Investing in India: Your Essential Guide to Tax & Repatriation for Foreign Investors
Thinking of investing in a promising Indian Private Limited Company? Foreign Direct Investment (FDI) can offer high returns, but navigating the tax and regulatory landscape, like the Companies Act, 2013 and FEMA, is crucial for a smooth journey.
Here’s a clear breakdown of the rules concerning taxation on your investment and the process for remitting your hard-earned profits and sale proceeds back home, with a special focus for our friends in Australia.
1. Will I pay tax on my foreign investment profits in India?
Yes, you will. Foreign investors are subject to Indian tax laws, just like resident Indians, but with some crucial distinctions and potential relief under international agreements.
Tax on Dividends (Profits)
When your Indian company makes a profit and distributes it as a dividend, the tax burden is now on the recipient (you, the foreign investor), effective from April 1, 2020.
Standard Rate: Non-Resident Indians (NRIs) are generally taxable on equity dividends at a rate of
(plus applicable surcharge and cess).
DTAA Advantage: India has a Double Taxation Avoidance Agreement (DTAA) with many countries, including Australia. The DTAA rate is often lower than the standard tax rate. For the India-Australia DTAA, the maximum tax rate on dividends is typically
2. Can I transfer my investment proceeds and profits to an Australian account?
Absolutely! The process for transferring (repatriating) your profits and capital sale proceeds is governed by the Foreign Exchange Management Act (FEMA).
Repatriation of Profits (Dividends, etc.)
Your company profits (like dividends) can be remitted directly to your trusted account in Australia after the Indian company deducts the applicable taxes (TDS) as per the Income Tax Act or the beneficial DTAA rate.
Repatriation of Capital (Sale of Company/Shares)
If you enter a joint venture, run the company for a few years, and then sell your shares, the sale proceeds can be remitted directly to your foreign account.
FEMA Framework: This transaction falls squarely under FEMA regulations. The investor is eligible to receive the amount up to the extent of their investment and profits, subject to certain procedural compliances.
Repatriation Limit for NRIs/PIOs: Authorised Dealer Banks (your commercial bank) can generally permit Non-Resident Indians (NRIs) or Persons of Indian Origin (PIOs) to remit up to USD One Million (USD
Note: If the remittance exceeds USD
⭐ Compliance Checkpoint: A crucial step for any remittance is Income-Tax Clearance. The Authorised Dealer Bank is mandatory required to comply with Indian tax laws. They will require certification (often Form 15CA/15CB) to confirm that applicable taxes in India have been paid or provided for on the amount being remitted.
3. What are the tax implications when I sell my company shares?
The tax you pay on the sale of your shares (Capital Gains) depends on how long you held them. The Indian Income Tax Act, 1961, classifies gains into Short-Term and Long-Term.
Capital Gains on Unlisted Shares (Private Company Shares)
The holding period to determine the type of gain is 24 months:
| Holding Period | Type of Gain | Tax Rate (for Non-Residents) |
| Held for over 24 months | Long-Term Capital Gain (LTCG) | |
| Held for up to 24 months | Short-Term Capital Gain (STCG) | Taxed at the Non-resident investor's marginal slab rate (up to |
The Surcharge & Cess
All calculated income tax and capital gains tax (LTCG and STCG) are further subject to:
Surcharge: An additional charge based on your total income (e.g.,
Health and Education Cess: An additional