A UK parent can take money out of its Indian subsidiary by dividend, service fees, royalties, interest and loan repayment, buyback or capital reduction. Each route has a different Indian Withholding Tax, a different UK result and different paperwork. Dividends cost up to 10% in India and are normally exempt in the UK; service fees can bear no Indian tax without a permanent establishment but must be priced at arm's length and carry GST.
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Key facts
| Dividends | Withholding Tax at the treaty rate of 10% where documents are on file; generally exempt in the UK |
|---|---|
| Service fees | Not taxable in India without a PE unless they make technical knowledge available (15%); arm's length pricing; GST under reverse charge |
| Royalties | 15%, or 10% for equipment; arm's length; taxable in the UK with credit |
| Interest | 15% (10% to a bank); taxable in the UK with credit |
| Loan principal | No tax, but ECB rules and RBI reporting apply |
| Forms | Form 145 (previously 15CA) and, where required, Form 146 (previously 15CB) from a Chartered Accountant |
| Dividend payment deadline | Within 30 days of declaration, under the Companies Act, 2013 |
The routes compared
| Route | Indian tax on the payment | UK tax position | Conditions and paperwork |
|---|---|---|---|
| Dividend | 10% under the treaty (domestic rate 20% plus surcharge and cess without documents) | Normally exempt (distribution exemption) | Out of distributable profits; board recommends, shareholders approve; Forms 145 and 146; certificate of residence and Form 41 |
| Service fees | Nil without a PE (or 15% if technical knowledge is made available) | Taxable; Indian tax credited if any | Written agreement, benefit test, arm's length mark-up; GST on reverse charge; Forms 145 and 146 |
| Royalties for IP or software licences | 15% (equipment 10%) | Taxable; credit for Indian tax | Licence agreement defining the IP and rate; transfer pricing support |
| Interest on a parent loan | 15% (10% to banks) | Taxable; credit for Indian tax | ECB compliance; monthly RBI reporting; thin documentation is a transfer pricing risk |
| Loan principal repayment | No tax on principal | Not income | Within the agreed maturity under the ECB rules |
| Share buyback or capital reduction | Buyback proceeds are taxed as a dividend in the shareholder's hands from October 2024, with a capital loss on the shares | Depends on the structure; plan with the UK adviser | Companies Act process; High Court or tribunal approval for capital reduction |
Paying a dividend step by step
- Confirm distributable profits and that prior losses are made good.
- The board recommends the dividend and shareholders declare it. Interim dividends can be declared by the board.
- Obtain the HMRC certificate of residence and Form 41 from the UK parent.
- Apply Withholding Tax at 10% under Section 393 of the Income-tax Act, 2025 and deposit it by the 7th of the following month.
- Obtain the Chartered Accountant's certificate in Form 146 where required, and file Form 145.
- Pay the net amount to the UK parent's bank account within 30 days of the declaration, and issue the Withholding Tax certificate.
Service fees and royalties: where most disputes arise
A fee for a service that does not make technical knowledge available is business profit for the UK company, and India cannot tax it unless a permanent establishment exists. That is why many groups route management and support charges as fees rather than dividends. The Indian tax authorities will test the charge on three points: did the subsidiary receive a real benefit, was the price arm's length, and does the fee actually fall into royalties or fees for technical services at 15%? Keep time sheets, invoices and the agreement, and see transfer pricing.
Timing, cash and the UK reporting year
Both countries commonly close the year on 31 March, so a dividend declared after the Indian audit is signed usually lands in the UK parent's next period. Plan the cash with the UK finance team: the net amount arrives after withholding, the Withholding Tax certificate follows after the quarterly return is filed, and the UK parent needs the certificate for any credit claim.
Guardrails before you pay
- Check the sector's FDI conditions: a few have limits on payouts or royalties.
- Keep the board minutes, valuation and agreements in the same place as the payment advice.
- Do not pay a related party before the agreement is signed. Back-dating is easy to spot.
- Confirm the dividend is out of profits and that the Companies Act's transfer to reserves, if any, has been made.
- Ask whether a deemed dividend can arise from loans to shareholders.
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 does a UK parent receive dividends from an Indian subsidiary?
The subsidiary declares a dividend out of distributable profits, deducts Withholding Tax at 10% where the treaty documents are on file, files Form 145 and, where required, Form 146, and pays the net amount to the parent within 30 days of declaration.
Are service fees to a UK parent taxed in India?
Not unless the parent has a permanent establishment in India, or the fee makes technical knowledge available, in which case up to 15% applies under the treaty. The fee must also be at arm's length and attract GST under reverse charge.
What are Forms 145 and 146?
Form 145 (previously Form 15CA) is the remitter's declaration for foreign payments. Form 146 (previously Form 15CB) is a Chartered Accountant's certificate on the nature of the payment, the tax and the treaty position.
Can the Indian subsidiary repay a loan to the UK parent?
Yes, within the repayment schedule and the RBI's ECB rules. The principal is not taxed, while interest bears Withholding Tax at up to 15% under the treaty.
How is a share buyback by the Indian subsidiary taxed?
Since October 2024 buyback proceeds are taxed as a dividend in the shareholder's hands, with a capital loss on the shares that the shareholder may be able to use. The treaty rate and the UK treatment should be reviewed first.
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 →Transfer Pricing in India for UK-Owned Subsidiaries: What the Indian Rules Require and How They Differ from the UK
How Indian transfer pricing applies to an Indian subsidiary of a UK group: arm's length pricing, Form 48, documentation, methods, safe harbours, audits and how it differs from the UK regime.
Read the guide →Funding an Indian Subsidiary from the UK: Instruments, Pricing Floor, Valuation and RBI Reporting
How a UK parent puts money into an Indian subsidiary legally: equity, convertible preference shares and loans, the fair-value pricing floor, the 60-day allotment rule and Form FC-GPR.
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.