Australian Companies Acquiring Indian Businesses: ECTA, Tax & Process

Why Australian Companies Are Acquiring Indian Businesses

Australia-India bilateral trade exceeded AUD 50 billion in 2024-25, and the economic relationship has accelerated dramatically since the Australia-India DTAA and the Economic Cooperation and Trade Agreement (ECTA) entered into force on 29 December 2022. For Australian companies, acquiring an existing Indian business offers immediate market access, an established workforce, existing regulatory approvals, and operational infrastructure that would take 18-24 months to build from scratch.

The ECTA has reduced tariffs on over 85% of Australian goods exports to India by value, rising to 90% by January 2026. While the ECTA is primarily a goods trade agreement with limited investment protection provisions, the ongoing Comprehensive Economic Cooperation Agreement (CECA) negotiations, now in their 11th round as of August 2025, are expected to add a robust investment chapter with protections against expropriation and dispute resolution mechanisms.

This guide covers everything an Australian company needs to know about acquiring an Indian business: regulatory approvals, tax implications under the India-Australia DTAA, FEMA compliance, CCI merger clearance, and the step-by-step acquisition process.

Understanding the Regulatory Framework

FDI Route: Automatic vs. Government Approval

The first question in any acquisition is whether the target company operates in a sector that permits foreign direct investment under the automatic route or requires government approval. Under the automatic route, no prior RBI or government permission is needed. The Australian acquirer simply completes the transaction and files the required post-transaction reports.

Over 90% of sectors in India permit 100% FDI under the automatic route, including IT/ITeS, manufacturing, infrastructure, e-commerce (marketplace model), and professional services. Sectors requiring government approval or having sectoral caps include multi-brand retail (51% cap), defence (74%, extendable to 100% with approval), telecom (100% with government approval above 49%), and media/broadcasting (various caps).

FEMA Pricing Guidelines

When an Australian company acquires shares of an Indian company from a resident shareholder, the transaction price must comply with FEMA pricing guidelines. The price cannot be below the fair market value determined by a SEBI-registered Category I merchant banker using internationally accepted pricing methodologies such as DCF (Discounted Cash Flow) or comparable transaction multiples. For listed companies, the price must comply with SEBI's SAST (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, including the minimum offer price requirements.

CCI Merger Approval

The Competition Commission of India (CCI) must approve the acquisition if certain thresholds are crossed. Since September 2024, India has introduced a Deal Value Threshold (DVT) alongside the traditional asset/turnover thresholds:

Substantial business operations are defined as turnover exceeding INR 500 crore or generating over 10% of global turnover in India. The CCI review timeline has been reduced from 210 days to 150 days, and the prima facie review period is now 30 calendar days (previously 30 working days). Most straightforward acquisitions receive Phase I clearance within 30-45 days.

India-Australia DTAA: Tax Implications for Acquisitions

Withholding Tax Rates

The India-Australia Double Taxation Avoidance Agreement provides reduced withholding tax rates on cross-border payments. Understanding these rates is critical for structuring the acquisition and modelling post-acquisition cash flows:

To claim DTAA benefits, the Australian parent must obtain a Tax Residency Certificate (TRC) from the Australian Taxation Office and furnish it to the Indian entity along with Forms 15CA and 15CB before remittance. Without these forms, the Indian bank will apply the higher domestic withholding rate.

Capital Gains Tax on Share Acquisition

Capital gains tax implications depend on the acquisition structure. If the Australian company acquires shares from an existing Indian shareholder (resident or non-resident), the seller is liable for capital gains tax in India. The acquisition structure directly impacts the seller's tax liability, which in turn affects the negotiated deal price:

• Listed shares held over 12 months: Long-term capital gains taxed at 12.5% (above INR 1.25 lakh exemption)
• Unlisted shares held over 24 months: Long-term capital gains taxed at 12.5% without indexation
• Short-term gains: Taxed at applicable slab rates for residents, or 20-35% for non-residents depending on the type of asset

Under the India-Australia DTAA, capital gains from alienation of shares may be taxed in India if the shares derive more than 50% of their value from immovable property in India. For other shares, Article 13 provides that capital gains may be taxed in both countries, with credit available in the country of residence to avoid double taxation.

