A German parent funds its Indian subsidiary through equity, compulsorily convertible instruments or an external commercial borrowing (ECB) loan, and each route has its own pricing, reporting and tax result. Shares must be issued at or above fair value, allotted within 60 days of the money arriving and reported on Form FC-GPR within 30 days of allotment. Loans must be registered with the RBI before the first drawdown, and the annual FLA return is due by 15 July. Interest on loans from public lenders such as KfW and on Hermes-guaranteed loans is reported as exempt in India under the treaty.
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Key facts
| Equity | Equity shares and compulsorily convertible preference or debentures count as FDI instruments |
|---|---|
| Pricing | Unlisted shares must be issued at or above fair value from a valuation by a registered valuer or chartered accountant |
| Allotment | Within 60 days of receiving the funds, or the money must be refunded |
| FC-GPR | Within 30 days of allotment, filed through an authorised dealer bank |
| Loans | ECB from a recognised lender such as the equity holder; loan registration number before drawdown; monthly ECB-2 returns |
| Annual return | FLA return by 15 July each year |
| Currency | Funds can be sent in euros or other freely convertible currency; the bank converts to INR |
The three routes
| Route | How it works | Reporting | Tax effect |
|---|---|---|---|
| Equity share capital | The parent subscribes for shares at or above fair value | FC-GPR; valuation certificate | No tax on the receipt; dividends later taxed through Withholding Tax at 10% |
| Compulsorily convertible preference shares or debentures | Fixed return; must convert to equity; pricing fixed at the start | FC-GPR; valuation at issue | Coupon taxed as dividend or interest depending on the instrument |
| ECB loan from the parent or a lender | Loan with minimum average maturity and an all-in-cost ceiling set by the RBI | Loan registration number; ECB-2 monthly | Interest deductible subject to limits; Withholding Tax at 10% under the treaty unless the public-lender exemption applies |
Pricing and valuation
For unlisted shares, FEMA sets a floor: the issue price must be at or above fair value determined by a registered valuer, a chartered accountant or a merchant banker using an internationally accepted method such as discounted cash flow. Issuing above the floor does not breach FEMA. Keep the valuation date close to the issue date and the method documented.
Remitting from Germany
- Send the funds from the parent's own account at a German bank to the Indian company's account, through the authorised dealer bank.
- The Indian bank issues a Foreign Inward Remittance Certificate that records the purpose code and the sender. Keep it with the share allotment papers.
- State the purpose, such as 'share application money', so the bank can process FC-GPR.
- Fix the exchange rate on the date of conversion; the rupee price per share on allotment drives the reporting.
- Do not route capital through a group treasury account or a third company; the Indian bank may reject the receipt.
FC-GPR and the 60/30 clocks
- Money arrives in the Indian company's bank account.
- The company allots shares within 60 days of receipt; if it cannot, the funds are refunded through the same channel.
- The company files Form FC-GPR with details of the allotment, the price, the valuer and the investor within 30 days of allotment.
- The company files the annual FLA return by 15 July each year for foreign liabilities and assets.
- Late filing is regularised through the RBI's late submission fee or compounding process.
ECB loans from a German parent or bank
- Eligible lender: a resident of a jurisdiction that complies with FATF and IOSCO standards. The equity holder counts as a recognised lender.
- Minimum maturity: a minimum average maturity applies by purpose; check the current Master Direction.
- Cost ceiling: the RBI sets an all-in-cost cap over a benchmark rate. Check the current spread before pricing the loan.
- Public-lender and export-credit loans: the treaty reportedly exempts interest paid to the German Government, the Bundesbank, KfW or DEG and interest on Hermes-guaranteed loans in India. Confirm the exemption and the paperwork with your Indian adviser before relying on it.
- Process: sign the agreement, obtain the loan registration number through the dealer bank, draw down, then file monthly returns.
- Currency risk: a loan in euros exposes the subsidiary to rupee depreciation; consider hedging.
- German side: a loan to the subsidiary may need Bundesbank reporting and appears in the parent's transfer pricing file.
Official sources
Check the rules at the primary sources: Income Tax Department (India), Reserve Bank of India, Ministry of Corporate Affairs, Federal Central Tax Office (BZSt), Handelsregister and the Deutsche Bundesbank.
Frequently asked questions
How should a German parent fund its Indian subsidiary?
Usually through equity or compulsorily convertible instruments, which are FDI. Loans from the parent or a bank are ECB and follow separate rules. A mix is common.
What is the deadline to allot shares after funds arrive?
Within 60 days of receiving the money. If shares are not allotted, the funds must be refunded.
When must FC-GPR be filed?
Within 30 days of the allotment of shares, through the authorised dealer bank.
Can a German parent lend to its Indian subsidiary?
Yes, as an ECB, with a loan registration number before drawdown, minimum average maturity, an all-in-cost ceiling and monthly ECB-2 returns.
Is there a minimum price for shares issued to a German investor?
Yes. Unlisted shares must be issued at or above fair value from a valuation by a registered valuer, a chartered accountant or a merchant banker.
Is interest on a KfW or Hermes-covered loan taxed in India?
The treaty is reported to exempt interest paid to KfW, DEG, the Bundesbank and the German Government and on Hermes-guaranteed loans. Confirm the text and the documents needed.
What is the FLA return?
The annual return on foreign liabilities and assets that any Indian company with foreign investment files with the RBI by 15 July.
Related guides
Incorporating a Subsidiary in India from Germany: Who Does What, in What Order
A split plan for a German parent forming an Indian private limited company: what the German team does, what the Indian team does, SPICe+, bank account, FC-GPR and the first 180 days.
Read the guide →Getting Money Out of India to Germany: Dividends, Service Fees, Royalties, Interest and Loan Repayments
How a German parent receives money from an Indian subsidiary: the flat 10% treaty rate, Section 393 withholding, Forms 41, 145 and 146, German 95% exemption, VAT on service fees and Indian GST reverse charge.
Read the guide →What a German Parent Company Owes at Home When It Owns an Indian Subsidiary
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Read the guide →Compliance Calendar: Indian Deadlines and the German Filings They Feed
A month-by-month compliance calendar for an Indian subsidiary of a German parent: TDS, GST, PF and ESI, advance tax, AGM, AOC-4, MGT-7, FLA return and the German-side reports.
Read the guide →Sources
Last updated 26 October 2026. General information only, not legal or tax advice. Indian and German rules change often; confirm current requirements before acting.