Sell a company in India: how to plan the exit from your Indian subsidiary

Short answer: For most UK, US and European groups, the cheapest way to sell a company in India is to sell the Indian shares after more than 24 months, which India taxes at 13.0%–13.65% of the gain measured in rupees; slump sales, buy-backs and liquidations usually cost more. Whoever buys, Indian or foreign, must withhold Indian tax from the price, and a cautious buyer withholds on all of it, unless the seller first obtains a lower-withholding certificate on Form 128, which needs a PAN and has no statutory deadline. An Indian buyer can pay no more than fair value and hold back no more than 25% of the price for up to 18 months, and most of what protects value on exit (holding period, clean tax and exchange-control records, valuation, the certificate) is prepared 12–24 months ahead.

Who this is for: CFOs, general counsel and corporate-development heads of UK, US and European groups that may sell an Indian subsidiary or joint-venture stake within one to five years.

Exit routes compared: the main ways to sell a company in India

Your shareholders' agreement may already narrow the choice through drag, tag, put or IPO rights, explained in Exit Strategies for Investors under Shareholders' Agreements: Key Mechanisms and Legal Considerations (ATB Legal).

Buy-backs have carried an extra promoter tax since 1 April 2026 and cannot deliver a full exit; see India withholding tax rates 2026 and how to repatriate profits. Mergers into a foreign buyer need a tribunal-sanctioned scheme, are rare and are not tax-neutral, because the relief requires the merged company to be Indian [11][13][14]. An IPO is a partial, slower route.

What India taxes when a foreign company sells Indian shares

Rate. A foreign company's gain on unlisted shares held for more than 24 months bears 12.5% (s.197), plus a surcharge of 2% (Indian income above INR 1 crore) or 5% (above INR 10 crore) and 4% cess: 13.0%–13.65%. Held 24 months or less, it bears 35%, or 36.4%–38.22% [1][2].

The gain is measured in rupees. Non-residents normally compute share gains in the currency they invested, but s.197(4) switches that off for a foreign company's long-term gain on unlisted shares [1][15]. India therefore taxes the rupee gain, including the part that is only the rupee's fall.

A tax floor on price. If the price is below the income-tax fair market value, that value is taxed instead (s.79), and an Indian buyer is taxed on the shortfall (s.92(2)(m)) [16].

Treaties. The UK, US, UAE, Irish, German, Swiss, Luxembourg and Italian treaties leave the gain to India; the French, Belgian, Spanish and Danish ones do so for holdings of 10% or more [5]. The Dutch treaty generally does not, unless a Dutch seller holding 10% or more sells to an Indian resident outside a qualifying reorganisation: see Netherlands or Luxembourg holding company for India. The selling entity's treaty decides, as the Sanofi case showed. A claim needs a tax residency certificate and Form 41 [17]; since Tiger Global (Supreme Court, 15 January 2026) a certificate is necessary but not conclusive [18].

Return. Capital gains fall outside the non-resident return exemption, so the seller files an Indian return [19].

The buyer's withholding and the Form 128 certificate

Any buyer, resident or not, with or without an Indian presence, must deduct tax at the rates in force from a chargeable payment to a non-resident, on credit or payment, whichever is earlier (s.393(2), Table Sl. 17) [20]. Without a certificate, a cautious buyer withholds on the whole price, not only on the gain. The buyer can ask for the taxable proportion to be fixed (s.395(2)), but the usual fix is the seller's own certificate (s.395(1), Form 128) [21]:

1. PAN: Form 128 cannot be filed without one, and without a PAN withholding can rise to 20% [22][23].
2. Computation: rupee cost, price, the s.79 value and the treaty position, with the residency certificate and Form 41.
3. Tax history: the Assessing Officer reviews the last four years, and any year without a return needs a computation [22][21].
4. Timing: there is no statutory deadline, and no processing once the transaction is complete [22]; file it on the Income Tax Department's TRACES portal two to three months before signing.
5. Tranches: the certificate names the buyer, an amount and a period, so deferred and escrowed payments must fit within it [21].
6. After closing: remit net of tax [3] and file the Indian return.

