How to Repatriate Remaining Funds After Closing

Why Repatriation After Closure Is the Hardest Part of Exiting India

Repatriating funds after closing an Indian entity requires clearing four sequential filings before an Authorized Dealer (AD) bank will process the outward remittance: a Tax Clearance Certificate (NOC) from the jurisdictional Assessing Officer, cancellation of GST registration, a final FLA Return to the RBI, and a Chartered Accountant's Form 146 (formerly Form 15CB) certifying the applicable tax rate and TDS deducted. The tax clearance step alone takes 2-4 weeks if all filings are current, or 2-6 months if any assessment is pending.

Foreign investors who have navigated the complex process of winding down an Indian subsidiary often assume the difficult work is behind them once the Registrar of Companies accepts their closure application. In reality, the most consequential phase begins after the formal dissolution machinery is in motion: extracting the remaining capital from India in compliance with the Foreign Exchange Management Act (FEMA), the Income Tax Act, and RBI regulations.

India attracted USD 81.04 billion in total foreign direct investment (FDI) inflows in FY 2024-25, according to DPIIT data, but the reverse flow — repatriation of liquidation surplus, capital reduction proceeds, or closure proceeds — remains one of the most documentation-intensive cross-border exercises in any major economy. Unlike dividend repatriation during normal operations, closure-related repatriation involves simultaneous compliance across multiple regulatory frameworks, each with its own forms, certifications, and approval timelines.

Understanding What Can Be Repatriated

Before initiating repatriation, foreign investors must understand exactly what categories of funds can be remitted abroad after closure. The classification determines both the tax treatment and the FEMA compliance pathway.

Liquidation Surplus

The liquidation surplus is the amount remaining after the company has settled all its liabilities — employee dues, creditor claims, tax obligations, and winding-up costs. For a wholly owned subsidiary, this surplus belongs entirely to the foreign parent company. The surplus may include:

• Proceeds from sale of fixed assets (land, buildings, equipment, vehicles)
• Collection of outstanding receivables
• Realisation of investments and financial assets
• Cash and bank balances remaining after all settlements
• Security deposits recovered (rent, utility, regulatory)

Capital Reduction Proceeds

If the company reduced its share capital before or during the closure process — through a NCLT-approved capital reduction scheme or a buyback — the proceeds are repatriable. For an NCLT-approved capital reduction, the distribution is treated as deemed dividend to the extent of the company's accumulated profits (section 2(40)(d) of the Income-tax Act, 2025; section 2(22)(d) of the Income-tax Act, 1961), and only the amount received beyond that, less the cost of acquisition, is taxable as capital gains. For a buyback completed on or after 1 April 2026, the proceeds are taxed in the shareholder's hands as capital gains with the cost of acquisition deductible; buybacks completed between 1 October 2024 and 31 March 2026 were taxed as deemed dividends on the gross amount.

Accumulated Reserves and Retained Earnings

Any accumulated profits that were not previously distributed as dividends can be repatriated as part of the liquidation surplus. Under section 2(40)(c) of the Income-tax Act, 2025 (section 2(22)(c) of the Income-tax Act, 1961), distribution during liquidation to the extent of accumulated profits is treated as deemed dividend.

Return of Original FDI Capital

The original capital invested by the foreign parent — both equity capital and share premium — can be repatriated. This component is not taxable as income, though the repatriation must still comply with FEMA documentation requirements.

Tax Implications Before Repatriation

No repatriation can proceed until all tax obligations are settled. Understanding the tax structure is essential for calculating the net repatriable amount.

Capital Gains on Liquidation Distribution

Under section 68 of the Income-tax Act, 2025 (section 46 of the Income-tax Act, 1961), the distribution of assets by a company in liquidation has a dual tax treatment:

• Company level (section 68(1); section 46(1) of the 1961 Act): The distribution of assets on liquidation is not treated as a transfer by the company. Therefore, the company itself does not face capital gains tax on the distribution
• Shareholder level (section 68(2); section 46(2) of the 1961 Act): The foreign shareholder receiving the liquidation proceeds is subject to capital gains tax. The taxable amount is calculated as: money received (or market value of assets) minus deemed dividend component minus cost of acquisition of shares

Deemed Dividend on Accumulated Profits

Any distribution during liquidation to the extent of the company's accumulated profits — whether capitalised or not — is treated as deemed dividend. This portion is taxable as dividend income in the hands of the foreign shareholder. For foreign companies, the DTAA rate for dividends applies — typically 10-15% depending on the treaty country.

