Foreign investors are taxed at three points: while holding, on exit, and on getting money out. Here are the current rates for FDI and FPI, the treaty relief available, and what changed in 2026.
Most guidance on foreign investment in India tells you about sectoral caps and approval routes. Useful, but it answers the wrong question.
What an investor actually needs to know is what the money costs on the way out. Tax lands at three separate points: on income while you hold the investment, on gains when you exit, and on the mechanics of repatriating cash. Model only one of those and your return is wrong.
Two changes make 2026 an unusually good year to revisit this. Foreign portfolio investors are now fully exempt from tax on government securities, interest and capital gains alike. And share buybacks have returned to capital gains treatment after eighteen months of a much harsher deemed dividend regime.
This guide sets out the current position across both routes.
The tax treatment follows the route, so start here.
One statutory point that saves FPIs a great deal of argument: securities held by a SEBI-registered FPI are deemed capital assets. So gains are capital gains, not business income, and the perennial fight about trading versus investment does not arise.
The Income-tax Act, 2025 came into force on 1 April 2026 and renumbered everything. The capital gains provisions investors have cited for years have moved.
Both sets of numbers remain in circulation, and matters for earlier years still run under the old ones. Verify the current numbering before citing anything in a return or submission.
Dividends. Since the abolition of dividend distribution tax, dividends are taxed in the shareholder's hands. The domestic withholding rate for a non-resident is 20% plus surcharge and cess, giving an effective rate of roughly 20 to 23%.
Treaty rates are materially better, and this is where documentation earns its keep:
Interest. Generally 20%, with concessional rates from 5% depending on the instrument and route. For FPIs in rupee-denominated corporate bonds and government securities, rates between 5% and 20% have applied.
The G-Sec exemption, new from 1 April 2026. Following an ordinance in June 2026, FPIs and FIIs are now fully exempt on both interest income and capital gains from government securities, across all tenures. Previously interest was taxed at 20%, short-term gains at 30% and long-term at 12.5%.
This is the single largest concession available to foreign investors right now, and it was introduced specifically to attract capital and support the rupee. It applies to government securities only, not to equities, property or mutual funds.
Three points that cost foreign investors money.
The ₹1.25 lakh LTCG exemption on listed equity is available to non-residents. One of the few reliefs that applies equally.
Indexation is not. The option of 20% with indexation on property is available only to resident individuals and HUFs. A non-resident uses the flat 12.5% without indexation.
FPIs get no indexation or currency conversion benefit at all, so rupee depreciation between entry and exit is not relieved. On a long hold, that can matter more than the headline rate.
Worth understanding the history, because the position has changed twice in two years.
That middle regime was punitive: no cost deduction meant you were taxed on your own capital. The restoration from April 2026 makes buyback a viable repatriation route again.
One caveat. Promoters face an additional tax on such gains under the new Act, aimed at buybacks functioning as disguised promoter exits rather than genuine capital returns. Check whether your shareholder is caught before choosing this route.
There is no single repatriation button. Each route has a different withholding rate, filing trail and speed.
Most groups use a mix: dividends annually, fees or royalties monthly.
Two constraints to plan around. Fees and royalties must be genuinely arm's length, or they become a transfer pricing adjustment. And repatriation from an NRO account is capped at USD 1 million per financial year, which can create multi-year delays after a large asset sale. NRE funds are freely repatriable.
Under the treaty relief provisions you may apply the Act or the treaty, whichever is more beneficial. On dividends alone that is often a 15-percentage-point saving.
To claim it you need a Tax Residency Certificate covering the relevant year, and the prescribed declaration.
Critical change: from 1 April 2026, Form 41 under Rule 75 of the Income-tax Rules, 2026 replaces Form 10F. It must be on file before the dividend is declared or the payment made. Without it, the Indian payer withholds at the full domestic rate regardless of a valid TRC, and it cannot be filed retrospectively to recover what has already been deducted.
