An Indian subsidiary can be restructured, sold or closed in several ways: a sale of shares, a sale of the business as a going concern (a slump sale), a merger or demerger through a scheme, a buyback or capital reduction, or closure through strike-off or voluntary liquidation. Each route has its own tax, FEMA and Companies Act steps, so choose the route before you invest, not at exit.
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Key facts
| Share sale | The parent sells its shares; FEMA pricing and reporting apply; capital gains tax |
|---|---|
| Slump sale | The business is sold as a going concern for a lump sum |
| Merger or demerger | Through a scheme approved by the tribunal; a fast-track route exists for a holding company and its wholly owned subsidiary |
| Buyback or capital reduction | Returns cash to the parent within company-law limits |
| Strike-off | For a company with no business for two financial years or none started within a year; special resolution with 75% member consent; Form STK-2 with a ₹10,000 fee; typically 3 to 6 months (Section 248 of the Companies Act, 2013) |
| Voluntary liquidation | For a solvent company; wound up under the insolvency code |
The main routes compared
| Route | What it is | Points to plan |
|---|---|---|
| Share sale | The parent sells shares of the Indian company to a buyer | FEMA pricing and Form FC-TRS within 60 days; long-term capital gains at 12.5% where the shares are held more than 24 months; treaty relief; buyer's due diligence |
| Slump sale | Sale of an undertaking as a going concern for a lump sum | Capital gains on net worth; contracts, employees and licences transfer by agreement; stamp duty |
| Merger or demerger | Combining or splitting companies through a scheme | Tribunal process; valuation; tax neutrality conditions; fast track for holding and wholly owned subsidiary |
| Buyback | Company buys back its own shares from the parent | Limits on size and frequency; tax treatment has changed recently, so check the cost |
| Capital reduction | Company reduces its share capital and returns funds | Normally needs tribunal approval; creditor protection |
| Strike-off | Registrar removes a dormant company | Dues cleared and filings up to date; two years of no business |
| Voluntary liquidation | A solvent company is wound up by a liquidator | Declaration of solvency; creditor and shareholder resolutions; final accounts |
Selling the shares
A sale of shares by the US parent to an Indian resident or to another non-resident follows FEMA pricing rules, which differ by the direction of the sale, and is reported to the RBI within the prescribed time through the authorized dealer bank. The seller pays capital gains tax in India, subject to the India-US tax treaty. Selling the US parent itself can also create Indian tax under the indirect transfer rules when the parent derives substantial value from India.
Selling the business as a going concern
In a slump sale the buyer acquires the undertaking, with its assets, liabilities and contracts, for a lump sum. The gain is taxed as capital gains on the net worth transferred. Employees, licences and contracts need to be transferred by agreement, so the deal documents matter.
Mergers and demergers
A merger or demerger is carried out through a scheme approved by the tribunal. A simpler fast-track route is available for a merger between a holding company and its wholly owned subsidiary. Cross-border mergers are permitted under FEMA and company-law rules and follow specific conditions.
Closing the subsidiary
- Decide the route: strike-off for a dormant company or voluntary liquidation for a solvent company with operations.
- Settle liabilities, employee dues, taxes and statutory filings.
- Close the bank accounts and finalize the accounts.
- Obtain the approvals and file the closure forms with the Registrar.
- Remit surplus funds to the US parent through the bank with the required certificates, and report the closure to the RBI.
What this means for a US parent
- The US tax result of a sale, merger or liquidation, including final reporting of the foreign corporation, depends on your structure. Confirm it with your US tax adviser before choosing the route. See US parent obligations.
- For funds returned to the parent, see repatriating profits.
Mistakes to avoid
- Choosing the exit route only when the buyer appears.
- Overlooking FEMA pricing and reporting on a share sale.
- Closing a company with pending filings or tax matters.
- Letting a dormant company run up late fees instead of closing it properly.
- Not planning the US tax result.
How AU Corporate handles this
We advise on restructuring and exit planning, valuation, tax, FEMA filings and the legal documents.
Related services: Transaction advisory · India business setup
Official sources
Rules on this page can be verified at the primary sources: Ministry of Corporate Affairs, Reserve Bank of India, Income Tax Department and the GST portal.
Frequently asked questions
What is a slump sale?
The transfer of an undertaking as a going concern for a lump sum, without values assigned to individual assets and liabilities. The gain is taxed as capital gains on the net worth transferred.
Can the Indian subsidiary be merged into another group company?
The Indian subsidiary can be merged into another group company through a scheme, and a fast-track route exists for a holding company and its wholly owned subsidiary (Section 233 of the Companies Act, 2013).
How is a dormant Indian company closed?
A dormant Indian company is closed by applying to the Registrar for strike-off under Section 248 of the Companies Act, 2013, after clearing dues and filing pending returns, if the company has not carried on business for the relevant period.
How is the surplus sent to the US on closure?
On closure, after liabilities and taxes are settled, surplus funds are remitted through the bank with the required certificates, and the closure is reported to the RBI.
How does an acquisition of an Indian company by the US group work?
A US group acquires an Indian company by conducting due diligence, valuing the target, following FEMA pricing and reporting rules for the share purchase, checking approvals such as competition filings above thresholds, and planning stamp duty and tax. The acquirer is often the Indian subsidiary or the US parent directly.
How are residual funds sent to the US on closure?
Residual funds are sent to the US on closure after liabilities and taxes are settled and accounts are finalized. The surplus is distributed to the parent through the bank with the closing certificates and remittance forms (Forms 145 and 146, previously Forms 15CA and 15CB), and the closure is then reported to the RBI.
What happens if the subsidiary stops filing or misses deadlines?
If a subsidiary stops filing or misses deadlines, late fees accrue daily, directors can be disqualified after continued non-filing, the Registrar can strike the company off, and FEMA defaults need compounding with the RBI. Regularizing a lapsed company is possible but costs more than staying current, so a compliance calendar helps.
What is the reverse charge?
A mechanism where the business customer, not the seller, accounts for VAT on a cross-border supply.
What are the fee and time to strike off an Indian company?
Striking off an Indian company under Section 248 of the Companies Act, 2013 uses Form STK-2 with a government fee of ₹10,000 and typically takes 3 to 6 months. The company must have carried on no business for the two preceding financial years, or not started within a year, and have no liabilities.
What tax applies when selling the shares of an Indian subsidiary?
Long-term capital gains on unlisted shares of an Indian subsidiary are taxed at 12.5% where the shares are held for more than 24 months, plus surcharge and cess, subject to treaty relief. A sale between a resident and a non-resident is reported in Form FC-TRS within 60 days.
Related guides
Share Valuation for Foreign Investment: Pricing Rules and Certificates
Why shares issued to a US parent need a valuation, who can certify it, the pricing floor under FEMA, and when you need a fresh valuation.
Read the guide →Repatriating Profits to the US: Dividends, Fees, Royalties, Loans and the Paperwork
How a US parent receives money from its Indian subsidiary: dividends, service fees, royalties, loans. Forms 145 and 146, Withholding Tax and DTAA relief.
Read the guide →ESOPs for Indian Employees of a US Parent: FEMA, Tax and Cost Recharge
How ESOPs and RSUs work for employees of an Indian subsidiary: FEMA reporting, employee tax, valuation, cost recharge and transfer pricing for a US parent.
Read the guide →Compliance Calendar for an Indian Subsidiary: What Is Due and When
The recurring compliance of an Indian subsidiary: monthly, quarterly, annual and event-based filings under company, tax, GST, FEMA and labour law.
Read the guide →Sources
Last updated 14 October 2026. General information only, not legal or tax advice. Indian rules change often; confirm current requirements before acting.