Taking Profits Out of India: Dividends, Repatriation and the FEMA Paper Trail

Yes, you can take your profits out of India. That answer deserves to come first, because it is the question I hear from almost every foreign founder before they put a single rupee in. The money is not trapped. Dividends earned by your Indian company can be remitted to you abroad, and no Reserve Bank approval is needed for the remittance itself.

What decides how smooth that exit feels is not permission. It is paper. The tax withheld before the dividend leaves, the form filed before the bank releases the money, and one reporting entry made back when your capital first came in. Get those three right and the transfer is routine. Get one wrong and a simple dividend turns into weeks of email with the bank's FEMA desk.

Why a dividend moves freely: it is a current account payment

Indian foreign exchange law, the Foreign Exchange Management Act, 1999 (FEMA), sorts cross-border payments into two buckets. Capital account payments change what you own — shares bought, capital returned, a company wound up. Current account payments settle what you earned — goods, services, interest, and dividends.

A dividend sits in the second bucket. Section 5 of FEMA lets any person draw foreign exchange through an authorised dealer bank for a current account transaction, and the government restricts that freedom only through the Current Account Transactions Rules. Dividends are not on the restricted list. So the legal position is plain: once Indian tax has been taken care of, your dividend can go.

Two conditions still shape the payment. The company can declare a dividend only out of profits available for distribution under section 123 of the Companies Act, 2013 — profits worked out after depreciation and after setting off past losses. Cash in the bank is not enough on its own. And the dividend must actually be declared, by the board and, for a final dividend, approved by shareholders. No declaration, no remittance.

The tax comes off before the money leaves

Until 2020, the company paid dividend distribution tax and you received the dividend tax-free in India. The Finance Act, 2020 scrapped that system for dividends distributed on or after 1 April 2020. The tax now sits in your hands as shareholder, and the company withholds it before paying you.

If you are a resident shareholder, the company deducts tax under section 194 of the Income-tax Act. If you are a non-resident or a foreign company — the reader this guide is really for — deduction runs under section 195, at the rates in force. Under domestic law that rate is 20 per cent plus surcharge and cess for dividend income of a foreign company. Many founders pay less than that, legally, because India's tax treaty with their country of residence often caps the dividend rate below the domestic one.

Treaty relief is not automatic. The bank and the company will ask for your Tax Residency Certificate from your home tax authority and the prescribed information form — Form 10F under the earlier rules, which the Income Tax Department's guidance for the new remittance form lists as Form 41. If your papers show a lower treaty rate and the documents hold up, tax is withheld at the treaty rate. If the papers are missing, expect the domestic rate and a refund claim later. I have seen that refund route take far longer than getting the certificate would have.

The paper trail, in the order the bank checks it

Here is the part nobody warns you about. Your exit paperwork begins on the day your money enters India, not on the day profits leave. When the Indian company allotted shares to you, it reported that allotment to the Reserve Bank on the FIRMS portal in Form FC-GPR, due within 30 days of allotment. The authorised dealer bank that processes your dividend will look for that entry record before it releases funds, because the bank is answerable for matching money going out to money that lawfully came in.

Think of the bank as a border officer with a ledger. Your capital's entry was stamped when FC-GPR was filed. At exit, the officer flips back to that page. If the page is blank — the filing was missed or filed late — the dividend waits while the gap is regularised, sometimes with a late submission fee. If you want the mechanics of that first filing, our FC-GPR filing guide walks through it step by step.

With the entry record in order, the remittance itself runs through four pieces of paper:

• The declaration trail inside the company. Audited accounts showing distributable profits, the board resolution, and the shareholder approval for a final dividend. The bank may ask for these to confirm the payment is a dividend and not capital dressed up as one.
• The withholding. Tax deducted under section 195 at the domestic or treaty rate, deposited with the government, and reported in the company's TDS return. The challan and the treaty documents sit in the remittance file.
• Form 145, supported by Form 146 where it applies. This is the remittance declaration to the Income Tax Department, filed before the money moves. Founders who have done this in earlier years know it as Form 15CA, with the accountant's certificate in Form 15CB. From 1 April 2026, under Rule 220 of the Income-tax Rules, 2026, the same filing runs as Form 145 and the certificate as Form 146.
• The bank's own remittance form. The authorised dealer takes Form A2 with the purpose of the payment, matches it against the Form 145 acknowledgement you hand over, and releases the transfer.