Transfer Pricing Considerations

Post-acquisition, the Australian parent and Indian subsidiary will engage in intercompany transactions (management fees, royalties, cost allocations, intercompany loans). All such transactions must be at arm's length prices and documented annually. Australian companies with Indian subsidiaries having international transactions exceeding INR 10 crore should evaluate Advance Pricing Agreements to eliminate transfer pricing uncertainty. India has signed bilateral APAs with Australia, so the bilateral APA route is available.

Step-by-Step Acquisition Process

Step 1: Target Identification and Preliminary Assessment

Before engaging with target companies, the Australian acquirer should assess the FDI route applicable to the target's sector, identify any sectoral caps or conditions, evaluate whether CCI notification will be required based on combined assets/turnover or deal value, and confirm that no Press Note 3 restrictions apply (these restrict investments from countries sharing a land border with India; Australia is not affected).

Step 2: Due Diligence

Comprehensive due diligence for an Indian target must cover:

• Corporate and legal: MCA filings, board resolutions, shareholder agreements, material contracts, litigation history
• FEMA compliance: Historical FDI reporting (FC-GPR, FC-TRS filings), downstream investment compliance for any existing foreign shareholders, ECB compliance
• Tax: Income tax assessments, pending demands, transfer pricing positions, GST compliance, outstanding tax litigation
• Regulatory: Sector-specific licenses, environmental clearances, labour law compliance, IPR registrations
• Financial: Audited financials for 3-5 years, related party transactions, contingent liabilities, working capital analysis

Step 3: Transaction Structuring

Australian companies typically choose between two primary structures for acquiring an Indian business:

Share Purchase (most common): The Australian company acquires shares of the Indian target from existing shareholders. This transfers ownership of the entire entity, including all assets, liabilities, contracts, employees, and regulatory approvals. The Indian company continues as a going concern and the Australian entity files Form FC-TRS with the RBI.

Asset Purchase: The Australian company acquires specific assets (business division, IP, customer contracts) rather than the entity itself. This is less common due to individual asset transfer complications, GST on asset transfers, stamp duty implications, and the need to separately transfer each contract and regulatory approval. However, it offers the advantage of not inheriting unknown liabilities.

Step 4: Valuation and Pricing

For share purchases from Indian residents, FEMA mandates that the price must not be below fair market value as determined by a SEBI-registered Category I merchant banker. The valuation report must use internationally accepted methodologies. The valuation must be current (not more than 90 days old at the time of transaction). Common methodologies include DCF, comparable company multiples, comparable transaction multiples, and net asset value.

Step 5: Regulatory Filings

Depending on the transaction structure and size, the following filings may be required:

Step 6: Post-Acquisition Compliance

After closing, the Australian acquirer must ensure ongoing compliance including annual FLA Return filing with RBI, transfer pricing documentation for all intercompany transactions, annual ROC filings (annual returns, financial statements), GST and income tax compliance, and board composition requirements (at least one resident director in India). For a comprehensive post-acquisition compliance checklist, review our detailed guide covering all RBI and ROC filings required after closing.

ECTA Benefits for Australian Acquirers

The India-Australia ECTA provides several tangible advantages for Australian companies acquiring Indian businesses:

• Tariff reductions: Over 85% of Australian goods exports enter India tariff-free under ECTA, rising to 90% by January 2026. If the acquired Indian business imports raw materials or components from Australia, these tariff savings directly improve margins.
• Services market access: Australia has secured improved market access in over 85 Indian sub-sectors including business services, communication, construction, education, and environmental services. An acquired Indian entity can leverage these commitments for cross-border service delivery.
• Movement of professionals: ECTA provides enhanced visa facilitation, including work and holiday visas and mutual recognition of qualifications in certain professions, making it easier to deploy Australian personnel to the Indian subsidiary.
• Rules of origin: Goods qualifying under ECTA rules of origin benefit from preferential tariff treatment. If the acquired business exports to Australia, these rules can provide a competitive advantage.