Selling the holding company instead of the Indian shares

A sale of the foreign company above the Indian subsidiary is taxed in India where the Indian assets exceed INR 10 crore (about USD 1.04m) and form at least 50% of its assets, on the gain attributable to them (s.9(10)) [24]. The buyer withholds as for a direct sale [20], and the seller's own treaty applies, not the holding company's: see Invest in India: choosing a holding company jurisdiction (hub).

The Indian company must also file Form 163 within 90 days of the transaction where management or control passes, otherwise within 90 days of the year end, or face a penalty [25]. Because India can pursue the buyer for tax it failed to withhold, these deals carry tax warranties, an indemnity, a withholding mechanic and escrow, as the Vodafone and Cairn cases show.

Selling to an Indian buyer: fair value and the 25% holdback

• Price ceiling. A resident buying unlisted shares from a non-resident cannot pay more than fair value, certified by a chartered accountant, SEBI-registered merchant banker or practising cost accountant (Rule 21(2)(c)) [3]. Income tax may value the shares higher (s.79), so have one valuer produce both figures before agreeing a price [16].
• Holdback. Up to 25% of the price may be deferred, escrowed or covered by a seller indemnity, for up to 18 months (Rule 9(6)) [3]. Sales to foreign buyers are outside the cap.
• Reporting. The buyer files Form FC-TRS within 60 days of the transfer or the payment, whichever is earlier, and reports each tranche [4].

The FEMA deal rules in full are in Joint venture in India or acquisition: deal structure and shareholder protections (ATB Legal) [26].

Timing, approvals and tax clearance

There is no standard length for a sale; these components set the timetable:

Tax clearance. A transfer of assets, shares included, during pending tax proceedings is void against the tax claim unless made for adequate consideration without notice of the proceedings, or with the Assessing Officer's prior permission (s.499) [29]. Buyers may insist on that permission [31], so list and settle open assessments early.

Warranties, indemnities and escrow. In a share sale the company keeps its own tax history; in a slump sale the buyer can be made to pay the seller's unrecovered tax (s.313) [9]. After Tiger Global, expect buyers to ask for "robust tax indemnities and perhaps escrow arrangements" [32]. High Courts have differed on whether deferred or contingent consideration is taxed at closing or on receipt, so fix the withholding on each tranche, escrow included, in the contract [33].

Worked example (illustrative)

Hypothetical. FX: INR 96 = USD 1, INR 127 = GBP 1 (rounded exchange rates, October 2026). The historical exchange rate, net worth and reserves are assumptions; the 5% surcharge band applies.

A UK plc owns 100% of an Indian subsidiary, funded with USD 12m when INR 70 bought USD 1 (assumed): a rupee cost of INR 84 crore. A buyer offers USD 30m (INR 288 crore). Shares and business have been held over 36 months.

• Currency drag. The dollar gain is USD 18m, but India taxes INR 204 crore, USD 21.25m today. USD 2.90m of tax is 16.1% of the real gain; the rupee's fall costs 27.846 − (172.8 × 13.65% = 23.587) = 4.259 crore (USD 0.44m).
• No certificate. The buyer withholds 288 × 13.65% = 39.312: 11.466 crore (USD 1.19m) more than the final tax, held until the refund.
• Slump sale. Tax net worth 100 (assumed: capital 84, reserves 16); company tax 188 × 14.30% = 26.884. Liquidation pays out 261.116: 177.116 of accumulated profits is a dividend, taxed at the UK treaty's 10% if that rate applies (assumed) = 17.712; the other 84 equals cost, so no gain. Total 44.596: 16.75 crore (USD 1.74m) more than a share sale.
• Indian buyer. At most 25% × 288 = 72 crore (USD 7.5m; GBP 5.67m) can be deferred, escrowed or indemnified, for up to 18 months.

Risks and common mistakes, ranked

1. Selling inside 24 months: 36.4%–38.22% of the gain instead of 13.0%–13.65%.
2. No Form 128 certificate at closing: tax withheld on the whole price until the refund.
3. Open tax proceedings: a buyer insisting on s.499 permission can stall closing.
4. Pricing an Indian-buyer deal on the FEMA value alone: a higher income-tax value taxes money never received.
5. Defaulting to a slump sale or buy-back: two layers of tax, or about a third of the gain.
6. Modelling the gain in your own currency: India taxes the rupee gain.

