A Chinese parent can leave India by selling the shares, having the company buy them back, winding the company up, or having it struck off if it is dormant. The sale route is the most common, and its two special points are FEMA pricing guidelines and approval, since a buyer that is itself from a land-border country needs Press Note 3 approval, and a Chinese seller must also handle Chinese overseas-investment filings for the disposal. Long-term gains on unlisted Indian shares (held more than 24 months) are taxed at 12.5%, and the treaty position needs confirming. Closing a company is slower and needs clearance of tax, labour and company law dues.
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Key facts
| Share sale | Price must meet FEMA pricing guidelines; reporting through the bank; buyer may need approval if from a land-border country |
|---|---|
| Capital gains (India) | 12.5% on long-term gains on unlisted shares (held more than 24 months); short-term gains at the normal rate; check the treaty |
| Chinese side | Disposal and changes of overseas investment need Chinese filings; Chinese tax on the gain; confirm with a Chinese adviser |
| Buyback | Companies Act limits and procedure; tax effect differs from a sale |
| Liquidation | Voluntary winding up under company law; takes time |
| Strike off | Quick route for a dormant company with no assets or liabilities |
| Employees | Retrenchment compensation, gratuity and notice rules apply on a closure |
| Approval conditions | Check that the exit does not breach conditions of the Press Note 3 approval |
The exit routes compared
| Route | Speed | Tax result in India | Notes |
|---|---|---|---|
| Sale of shares to an Indian buyer | Weeks to months | Capital gains tax on the seller | FEMA pricing, valuation report, reporting forms |
| Sale to a foreign buyer | Months | Capital gains tax on the seller | A buyer from a land-border country needs Press Note 3 approval, which lengthens the timetable |
| Buyback of shares by the company | Months | Taxed under the rules for buybacks | Limits on size, solvency declaration and procedure |
| Voluntary liquidation | Months to years | Distributions after dues; gain or loss on capital reduction | Creditors, tax clearance, employees |
| Strike off (dormant) | Months | Only if no assets or liabilities | Not suitable if there is any activity or dues |
| Dilution to an Indian JV partner | Weeks to months | Depends on the route | Fits the Indian-control direction for manufacturing; see JV exit terms |
Selling the shares
- Pricing: FEMA pricing guidelines apply in both directions. A sale to a non-resident cannot be below fair value, and a purchase from a non-resident cannot be above it. Confirm the current wording of the rule and support the price with a valuation by a registered valuer or merchant banker.
- Capital gains: India taxes the gain, and the treaty position on share gains is described differently in different sources, so confirm the current text. See the DTAA guide.
- Reporting: report the transfer on the prescribed form through the dealer bank, within the stated deadline.
- Buyer approval: if the buyer is Chinese or has Chinese beneficial owners above the threshold, Press Note 3 approval applies. See Press Note 3.
- Warranties and escrow: price retention, indemnity caps and escrow are standard; align governing law and arbitration. See contracts and arbitration.
- Withholding Tax by the buyer: an Indian buyer must deduct tax on the gain; get a certificate of lower deduction if justified.
Winding up
- Board and shareholders resolve to wind up, appoint a liquidator and declare solvency where applicable.
- Notify creditors, the Registrar and the tax authority.
- Clear tax, GST, provident fund, gratuity and other statutory dues. Obtain clearance where required.
- Settle employees under the relevant notice, retrenchment and gratuity rules.
- Sell or distribute assets. Repatriate remaining funds through the bank with the right forms.
- File final accounts and obtain the dissolution order.
The Chinese side
- A disposal of an overseas investment, a change in the shareholding or a deregistration may need Chinese NDRC, MOFCOM or SAFE filings. Ask Chinese counsel before signing a sale agreement.
- The gain, or loss, is taxed under Chinese enterprise income tax rules, with credit for Indian tax. Your Chinese adviser should model the result before you choose between selling and liquidating.
- State-owned groups may need their own asset disposal approvals and valuation filings.
Planning an exit
- Keep the FEMA file (FC-GPR, FLA returns and bank certificates) and the approval letter in order. An incomplete file slows a sale.
- Settle intercompany balances and transfer pricing positions before the sale.
- Consider tax in both countries before choosing between selling and closing.
- Keep a data room: statutory registers, tax returns, contracts and employment records.
Official sources
Check the rules at the primary sources: Income Tax Department (India), Reserve Bank of India, Ministry of Corporate Affairs, MOFCOM (China), SAFE (China) and the Ministry of External Affairs (India).
Frequently asked questions
How can a Chinese parent exit an Indian subsidiary?
By selling the shares, buyback, voluntary liquidation or, for a dormant company, strike off. The sale route is the most common.
What pricing rules apply to a share sale?
FEMA pricing guidelines apply in both directions: a sale to a non-resident cannot be below fair value and a purchase from a non-resident cannot be above it, supported by a valuation. Confirm the current rule wording.
Does a buyer from China need approval?
Yes. A buyer that is itself from a land-border country, or whose beneficial owners are above the threshold, needs Press Note 3 approval.
How is the gain taxed in India?
Long-term gains on unlisted shares held more than 24 months are taxed at 12.5%. Check the treaty position on share gains with your adviser.
Do I need Chinese approvals to sell?
Possibly. Changes to or disposal of an overseas investment can require NDRC, MOFCOM or SAFE filings. Ask Chinese counsel before signing.
Is strike off available for an active subsidiary?
No. It is for dormant companies with no assets or liabilities.
What happens to employees on a closure?
Notice, retrenchment compensation and gratuity rules apply, and state rules may add requirements. Plan these costs before deciding to close.
Related guides
Funding an Indian Subsidiary from China: Equity, Convertible Instruments, ECB Loans, SAFE Remittance and FC-GPR
How a Chinese parent funds an Indian subsidiary: equity pricing and valuation, compulsorily convertible instruments, external commercial borrowing, the Chinese SAFE step, inward remittance, FC-GPR and the 60-day and 30-day clocks.
Read the guide →Getting Money Out of India to a Chinese Parent: Dividends, Service Fees, Royalties, Interest and Loan Repayments
How a Chinese parent receives money from an Indian subsidiary: 10% treaty withholding, Section 393, Forms 41, 145 and 146, Chinese tax credit, scrutiny of related-party payments and the documents banks ask for.
Read the guide →Contracts, Courts and Arbitration: Choosing Law and Seat and Enforcing Awards and Judgments Between China and India
How a Chinese parent protects its Indian subsidiary contracts: choice of law and seat, CIETAC, HKIAC and SIAC arbitration, enforcement of awards under the New York Convention, judgments, stamping and the investment protection position.
Read the guide →Common Mistakes Chinese Companies Make in India and How to Avoid Them
The most frequent mistakes Chinese companies make when setting up in India: investing before Press Note 3 approval, assuming an apostille works, hidden ownership, late FEMA filings, visa mismatches and weak records.
Read the guide →Sources
Last updated 26 October 2026. General information only, not legal or tax advice. Indian and Chinese rules change often; confirm current requirements before acting.