How to Repatriate Dividends and Profits from an Indian Subsidiary Under FEMA

Kaustav Chowdhury
9 minutes ago
6 min read

Foreign companies with subsidiaries in India frequently need to repatriate dividends and profits to their home country. Under the Foreign Exchange Management Act (FEMA), 1999, dividends are classified as current account transactions, making them freely repatriable without prior Reserve Bank of India (RBI) approval, provided all applicable taxes have been paid and regulatory procedures are followed. However, the process involves multiple compliance steps across FEMA, the Income Tax Act, the Companies Act, and transfer pricing regulations. This step-by-step guide covers the entire repatriation process, from understanding the regulatory framework to filing the required returns with the RBI.

Step 1: Understand the Regulatory Framework Under FEMA

The starting point for any dividend repatriation is Section 5 of FEMA, which governs current account transactions. Under this provision, any person may sell or draw foreign exchange for a current account transaction. Dividends paid by an Indian subsidiary to its foreign parent company fall under this category, which means they are freely repatriable without the need for prior RBI approval.

However, this freedom is conditional: the Indian subsidiary must have fulfilled all tax obligations, including withholding tax, before the funds can be remitted. Additionally, every outward remittance must be routed through an Authorised Dealer (AD) Category-I bank, which serves as the regulatory gatekeeper for FEMA compliance.

Step 2: Ensure Compliance with Companies Act for Dividend Declaration

Before any repatriation can take place, the dividend must be validly declared under the Companies Act, 2013. Section 123 of the Act requires that dividends be declared only out of distributable profits. The key requirements include:

The board of directors must recommend the dividend, which is then approved by shareholders at the Annual General Meeting (AGM) for final dividends.
For interim dividends, a board resolution is sufficient, but the company must have adequate distributable profits at the time of declaration.
The company must transfer to reserves such percentage of profits as may be prescribed before declaring dividends.
Any dividend declared or paid in contravention of Section 123 can attract penalties for the company and its directors.

Step 3: Determine Withholding Tax Obligations Under Section 195

Section 195 of the Income Tax Act, 1961 requires any person making a payment (other than salary) to a non-resident to deduct tax at source if the income is taxable in India. For dividend payments to foreign shareholders, there is no minimum threshold; TDS applies from the first rupee. The domestic withholding tax rate on dividends paid to non-residents is 20%, plus applicable surcharge and health and education cess. The Indian subsidiary must deduct this TDS before remitting the dividend amount. The tax must be deposited with the government within the prescribed timelines, and the subsidiary must file the relevant TDS return (Form 27Q) within the due date.

Step 4: Leverage DTAA Treaty Benefits for Reduced Withholding

India has entered into Double Taxation Avoidance Agreements (DTAAs) with numerous countries, and these treaties often provide for reduced withholding tax rates on dividends. To claim treaty benefits, the foreign parent company must provide a Tax Residency Certificate (TRC) issued by the tax authority of its home country, along with Form 10F. Some key DTAA rates on dividends include:

India-USA: 15% where the beneficial owner holds at least 10% of the voting stock; 25% in all other cases.
India-UK: 10% as the general rate; 15% where the paying company derives its income mainly from immovable property.
India-Singapore: 10% to 15% depending on the level of shareholding held by the beneficial owner.

Claiming DTAA benefits at the time of TDS deduction is the most efficient approach, as it avoids the need for the foreign entity to seek a refund later.

Step 5: Obtain Form 15CB (Form 146) Certificate from a Chartered Accountant

As of April 1, 2026, the erstwhile Form 15CB has been redesignated as Form 146 under the Income-tax Act, 2025. This form is a certificate issued by a Chartered Accountant (CA) and is required when the total taxable remittance to a non-resident exceeds Rs. 5 lakh in a financial year. The CA certificate verifies that the appropriate tax has been deducted and deposited, confirms the applicable DTAA provisions (if any), and certifies the nature and purpose of the remittance. The CA must also verify that the remittance is in accordance with the provisions of FEMA and the relevant RBI regulations. This certificate must be obtained before the remitter files Form 15CA (now Form 145).