Capital Gains Tax Computation

After deducting the deemed dividend component, the remaining amount (if any) over the cost of acquisition is taxable as capital gains:

Withholding Tax Under Section 393(2) of the 2025 Act (Section 195 of the 1961 Act)

Before any remittance to the foreign shareholder, tax must be deducted at source under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961). The person responsible for making the payment (typically the liquidator or the company) must deduct TDS at the applicable rate. For treaty countries, the TDS rate is the lower of the domestic rate and the DTAA rate. Failure to deduct TDS results in the payer being treated as an assessee-in-default, with interest under section 398(3)(a) of the Income-tax Act, 2025 (section 201(1A) of the 1961 Act) at 1% per month for failure to deduct (1.5% where tax was deducted but not deposited).

Step-by-Step Repatriation Process

The repatriation process involves coordinated action across the company, its Chartered Accountant, the Authorized Dealer (AD) bank, and regulatory authorities.

Step 1: Obtain Tax Clearance Certificate

Apply for a No Objection Certificate (NOC) from the jurisdictional Assessing Officer confirming that all income tax obligations have been met. This requires:

• Filing of all pending income tax returns, including the return for the final financial year of operations
• Settlement of all outstanding tax demands, interest, and penalties
• Resolution of any pending scrutiny or reassessment proceedings (or adequate provisioning)
• Filing of all transfer pricing documentation and reports for years involving related-party transactions

Timeline: 2-4 weeks if all filings are current; 2-6 months if there are pending assessments.

Step 2: Cancel GST Registration

File Form GST REG-16 on the GST portal to cancel the company's GST registration. Pay any outstanding GST liability, including liability arising from input tax credit reversal on closing stock. File the final return (GSTR-10) within three months of cancellation. The cancellation typically takes 30 days.

Step 3: File Final FLA Return

File the final Foreign Liabilities and Assets (FLA) Return with the RBI, reporting the current status of all foreign investment in the entity. While the annual FLA return is due by July 15, a final return should be filed as part of the closure documentation to reflect that foreign investment has been reduced to nil.

Step 4: Prepare Forms 145 and 146

This is the critical documentation step for FEMA compliance:

Form 146 (CA Certificate): A Chartered Accountant must issue Form 146 certifying:

• The nature of the remittance (liquidation surplus/closure proceeds)
• The applicable tax rate — domestic or DTAA, whichever is lower
• That TDS has been correctly deducted and deposited
• The net amount eligible for remittance after tax
• The relevant DTAA article and treaty country

Form 145 (formerly Form 15CA — the remitter's declaration): The remitter (company or liquidator) files Form 145 electronically on the Income Tax e-Filing portal. For taxable remittances exceeding INR 5 lakh, Part C of Form 145 must be filed, accompanied by the Form 146 certificate.

Important: Form 145 must be filed before the remittance is made. The AD bank will not process the outward remittance without a valid Form 145 acknowledgement.

Step 5: Compile AD Bank Documentation

The Authorized Dealer bank acts as the gatekeeper for all outward remittances under FEMA. Before processing the repatriation, the AD bank requires:

• Board resolution authorising the repatriation of closure proceeds
• Audited final accounts of the company showing the liquidation surplus calculation
• Tax clearance certificate (NOC) from the Income Tax department
• Form 145 acknowledgement and Form 146 certificate
• NCLT dissolution order (for voluntary liquidation) or RoC gazette notification (for strike-off)
• Evidence that all creditors have been paid in full
• Final FLA Return filing confirmation
• CA certificate confirming FEMA compliance
• Valuation report (if assets were distributed in kind rather than sold)

Step 6: Execute the Remittance

Once the AD bank is satisfied with the documentation, it processes the outward remittance. The bank converts the INR proceeds to the required foreign currency at the prevailing exchange rate and remits the funds to the foreign parent's designated bank account.

Processing time: 3-7 business days after the AD bank accepts the documentation package. Some AD banks may take longer for high-value remittances due to additional internal compliance checks.

Step 7: File Final RBI Reporting

After the remittance is processed:

• Confirm with your AD bank that the RBI's records reflect the extinguishment of the foreign investment — there is no fresh FC-GPR to file on closure (FC-GPR reports share issuances), but the reporting trail on the FIRMS portal should be complete and consistent
• Ensure the AD bank reports the closure of the foreign investment to the RBI through its nodal office
• Close the company's bank accounts after the remittance is confirmed as received by the foreign parent

FEMA Compliance: Key Regulations and Pitfalls

The Foreign Exchange Management Act and its regulations govern every aspect of cross-border fund flows. For closure-related repatriation, the key regulations are:

Foreign Exchange Management (Non-debt Instruments) Rules, 2019

These Rules — which superseded the earlier FEMA 20(R) regulations — are the master framework governing FDI in India, and Rule 21 sets the pricing guidelines for equity transactions between residents and non-residents. Upon closure, the cancellation of shares and repatriation of proceeds must respect these pricing norms — the remittance amount must be supported by a valuation certified by a chartered accountant, a SEBI-registered merchant banker, or a practising cost accountant.