Checklist to forward internally

What to fix 12–24 months before a sale:

• Date each block of shares passes 24 months (36 for a slump sale)
• Rupee cost of each block, from FEMA filings and bank records
• Routes modelled in rupees and group currency: share sale, holdco sale, slump sale, buy-back
• Pre-sale dividend modelled against the gain it removes from the price (treaty dividend rate against 13.0%–13.65% on the gain)
• PAN for the seller; Indian returns filed for every year with Indian income
• Open assessments of the seller and the company listed, with a plan for s.499 permission
• FEMA reporting gaps found and regularised
• Residency certificate, Form 41 and substance file for any treaty claim
• Likely buyers screened: Indian or foreign, land-border ownership, Competition Commission thresholds
• One valuer for the FEMA and income-tax values; Form 128 filed two to three months before signing; holdbacks within FEMA limits

How ATB Corporate can help

ATB Corporate advises companies and investors on entering, structuring and operating in India and the UAE: choosing the entry route and holding structure, tax and exchange-control planning, regulatory compliance, and setting up and running the local business. To discuss your plans, contact ATB Corporate.

FAQ

What is the most tax-efficient way to sell a company in India as a foreign parent?

For most UK, US and European parents, the most tax-efficient way to sell a company in India is to sell the Indian shares after more than 24 months, which India taxes at 13.0%–13.65% of the rupee gain. A slump sale is taxed in the Indian company and again when the cash comes out, and a buy-back from a parent holding over 10% costs about a third of the gain.

How is a slump sale taxed in India?

A slump sale is taxed in the Indian company as a capital gain on the price, or a higher prescribed fair market value, less the business's tax net worth: at 12.5% plus surcharge and cess (14.30% in the 22% regime) if the business was held for more than 36 months, otherwise at the normal rate. The cash then reaches a foreign parent only as a dividend, buy-back, capital reduction or liquidation payment, each taxed again.

Does the buyer have to withhold tax when buying shares from a foreign company?

Every buyer, Indian or foreign, must withhold Indian tax from the price paid to a foreign company for Indian shares where the gain is taxable in India: 13.0%–13.65% for unlisted shares held over 24 months. Without a Form 128 certificate or an order fixing the taxable proportion, a cautious buyer withholds on the whole price.

Can an Indian buyer pay more than fair value for shares bought from a foreign company?

No, an Indian resident buying unlisted shares from a non-resident cannot pay more than their certified fair value under India's exchange-control rules. Income tax can deem a higher value, so prepare both valuations before agreeing the price.

How long does it take to sell an Indian subsidiary?

There is no standard period for selling an Indian subsidiary: a sale to a foreign buyer needing no approvals is paced mainly by the buyer's diligence and the seller's Form 128 certificate, which has no statutory deadline. A buyer with land-border ownership needs government approval (12 weeks standard), and a notifiable deal cannot close until the Competition Commission approves, which can take up to 150 days.

Does a foreign company need a PAN and an Indian tax return to sell its Indian subsidiary?

A foreign company selling its Indian subsidiary at a gain needs a PAN and must file an Indian return for the year of sale, because the return exemption for non-residents does not cover capital gains. It needs the PAN before signing too, because Form 128 cannot be filed without one.

Related reading

• Invest in India: choosing a holding company jurisdiction (hub)
• India withholding tax rates 2026 and how to repatriate profits
• Netherlands or Luxembourg holding company for India
• Form 10F (now Form 41) and tax residency certificate
• The indirect-transfer cases: Vodafone, Cairn and the treaty backstop
• Treaty selection decides the outcome: the Sanofi case
• India inbound transactions
• Joint venture in India or acquisition: deal structure and shareholder protections (ATB Legal)

Sources

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Disclaimer: This article is general information, not legal or tax advice. It reflects our understanding of Indian law and treaty positions at 15 October 2026. Verify against current law and take advice on your specific facts before acting.