How are dividends taxed when paid to a foreign parent?
Dividends declared by an Indian company to a non-resident shareholder are freely repatriable under the automatic route after Indian taxes are paid. Since the abolition of DDT in April 2020, the dividend is taxed in the recipient's hands; the Indian company is required to withhold tax under Section 195 at the rate of 20% plus applicable surcharge and cess. Where a tax treaty applies and the parent furnishes a valid Tax Residency Certificate (TRC) and Form 10F (and where required a no-PE declaration), the withholding is reduced to the treaty rate, typically 5% to 15%.
What about royalty and technical service fees?
Royalty and fees for technical / included services paid to a non-resident are taxed under Section 115A at 20% (plus surcharge and cess), again subject to a lower DTAA rate where a TRC and Form 10F are furnished. The arrangement must be supported by an agreement, be arm's-length under transfer-pricing rules, and the remittance must be backed by Form 15CA / 15CB.
Intra-group service fees and transfer pricing
Charges between the Indian entity and the foreign parent — management fees, software/IT recharge, shared-service fees, royalty for IP, cost contribution arrangements — must be at arm's length under India's transfer pricing regime. Contemporaneous TP documentation is mandatory, and where thresholds are crossed a Form 3CEB report is filed by an accountant. See Transfer Pricing.
Capital repatriation on exit
When a foreign parent exits — fully or partially — by selling shares to an Indian resident, the transfer must be at not less than fair market value and is reported on Form FC-TRS on the FIRMS portal. The sale proceeds are repatriable after Indian capital-gains tax, with treaty relief where applicable.
Remittance paperwork
Every outward remittance to a non-resident is routed through an AD Bank and supported by Form 15CA (taxpayer declaration) and, where required, Form 15CB (Chartered Accountant certificate of taxes withheld). Getting this paperwork right is what allows the bank to release the money cleanly.