Common FEMA Pitfalls

• Attempting repatriation before tax clearance: AD banks are legally prohibited from processing outward remittances without a valid Form 145, and without a Form 146 certificate where Part C applies (a taxable remittance above INR 5 lakh without an Assessing Officer's certificate). Attempting to circumvent this requirement can result in penalties under FEMA Section 13 — up to three times the amount involved
• Incorrect purpose code: Every outward remittance must carry the correct RBI purpose code. For liquidation proceeds, the appropriate purpose code is S0006 (repatriation of foreign direct investment made by overseas investors in India — in equity shares). Using an incorrect code can trigger RBI scrutiny and delays
• Not closing the investment account: After repatriation, the AD bank must close the company's investment account and file a closure report with the RBI. Failure to do so creates an open record that can complicate the foreign parent's future investments in India
• Multiple remittances without consolidated Form 145: If the repatriation is staggered across multiple tranches, each tranche requires a separate Forms 145 and 146 filing. Missing any filing creates FEMA non-compliance

Country-Specific DTAA Considerations

The applicable DTAA significantly impacts the net repatriation amount by reducing withholding tax rates. Here are the treaty rates for the most common investor countries:

To claim DTAA benefits, the foreign shareholder must provide a valid Tax Residency Certificate (TRC) from its home country's tax authority and file Form 41 (formerly Form 10F) (self-declaration of tax residency details). Without these documents, the Indian entity must withhold tax at the higher domestic rate.

Timeline and Cost Summary

The complete repatriation process — from initiating tax clearance to receiving funds in the foreign parent's bank account — typically takes 2-4 months if all filings are current and there are no pending assessments.

These are illustrative planning ranges, not published survey data. Get current quotations for your own situation before putting them into a budget.

Total estimated timeline: 2-4 months (assumes all filings are current)

Total estimated cost: INR 1-3 lakh (excluding bank foreign exchange charges and tax payments)

Common Mistakes That Block Repatriation

Based on our experience managing dozens of closure-related repatriations for foreign companies, these are the most frequent errors:

• Closing the bank account prematurely: The company's bank account must remain active until the repatriation remittance is complete. Closing it before the Form 145 is filed and the AD bank processes the remittance creates an administrative nightmare — a new bank account cannot be opened for a company that is already in dissolution
• Not reconciling TDS credits: If the company has received payments from Indian clients during its final year with TDS deducted, those TDS credits must be claimed in the final income tax return. Unclaimed credits reduce the net repatriation unnecessarily
• Ignoring transfer pricing for the final year: Even in the year of closure, transfer pricing documentation must be maintained for all related-party transactions. Open TP assessments can block the tax clearance certificate for years
• Using personal bank accounts: All repatriation must flow through the company's AD bank account. Routing closure proceeds through directors' personal accounts is a FEMA violation carrying penalties of up to three times the amount involved
• Not obtaining CA certificate for FEMA compliance: Beyond Form 146, some AD banks require an additional CA certificate confirming that the overall closure and repatriation comply with FEMA regulations. Failing to anticipate this requirement adds weeks to the process

Key Takeaways

• Tax clearance is the prerequisite for everything: No AD bank will process a repatriation remittance without Form 145, and without Form 146 certification where Part C applies, which in turn requires settlement of all income tax, GST, and TDS obligations. Budget 2-6 months for tax clearance alone if there are pending assessments
• Understand the dual tax treatment: Liquidation distributions are split into deemed dividend (taxed at DTAA dividend rates) and capital gains (taxed at applicable capital gains rates). The split depends on the company's accumulated profits at the time of distribution
• FEMA compliance is non-negotiable: Every rupee leaving India must flow through an AD bank with the correct purpose code, proper Forms 145 and 146 documentation, and RBI reporting. FEMA violations carry penalties of up to three times the amount involved — potentially wiping out the entire repatriation
• Keep the bank account open: The company's bank account must remain active throughout the repatriation process. Close it only after the final remittance is confirmed as received and all RBI reporting is complete
• Engage specialists early: A FEMA advisor, tax professional, and company secretary working in coordination can complete the repatriation in 2-3 months. Without professional guidance, foreign companies routinely spend 6-12 months navigating bureaucratic bottlenecks. See our FEMA-RBI compliance services for end-to-end repatriation support