Step 6: File Form 15CA (Form 145) on the Income Tax Portal

Form 15CA, now redesignated as Form 145 under the Income-tax Act, 2025 (effective April 1, 2026), is an electronic declaration that must be filed on the Income Tax portal before the remittance is made. The form captures details of the remittance, including the nature of payment, amount, applicable tax rate, and treaty provisions claimed. Key points to note:

The form must be filed electronically on the Income Tax e-filing portal before the remittance date.
The acknowledgment number generated upon successful filing must be submitted to the AD bank.
The AD bank will not process the outward remittance without a valid Form 145 (previously 15CA) acknowledgment.

Step 7: Process the Remittance Through an Authorised Dealer Bank

Every outward remittance of dividends must be processed through an AD Category-I bank. The AD bank plays a critical role as the gatekeeper, ensuring both FEMA and tax compliance before processing the remittance. The bank will verify the Form 145 (previously 15CA) acknowledgment, review the underlying documentation including board resolutions and tax deduction certificates, and confirm that no compliance violations or pending statutory filings exist for the remitting entity. If the company has any pending statutory filings or FEMA compliance violations, the AD bank has the authority to block the remittance until the issues are resolved. It is therefore essential to ensure that all filings, including annual returns and financial statements with the Registrar of Companies, are up to date before initiating the remittance.

Step 8: Comply with Transfer Pricing Requirements for Intercompany Payments

When dividends are repatriated from an Indian subsidiary to a foreign parent, transfer pricing provisions under Sections 92 to 92F of the Income Tax Act may come into play, particularly if there are other intercompany transactions between the entities. All intercompany transactions must follow the arm's length principle, ensuring that the terms of the transaction are consistent with what unrelated parties would agree upon. The required transfer pricing documentation includes:

A Master File containing an overview of the multinational group's business, transfer pricing policies, and global allocation of income.
A Local File with detailed transaction-level information for the Indian entity's intercompany dealings.
A Country-by-Country Report (CbCR) providing aggregate information on the global allocation of income, taxes paid, and economic activity.

While dividend payments themselves are not typically subject to transfer pricing adjustments, maintaining comprehensive transfer pricing documentation is essential to demonstrate compliance and avoid scrutiny during tax assessments.

Step 9: File the FLA Return with the RBI

The Foreign Liabilities and Assets (FLA) Return is a mandatory annual filing with the RBI under FEMA. All Indian entities that have received foreign direct investment (FDI) or have made overseas direct investment (ODI) are required to file this return. Key details include:

The FLA Return must be filed by July 15 each year on the FLAIR portal (flair.rbi.org.in).
The initial return is based on unaudited or provisional accounts.
A revised return based on audited financial statements must be filed by the end of September.
Non-filing or delayed filing of the FLA Return can lead to FEMA contravention proceedings and may affect the entity's ability to process future remittances.

Common Pitfalls to Avoid

Failing to obtain Form 146 (previously 15CB) from a Chartered Accountant before filing Form 145 (previously 15CA), which creates a procedural bottleneck and delays the remittance.
Not claiming DTAA treaty benefits at the time of TDS deduction, resulting in excess withholding and the need to file a refund application.
Missing the FLA Return filing deadline of July 15, which can trigger FEMA contravention proceedings.
Maintaining incomplete or outdated transfer pricing documentation, which can lead to adverse adjustments during tax assessments.
Having pending statutory filings or compliance violations that cause the AD bank to block the remittance at the final stage.
Failing to obtain a valid Tax Residency Certificate (TRC) and Form 10F from the foreign parent company before claiming reduced withholding rates under a DTAA.

Conclusion

Repatriating dividends and profits from an Indian subsidiary under FEMA is a multi-step process that requires coordination across several regulatory frameworks. By following the steps outlined in this guide, foreign companies can ensure that their remittances are processed smoothly and without delays. The key to a successful repatriation lies in advance planning, timely compliance with all tax and regulatory requirements, and close coordination with your Chartered Accountant and AD bank. From ensuring proper dividend declaration under the Companies Act to filing the FLA Return with the RBI, each step must be completed in the correct sequence to avoid bottlenecks and potential penalties.