A Hong Kong parent can exit by selling the Indian shares, by a buy-back, by a merger, or by closing the company through voluntary liquidation or strike-off. Gains on Indian shares are taxed in India under the treaty, and Hong Kong generally does not tax capital gains, so the Indian tax is the main cost. A long-term gain on unlisted shares held more than 24 months is taxed at 12.5%. Under FEMA, a purchase from a non-resident cannot be above fair value, and a sale to a non-resident cannot be below it. Report the transfer on Form FC-TRS within 60 days and obtain tax clearances before the money leaves.
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Key facts
| Share sale | Gain taxed in India; 12.5% on unlisted shares held more than 24 months, normal rates for shorter holdings |
|---|---|
| FEMA pricing | Purchase from a non-resident cannot be above fair value; sale to a non-resident cannot be below fair value |
| Reporting | FC-TRS within 60 days of the transfer |
| Buy-back | Company buys its own shares; check the current tax treatment, which has changed in recent budgets |
| Closure | Voluntary liquidation or strike-off; clear tax, labour and GST first |
| Treaty | Gains on Indian shares taxable in India; check the principal purpose test |
| Remittance | Form 145 and, where needed, Form 146; no tax clearance gaps |
| Hong Kong side | Capital gains generally not taxed; FSIE for group disposal gains without substance |
Exit routes compared
| Route | India tax | FEMA and filings | Notes |
|---|---|---|---|
| Sale of shares to an Indian buyer | Capital gains on the Hong Kong seller; withholding on the price | Price not above fair value; FC-TRS within 60 days | Negotiate escrow and deferred consideration within RBI limits |
| Sale to another non-resident | Capital gains if Indian shares are transferred; indirect transfer rules may apply | Price not below fair value; FC-TRS | Check Press Note 3 for the buyer |
| Buy-back by the company | Tax on the shareholder depends on current law; confirm | Pricing and sources of funds under the Companies Act | Limits on size and timing |
| Merger or demerger | Tax-neutral only if the conditions are met | FEMA compliance on shares issued; NCLT process | Longer and more complex |
| Voluntary liquidation | Distributions taxed; liquidator process | Remittance of surplus through the bank | Months to complete |
| Strike-off | Only for dormant companies without liabilities | Registrar process | Not a way to avoid unpaid tax |
Tax on the exit
- A long-term gain on unlisted Indian shares held more than 24 months is taxed at 12.5% for a non-resident; a shorter holding is taxed at the normal rate. See the DTAA guide.
- The buyer deducts Withholding Tax on the payment to a non-resident seller; a lower deduction certificate can fix the rate in advance.
- Hong Kong does not generally tax capital gains, but group disposal gains can fall under the FSIE rules without economic substance.
- Indirect transfers of shares of a foreign company that derives its value from Indian assets can be taxed in India.
FEMA pricing and reporting
- On a sale by the Hong Kong parent to an Indian resident, the price cannot be higher than fair value.
- On a sale to another non-resident, the price cannot be lower than fair value.
- Report the transfer on Form FC-TRS within 60 days with the valuation and bank certificates.
- Use the authorised dealer bank for the remittance. See funding and FEMA.
Closing the company
- Settle employees, provident fund, gratuity and notice obligations.
- File final returns and clear GST, income tax and transfer pricing matters.
- Hold the shareholder resolution, appoint a liquidator and complete the declaration and process, or apply for strike-off if eligible.
- Close bank accounts and remit surplus with proper tax forms.
- Deregister from labour, tax and customs systems.
Restructuring within the group
Moving the Indian shares to another group company, for example from Hong Kong to another holding entity, can trigger Indian tax, FEMA pricing and Press Note 3 approvals. Take advice before moving. See the regional hub guide.
Official sources
Check the rules at the primary sources: Income Tax Department (India), Reserve Bank of India, Ministry of Corporate Affairs, Inland Revenue Department (Hong Kong), Companies Registry (Hong Kong) and the Ministry of External Affairs (India).
Frequently asked questions
How is a share sale by a Hong Kong parent taxed in India?
The gain is taxed in India. For unlisted shares held more than 24 months the long-term rate is 12.5%; a shorter holding is taxed at the normal rate.
Does Hong Kong tax the gain?
Generally not, but group disposal gains can be caught by the foreign-sourced income exemption rules without economic substance.
What is the FEMA pricing rule on exit?
A sale to an Indian resident cannot be above fair value for a purchase from a non-resident, and a sale to another non-resident cannot be below it.
Which form reports the transfer?
Form FC-TRS within 60 days of the transfer.
Can I do a buy-back?
Yes, within Companies Act limits. The tax treatment has changed in recent budgets, so confirm the current rule.
How long does voluntary liquidation take?
Usually several months, depending on tax clearances and the creditor process.
Can I strike off an operating company?
Strike-off is for dormant companies without liabilities and is not a substitute for a proper liquidation.
Related guides
Funding Your Indian Subsidiary from Hong Kong: Equity, Preference Shares, External Borrowing and FEMA Reporting
How a Hong Kong parent can fund an Indian company: equity share and preference share pricing, 60-day allotment and FC-GPR rules, ECB, loans, FLA return, Press Note 3 and reporting through the authorised dealer bank.
Read the guide →India-Hong Kong Double Taxation Agreement Explained: 5% Dividends, 10% Royalties and Fees, PE Rules and the Principal Purpose Test
The India-Hong Kong tax treaty explained for a Hong Kong parent: 5% dividend rate, 10% interest, royalties and fees for technical services, permanent establishment rules, share gains, anti-abuse tests and how to claim treaty rates.
Read the guide →Getting Money Out of India to a Hong Kong Parent: Dividends at 5%, Service Fees, Royalties, Interest and Loan Repayments
How a Hong Kong parent receives money from an Indian subsidiary: 5% treaty withholding on dividends, 10% on interest, royalties and fees, Section 393, Forms 41, 145 and 146, Hong Kong tax treatment and the documents banks ask for.
Read the guide →Twelve Common Mistakes Hong Kong Companies Make in India and How to Avoid Them
The most common mistakes of Hong Kong companies entering India: skipping Press Note 3, thin hub structures, late FEMA filings, weak treaty paperwork, secondment tax errors, stale apostilles, unstamped contracts and ignoring the Indian calendar.
Read the guide →Sources
Last updated 26 October 2026. General information only, not legal or tax advice. Indian and Hong Kong rules change often; confirm current requirements before acting.