Which part of Form 145 you file depends on the amount and on what the payment is:

A dividend is chargeable to tax in India, so a normal dividend remittance travels through Part A or Part C — Part C in most real cases, because dividends worth remitting usually cross ₹5 lakh in a year. That means the accountant's certificate in Form 146 is part of your dividend file: an independent check that the tax deducted matches the Act and the treaty. Do not expect the exemption shortcut either. Rule 220 keeps a short specified list of payments that need no Form 145 at all — items such as certain import payments and travel remittances. Dividends are not on that list.

Three other doors, and why they are not the dividend door

Sometimes the aim is not to skim the year's profit but to shrink or end the investment itself. That is capital, and capital leaves through different doors, each with its own Companies Act process and its own tax result. Founders get hurt when they treat these as interchangeable.

Buyback of shares. Under section 68 of the Companies Act, 2013, the company buys back its own shares out of free reserves, securities premium or the proceeds of an issue, within the statutory caps, and the shares are extinguished. Your holding shrinks; cash comes back. The tax position has moved twice in two years, so check the date of your buyback before you rely on anything you read last year. For buybacks on or after 1 April 2026, the consideration is taxed as capital gains in the shareholder's hands, with an additional tax for promoters. Buybacks between 1 October 2024 and 31 March 2026 fell under a short-lived rule that treated the whole consideration as a deemed dividend. Same door, different tax, depending on the year.

Capital reduction. Section 66 of the Companies Act lets a company reduce its share capital with a special resolution and confirmation from the National Company Law Tribunal. Creditors get a say, which is why this route takes months, not days. On the tax side, the amount paid to you is treated as dividend to the extent the company has accumulated profits, and the balance is taxed as capital gains, because your shares, or part of your rights in them, are extinguished. It suits a company returning surplus capital while it keeps trading. It is not a quick substitute for a dividend.

Winding up. When the company itself ends, a liquidator pays creditors first and distributes what remains. That distribution is treated as dividend to the extent it comes out of the company's accumulated profits standing just before liquidation, and the balance is capital gains in your hands. This is the last door, not a planning tool — you use it when the Indian chapter is genuinely over.

What does not move freely: money that came in without repatriation rights

One class of investment was never promised an exit in foreign exchange. An NRI or OCI who invests on a non-repatriation basis under Schedule IV of the FEMA (Non-debt Instruments) Rules, 2019 gets an easier entry — the investment is treated much like domestic money — and accepts the condition that the capital itself stays on that basis. Sale proceeds of such an investment are credited to the NRO account, and eligible NRO balances can be remitted only within the USD 1 million per financial year facility, against tax payment and documents.

Current income is treated differently even here. A dividend earned on a non-repatriation investment, net of Indian tax, can still be remitted — it is current income, not the capital coming back. If this distinction affects how you should hold shares or LLP capital, read it alongside our guide on NRIs and foreign nationals as partners in an Indian LLP, where the same repatriation line runs through LLP capital.

The delays I see most often

None of these are exotic. An FC-GPR filed late, or never, surfaces at the first dividend and stops it. A Tax Residency Certificate from the wrong year, or one that expired before the payment date, pushes the bank back to the domestic withholding rate. A Form 145 filed in the wrong part — Part D claimed for a payment that plainly is taxable — has to be withdrawn and refiled while the money waits. And every year, one founder discovers that profits on paper are not distributable profits, because old losses were never set off in the accounts.

Every one of those is fixable. All of them are cheaper to fix before the dividend is declared than after the bank has raised its query.

If you are setting up in India now and want the exit built cleanly from day one — FC-GPR on time, treaty papers in the file, a dividend calendar the bank will accept — start with our company registration service for foreign founders and tell us your home country in the first call, because that one detail decides your withholding rate later.