Withholding on payments abroad
Under domestic law, the Indian payer withholds tax on the following payments to a foreign company. Surcharge and cess are added to the base rate.
| Payment | Domestic withholding rate |
|---|---|
| Dividends to a non-resident parent | 20%, plus surcharge and cess |
| Royalties | 20% to a foreign company, plus surcharge and cess |
| Fees for technical services | 20% to a foreign company, plus surcharge and cess |
A tax treaty can reduce these rates. Treaty relief depends on the recipient being entitled to the treaty, which is now tested more closely (see below).
Capital gains for non-residents
| Asset | Short-term | Long-term |
|---|---|---|
| Listed shares | 20% (s.196) | 12.5% on gains above ₹1.25 lakh (s.198) |
| Unlisted shares | At the rate for other income: 35% for a foreign company | 12.5% |
Surcharge and cess apply on top.
Buy-backs
From 1 April 2026, a buy-back is taxed as capital gains in the shareholder’s hands, not as a dividend.
Promoters pay an additional tax on buy-backs under section 68 of the Companies Act. It takes long-term gains, and short-term gains on listed shares, to:
- 22% where the promoter is an Indian company;
- 30% for any other promoter, including a foreign parent.
These rates are before surcharge and cess. The Finance Act 2026 confined the additional promoter tax to Companies Act buy-backs.
Note: A foreign parent repatriating surplus cash from an Indian subsidiary should compare the after-tax cost of a dividend (20% withholding before treaty relief) and a buy-back (capital gains, with the promoter additional tax).
Treaty access after Tiger Global and Hyatt
Tiger Global (Supreme Court, January 2026)
The court allowed the general anti-avoidance rule (GAAR) to deny Mauritius treaty relief on shares bought before 2017 and sold later. Three points matter for investors:
- a tax residency certificate does not bar scrutiny;
- GAAR and the treaty override, in force from 1 April 2017, applied to shares bought before that date and sold after it;
- treaty exemptions on listed-share gains are therefore open to challenge under GAAR.
Principal purpose test
CBDT Circular 1/2025 of 21 January 2025 says the principal purpose test applies prospectively. Shares acquired before April 2017 and grandfathered under the Mauritius, Singapore and Cyprus treaties are outside it.
Hyatt (Supreme Court, July 2025)
Control over the operations of Indian hotels under a strategic oversight agreement created a fixed-place PE under Article 5(1) of the India-UAE treaty. A foreign group that controls Indian operations, even without an Indian entity of its own, should review its PE exposure. See transfer pricing.
Taxable presence without an office
- Significant economic presence (SEP): payments from India above ₹2 crore a year, or interaction with 300,000 or more users in India, can create a taxable presence.
- Equalisation levy: abolished. The 2% levy on e-commerce supplies ended in August 2024 and the 6% levy on online advertising from 1 April 2025.
Funds and portfolio investors
- Offshore funds managed from India: the August 2026 amending Act dropped the 25-member, 10% single-investor and ₹100 crore corpus tests. Indian residents may hold up to 5% of the fund.
- Government securities: foreign institutional investors’ income on government securities is exempt, subject to prescribed filings.
- Securities transaction tax: rises to 0.05% on futures and 0.15% on options.
What to check next
- Confirm the treaty rate for each payment stream and whether the recipient can show substance and entitlement beyond a residency certificate.
- For exits, establish the acquisition date of each holding and whether grandfathering under the Mauritius, Singapore or Cyprus treaty applies.
- Compare a dividend with a buy-back for cash repatriation, including the 30% promoter rate for a foreign parent.
- Test any India-facing business without an entity against the SEP thresholds.
- Review management and oversight agreements with Indian operations in the light of Hyatt.