A great deal of published guidance still says Form 10F. It is wrong.
If you are selling Indian immovable property, the buyer must deduct tax on the sale consideration, not on your gain. On a property bought years ago, that can mean tax withheld on many times the actual profit.
The remedy is a lower deduction certificate, applied for before the transaction. Our note on the challenges NRIs face when selling property in India covers the process and the repatriation side.
The certification supporting any remittance, Form 15CB, can only be issued by a chartered accountant. See who can advise on withholding tax for cross-border payments.
Two structural questions matter more than any rate.
Are you investing through an entity or directly? A foreign company earning Indian business income is taxed at 35%, effective 36.40 to 38.22%, while an Indian subsidiary accesses domestic rates from 22%. The comparison is set out in our guide on how foreign companies are taxed in India.
Where is your holding company actually managed? If key management and commercial decisions are made from India, the place of effective management test can make your offshore holding company Indian resident and bring its worldwide income into charge. That applies above ₹50 crore turnover and is covered in our guide to POEM and tax in India.
Related to both, if your India operations involve people, agents or project sites here, read who can advise on permanent establishment and international tax issues.
Investing brings obligations beyond the tax on returns.
Any transaction between your Indian entity and group companies must be at arm's length, with documentation and Form 3CEB filed annually. Get it wrong and the adjustment lands as an addition to income with penalty exposure. Start with transfer pricing study report applicability and building a defensible transfer pricing file.
Where intra-group charges are involved, the same transaction is tested under transfer pricing and under GST valuation, covered in intercompany transactions and dual exposure under TP and GST.
And filing an Indian return is generally required to claim treaty benefit, recover excess TDS, claim exemptions or carry forward losses, even where you might otherwise be exempt.
If you are an individual rather than an institution, your position turns on residential status rather than investment route, and a single day can change it. Start with our guide to NRI taxation in India, and if you hold or have held assets outside India, read what happens if you do not disclose foreign income in your ITR.
DSRV and Co LLP advises foreign investors and their Indian entities on entry structuring, exit and capital gains planning, treaty positions and TRC documentation, withholding and Form 15CB certification, repatriation routing, and transfer pricing compliance. Where a position is challenged, we represent clients through assessment, the DRP and the Tribunal as part of our tax litigation and cross-border practice.
We have been in practice from Gurugram since 1987.
Listed equity with STT paid attracts 20% short-term and 12.5% long-term above ₹1.25 lakh. Unlisted shares are long-term after 24 months at 12.5%.
No. Following the June 2026 ordinance, FPIs and FIIs are exempt on both interest and capital gains from government securities for income arising on or after 1 April 2026.
20% plus surcharge and cess domestically, reduced to 5 to 15% under most treaties, provided a TRC and Form 41 are on file before declaration.
No. The 20% with indexation option is for resident individuals and HUFs only, and FPIs get neither indexation nor currency conversion relief.
As capital gains from 1 April 2026, at 12.5% or 20% on the actual gain with cost deductible. The deemed dividend treatment applied only between 1 October 2024 and 31 March 2026.
NRE funds are freely repatriable. From an NRO account the limit is USD 1 million per financial year, after tax and with proper certification.
No. Form 41 replaced it from 1 April 2026 and must be filed electronically each year with a valid TRC.
Generally yes if you claim treaty benefit, want a TDS refund, claim an exemption or carry forward losses.
Send us your proposed investment structure and holding period. We will model the tax on income, on exit and on repatriation, confirm the treaty rate you can actually claim, and tell you what documentation has to be in place before the first rupee moves.
Which professionals can advise on a GST demand order in DRC-07 and file the appeal, what the pre-deposit requires, and how to choose before the clock runs out.
Who is qualified to advise on TDS for cross-border payments from India, why Form 15CB requires a chartered accountant, and how to choose the right adviser.
Which experts handle Section 148 and 148A reassessment proceedings, why the show cause stage decides the case, and how to choose the right representation.
