A UK parent can leave an Indian subsidiary by selling the shares, selling the business as a slump sale, merging it into another company, buying back shares, or closing it by strike-off or liquidation. India taxes the gain in most cases, the treaty does not cap it, and the UK often exempts it under the substantial shareholding exemption, so the Indian tax is usually the final cost. Plan the RBI pricing and reporting and the tax clearances before signing.
← Back to the complete guide: How to Set Up a Subsidiary in India from the UK
Key facts
| Share sale | Long-term gain on unlisted shares held more than 24 months at 12.5% (plus surcharge and cess); short term at higher rates |
|---|---|
| Treaty | Article 14: no cap; India taxes under domestic law |
| UK relief | Substantial shareholding exemption: generally 10% or more held for 12 months in a trading company or group |
| Slump sale | Business sold for a lump sum; gain taxed in the company |
| RBI | Pricing and reporting on a transfer of shares between a non-resident and a resident |
| Closure | Strike-off for dormant companies or voluntary liquidation; closing remittance needs documents and tax clearances |
The options compared
| Route | How it works | Indian tax | Key steps |
|---|---|---|---|
| Sale of shares | The UK parent sells to a buyer | Capital gains tax on the gain in the parent's hands | Valuation and pricing under FEMA, tax withholding by the buyer, reporting the transfer to the RBI |
| Slump sale | The company sells its undertaking as a going concern | Gain taxed in the company; the parent then receives proceeds by dividend or capital return | Net worth computation, valuation, transfer of contracts and staff |
| Merger or demerger | Amalgamation with another group or third-party company through a court-supervised scheme | Tax-neutral if conditions are met | Scheme approval by the National Company Law Tribunal, valuation, shareholder and creditor approvals |
| Buyback | The company buys back shares from the parent | Taxed as a dividend in the parent's hands from October 2024, with a capital loss on the shares | Companies Act limits and board approvals |
| Strike-off | Dormant company removed from the register | Final accounts and tax returns still needed | No operations for a period, creditors cleared, forms filed |
| Voluntary liquidation | Solvent company wound up | Tax on liquidation proceeds and on assets sold | Declaration of solvency, liquidator, creditors, final accounts |
Selling the shares: sequence
- Value the company and agree a price that satisfies FEMA pricing rules for a sale by a non-resident to a resident, or a sale to another non-resident.
- Run tax and legal due diligence on the Indian side, and review the UK substantial shareholding exemption conditions.
- Sign the share purchase agreement with representations, indemnities and any earn-out, and include the withholding mechanics.
- The buyer withholds tax on the capital gain, subject to a lower deduction certificate if obtained.
- Report the transfer to the RBI in the prescribed time through the authorised dealer bank, with the valuation and purchase agreement.
- Receive the proceeds, file the Indian return and claim relief in the UK return where relevant.
The UK side of an exit
A UK company's gain on shares in a trading subsidiary is often exempt under the substantial shareholding exemption (Schedule 7AC to the Taxation of Chargeable Gains Act 1992), if it has held at least 10% for 12 months within the previous six years and the trading conditions are met. Where the exemption applies, the Indian tax on the gain is a cost, not a credit. Where it does not, the Indian tax can be credited. Check the conditions well before signing, because the holding period and trading status are tested over time.
Closing the subsidiary cleanly
- Stop operations, settle employees including gratuity and provident fund, and clear lease and contract exits.
- Close the GST, provident fund, ESI and professional tax registrations after final returns.
- Obtain a closing audit and final tax returns, with transfer pricing reporting up to the date of closing.
- Choose the route: strike-off for a dormant company, or voluntary liquidation for one with assets.
- Remit the closing proceeds through the authorised dealer bank with the Chartered Accountant's certificate and Forms 145 and 146.
- Close the RBI reporting trail and keep the records for the legal retention period.
Restructuring before an exit
Common pre-exit steps include converting preference shares, cleaning up intercompany balances, moving IP, and transferring staff. Each has tax, RBI and transfer pricing consequences, and a scheme of arrangement needs tribunal time. Align the sequence with the UK group's plan, and check the position under the principal purpose test if the restructuring creates a new holding layer.
Official sources
Check the rules at the primary sources: Income Tax Department (India), Reserve Bank of India, Ministry of Corporate Affairs, HMRC, Companies House and the UK legalisation service for apostilles.
Frequently asked questions
How is the sale of an Indian subsidiary taxed for a UK parent?
India taxes the gain under its domestic law, with 12.5% (plus surcharge and cess) for unlisted shares held more than 24 months. The treaty does not cap capital gains, and the UK often exempts the gain under the substantial shareholding exemption.
What is a slump sale?
A transfer of an undertaking as a whole for a lump sum, without values for individual assets. The company pays the tax on the gain, and the proceeds are paid up to the parent later.
How do I close an Indian subsidiary?
By strike-off if it is dormant, or voluntary liquidation if it has assets. You need final audited accounts, tax and GST closure, employee settlements and RBI compliant remittance of the proceeds.
Do I need RBI approval to sell my Indian subsidiary?
Not generally for a compliant sale, but the price must satisfy FEMA pricing rules and the transfer must be reported in time through the authorised dealer bank.
Is a share buyback tax efficient for a UK parent?
Since October 2024 buyback proceeds are taxed as dividends in the shareholder's hands in India, with a capital loss on the shares. Check the UK result and the treaty rate before using it.
Related guides
The India-UK Tax Treaty (DTAA), Article by Article: India as Source State, the UK as Residence State
The India-UK double taxation convention explained article by article from the UK parent's point of view: rates table, permanent establishment, royalties and fees, gains, employees, relief and how to claim.
Read the guide →What a UK Parent Must Handle on Its Own Side When It Owns an Indian Subsidiary
The UK-side tax and compliance duties of a parent with an Indian subsidiary: dividend exemption, CFC rules, foreign tax credit, UK transfer pricing, Pillar Two, and the UK bribery and failure-to-prevent-fraud laws.
Read the guide →Contracts, Courts and Arbitration in India for UK Companies: Enforcing English Judgments and Awards
How a UK company should draft contracts with its Indian subsidiary and customers, choose governing law and seat, and enforce English court judgments and arbitral awards in India.
Read the guide →Getting Money Out of India: How a UK Parent Receives Dividends, Service Fees, Royalties and Loan Repayments
The routes a UK parent has for taking money out of its Indian subsidiary, with the Indian tax, UK tax, forms and timing for each route.
Read the guide →Sources
Last updated 19 October 2026. General information only, not legal or tax advice. Indian and UK rules change often; confirm current requirements before acting.