The ongoing CECA negotiations (11th round concluded August 2025) are expected to add investment protection provisions, including protections against expropriation, fair and equitable treatment commitments, and investor-state dispute settlement mechanisms that are currently absent from ECTA.

Common Pitfalls Australian Companies Face

Underestimating Regulatory Timelines

Australian companies accustomed to FIRB review timelines (30-40 days for non-sensitive acquisitions) often underestimate Indian regulatory timelines. CCI approval can take 30-150 days. Government route approvals through DPIIT can take 8-12 weeks. Post-closing filings (FC-TRS) have strict 60-day deadlines with penalties for late filing. Build at least 4-6 months into the transaction timeline for all regulatory approvals.

Ignoring Downstream Investment Rules

If the acquired Indian company itself holds investments in other Indian companies, these are treated as downstream investments under FEMA. An Indian company owned or controlled by a foreign entity (Foreign-Owned or Controlled Company, or FOCC) must comply with the same FDI sectoral conditions when making downstream investments as a direct foreign investor would. Failure to map the downstream investment chain during due diligence can result in post-closing compliance failures.

Inadequate FEMA Due Diligence

Many Australian acquirers focus on financial and legal due diligence but underinvest in FEMA compliance review. Historical FEMA violations by the target (unreported foreign investments, non-compliant ECBs, delayed FC-GPR filings) can result in compounding penalties that the acquirer inherits. A thorough FEMA audit should be a non-negotiable part of the due diligence process. Engage a specialist FEMA compliance advisor to review the target's historical foreign exchange compliance.

Not Structuring for Tax Efficiency

The choice of acquisition vehicle matters. Australian companies should evaluate whether to acquire directly from the Australian parent, through a Singapore or Mauritius holding company (to potentially benefit from those DTAAs), or through an existing regional subsidiary. Each structure has different implications for capital gains tax, withholding tax on dividends, and exit flexibility. Consult a cross-border tax advisor before finalising the structure.

Sector-Specific Considerations

Technology and IT Services

Australia's growing technology sector increasingly acquires Indian IT companies for talent access and delivery capabilities. These acquisitions are straightforward under the automatic route with 100% FDI permitted. Key considerations include employee retention (Indian IT talent markets are competitive), intellectual property assignment compliance, and GST implications on cross-border software services.

Mining and Resources

Australian mining companies exploring Indian mineral resources face sector-specific FDI restrictions. Coal mining permits 100% FDI under the automatic route (since 2020). Other mining sectors require government approval above certain thresholds. Environmental clearances and mining lease transfers require state government approval, adding complexity to the acquisition timeline.

Financial Services

NBFC acquisitions require RBI prior approval for change of control. Insurance company acquisitions are subject to a 74% FDI cap with IRDAI approval. Banking acquisitions require RBI approval under Section 12B of the Banking Regulation Act. These sectors have extended regulatory timelines (6-12 months for all approvals).

Key Takeaways

• Over 90% of Indian sectors permit 100% FDI under the automatic route, making acquisitions by Australian companies straightforward from an FDI perspective
• The India-Australia DTAA provides reduced withholding rates of 15% on dividends and interest, and 10-15% on royalties, but a Tax Residency Certificate from the ATO is mandatory to claim benefits
• CCI merger notification is required if deal value exceeds INR 2,000 crore or if combined asset/turnover thresholds are crossed; review timelines have been reduced to 150 days
• FEMA pricing compliance, FC-TRS filing within 60 days, and downstream investment mapping are the three most critical compliance requirements that Australian acquirers must not overlook
• The ECTA provides tariff benefits on Australian imports but lacks investment protection; the ongoing CECA negotiations are expected to address this gap