deductible for the Indian company.
How are share buybacks taxed in India from 2026?
From 1 April 2026 buyback proceeds are taxed as capital gains in the shareholder's hands — on the gain, after deducting cost — rather than as dividends. Promoters face additional tax.
Is there a limit on repatriating profits from India?
There is no cap on repatriating dividends from profits on which tax has been paid, provided company-law requirements are met and the remittance is documented with the bank.
Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.