“Can we get the money back out?” is the question every foreign parent asks at setup and almost nobody plans for until the cash has built up. The answer is yes, routinely. The cost depends entirely on which route you use, and the cheapest route is usually the one nobody set up in advance.
Profits can leave India through dividends, service or management fees, royalties, buybacks and capital reduction. Dividends and fees are current account transactions and freely repatriable once tax is withheld and the paperwork is in order. Dividend Distribution Tax was abolished in 2020, so dividends are now taxed in the shareholder’s hands — withholding at around 20.8% under domestic law, reduced to 15% for a US parent holding at least 10% of the voting stock under the treaty.
Cash building up in your India entity? WhatsApp us the amount and structure and we will set out the routes.
Quick Summary
| Route | FEMA category | Withholding, US parent | Notes |
| Dividend | Current account | 15% treaty (≥10% holding), else 25%; ~20.8% domestic | Needs TRC + Form 10F |
| Service / management fee | Current account | Treaty rate on fees for included services, 15%, subject to “make available” | Must be arm’s length |
| Royalty | Current account | 15% under treaty; 20% domestic since FA 2023 | Arm’s length, GST under reverse charge |
| Buyback | Capital account | Taxed in shareholder’s hands as capital gains | Valuation, Form FC-TRS |
| Capital reduction | Capital account | Capital gains treatment | Valuation, court/NCLT process |
💡 TaxKitab Tip Set up the service fee route before you need it, not after. A dividend can only be paid out of distributable profits and only after the year closes, so it is slow and lumpy. A properly documented, arm’s length service or management fee flows monthly or quarterly, is deductible in India, and smooths the cash. What it requires is an intercompany agreement signed before the period and transfer pricing support — both of which take weeks to put in place and minutes to produce once they exist.
Dividends
The straightforward route, and the one most parents default to.
Dividend Distribution Tax was abolished from FY 2020-21. The company no longer pays a distribution tax; the dividend is taxed in the shareholder’s hands and the Indian company withholds.
Domestic rate: under Section 195 read with Section 115A, 20% plus surcharge and cess — roughly 20.8% for a foreign corporate shareholder.
Treaty rate, US parent: 15% where the beneficial owner is a company holding at least 10% of the voting stock, and 25% otherwise. To claim it the parent needs a Tax Residency Certificate and Form 10F, with treaty override applying under Section 90(2) of the 1961 Act, now Section 159 of the Income-tax Act, 2025.
Two things that remove the treaty rate: no PAN for the recipient can trigger 20% withholding under Section 206AA, and anti-avoidance rules — GAAR and the treaty’s principal purpose test — can deny benefits where the structure lacks substance.
The constraint: dividends come from distributable profits after the accounts are finalised. An entity with accumulated losses cannot pay one however much cash it holds.
Service and Management Fees
Usually the better route for an operating captive, and the one that needs planning.
The Indian entity pays the parent for services genuinely received — management, technical, IT, shared services. The payment is deductible in India, reducing Indian tax, and flows as a current account transaction.
Three conditions, all of which get tested:
The services must be real and evidenced. Not a percentage of turnover with no description. Time records, deliverables, who did what.
The charge must be arm’s length. Transfer pricing applies both ways — the detail is in transfer pricing in practice.
The agreement must predate the period. An agreement signed after year end to support a payment already made is the weakest possible position.
Withholding for a US parent on fees for included services is 15% under Article 12, subject to the treaty’s “make available” test — which asks whether the recipient is enabled to apply the technology independently, and is where many service-fee positions are actually decided.
GST: import of services from a related party attracts 18% GST under reverse charge. For a business making taxable supplies this is usually recoverable, but it is a cash flow item that surprises people.
Royalties
Where the parent licenses IP to the Indian entity. Domestic withholding on royalties and fees for technical services has been 20% since the Finance Act 2023, with the 15% treaty rate available to a US parent — though claiming the lower rate now generally requires the foreign recipient to file an Indian return.
Royalty is the right route where real IP is licensed. It is the wrong route where it is being used as a profit-extraction label with no underlying licence, and that is visible.
Where the Indian team is creating the IP rather than licensing it, the ownership question comes first — who owns the code covers it.
Buyback and Capital Reduction
Capital account transactions, and both slower.
Buyback returns capital to the shareholder, now taxed in the shareholder’s hands. For unlisted shares held more than 24 months, long-term capital gains treatment applies under the current regime.
Capital reduction requires a formal process and is used where the Indian entity is genuinely over-capitalised.
Both require valuation under the FEMA (Non-debt Instruments) Rules, 2019 and reporting in Form FC-TRS on the RBI FIRMS portal, generally within 60 days. Neither is a routine cash-management route.
The Paperwork, Every Time
For any current account remittance to a non-resident:
Form 15CB — a chartered accountant’s certificate confirming the tax position and treaty applicability. Issued first.
Form 15CA — filed on the income tax portal. Part C applies above ₹5 lakh and requires the 15CB to exist first.
Form A2 and the bank’s documentation — the AD bank will want the 15CA acknowledgement, the 15CB, the invoice or board resolution, and the agreement.
The mechanics are in Form 15CA and 15CB for foreign remittance. The practical point is that the bank will not process without them, so they sit on the critical path rather than being an afterthought.
One Constraint Worth Knowing
Thin capitalisation. Where the parent funds the Indian entity with debt rather than equity and takes interest out, Section 94B limits the deductible interest on borrowings from associated enterprises. Debt funding is not a way around the dividend route.
Frequently Asked Questions
Is there any restriction on repatriating dividends? No general restriction. Dividends are a current account transaction, freely remittable once tax is withheld and the documentation is complete.
Which route is cheapest? Usually a properly documented service fee, because it is deductible in India before it is taxed on the way out. Dividends come from post-tax profits and are then taxed again in the parent’s hands, subject to credit.
Can we repatriate if the entity has accumulated losses? Not by dividend. Service fees for services actually received can still be paid, subject to arm’s length pricing.
What if we have no TRC yet? The domestic rate applies until you produce one. Obtain the TRC for the correct period before the remittance, not after.
How long does a remittance take? Once 15CB and 15CA are in place, the bank step is usually quick. The delay is almost always in getting the certificate, which depends on the documentation being ready.
Does TaxKitab handle this? We prepare the books, the computation and the supporting documentation, and work with the chartered accountant issuing the 15CB. The certificate itself is signed by an independent practising CA.
References
- Income-tax Act, 1961 — Sections 195, 115A, 206AA, 94B; Section 90(2), now Section 159 of the Income-tax Act, 2025
- India–United States Double Taxation Avoidance Agreement — Article 10 (dividends), Article 12 (royalties and fees for included services)
- Dividend Distribution Tax abolished with effect from FY 2020-21; dividends taxed in the shareholder’s hands
- FEMA (Non-debt Instruments) Rules, 2019; Form FC-TRS reporting on the RBI FIRMS portal; Forms 15CA, 15CB, 10F and A2
⚠️ Rates, treaty conditions and reporting requirements change, and the Income-tax Act, 2025 has renumbered the relevant provisions. Confirm the current position with your Indian advisers and the AD bank before structuring or making a remittance.
Call or WhatsApp: +91 7448200422 | Email: info@taxkitab.com
See our Global Desk page for India entities with a foreign parent, or Managed Compliance for the ongoing cycle. Get in touch.
