Acquiring an Indian company: a guide for foreign buyers

Last reviewed: November 2026 · Written and reviewed by CA Regi Tom Antony, FCA

How can a foreign company acquire an Indian company?

Compare this with building from scratch in wholly owned subsidiary in India or sharing ownership in a joint venture.

Which approvals does an acquisition need?

• Sector cap and route: most sectors allow 100% under the automatic route; capped or Government-route sectors need approval. See FDI entry routes.
• Press Note 3: if the buyer has land-border beneficial ownership above 10% or with control, Government approval is needed. See Press Note 3 and the 2026 changes.
• SEBI takeover code: crossing 25% of voting rights, or acquiring control, of a listed company triggers an open offer under regulations 3(1) and 4 of the SEBI (SAST) Regulations, 2011.
• Competition Commission: required only above the section 5 thresholds of the Competition Act, 2002, including the deal-value test in force since 10 September 2024.
• Sector regulators: banking, insurance, NBFC, telecom and similar businesses need their regulator's prior approval for a change in control.

How is the price set under FEMA?

Rule 21 of the NDI Rules sets a floor or ceiling on price, depending on who sells. A resident selling unlisted shares to a non-resident cannot sell below fair value; a non-resident selling to a resident cannot sell above it. Fair value is worked out under an internationally accepted pricing methodology on an arm's-length basis and certified by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant. Listed shares follow the SEBI pricing guidelines.

The same deal also has to stand up under income-tax fair market value rules, which use their own methods. Agree one valuation approach that satisfies both before price is negotiated, or the buyer or seller may face a tax adjustment later.

Deferred consideration: rule 9(6) allows up to 25% of the total consideration to be paid later, within 18 months of the agreement, or settled through escrow or an indemnity for the same period, as long as the total still meets the pricing rules. Earn-outs beyond that need careful structuring.

What taxes apply on an acquisition?

• Non-resident seller: the buyer withholds tax on the capital gain under section 393 of the Income-tax Act, 2025 (formerly section 195 of the 1961 Act) and files Form 145 (formerly Form 15CA), with Form 146 (formerly Form 15CB) where required. Treaty relief needs the seller's tax residency certificate and Form 41 (formerly Form 10F). See withholding tax on foreign remittances.
• Resident seller: pays its own capital gains tax in India; the buyer still checks the price against fair market value rules.
• Stamp duty: 0.015% on transfer of shares under the Indian Stamp Act, 1899.
• Losses and history: a change in shareholding can restrict carry-forward of the target's past business losses; check this before relying on them in the valuation.

What should due diligence cover?

How does an acquisition work, step by step?

1. 1

   Confirm route and approvals

   Check the sector cap and entry route, Press Note 3 on the buyer's ownership chain, SEBI takeover rules if the target is listed, and Competition Act thresholds.

2. 2

   Run due diligence

   Review FEMA, tax, GST, transfer pricing, labour, corporate and contract positions, and agree which gaps the seller must fix before closing.

3. 3

   Value and price the deal

   Obtain a fair-value report under rule 21 of the NDI Rules from a chartered accountant, SEBI-registered merchant banker or practising cost accountant, and align it with income-tax fair market value rules.

4. 4

   Sign and structure payment

   Sign the share purchase agreement; up to 25% may be deferred, held in escrow or covered by indemnity for up to 18 months. Withhold tax if the seller is non-resident.

5. 5

   Close and report

   Remit funds through banking channels, transfer the shares, pay stamp duty, and file FC-TRS within 60 days of the transfer or receipt of funds, whichever is earlier.

6. 6

   Integrate

   Reconstitute the board with a resident director, align accounting and reporting to the parent, set intra-group pricing, and add the company to the annual FLA, ROC and tax calendar.

What happens after closing?

The resident party files FC-TRS within 60 days. If the target itself holds shares in other Indian companies, its investments become downstream investment that has its own reporting. The board needs at least one director resident in India for 182 days or more in the financial year. The company then joins the parent's annual cycle: FLA return by 15 July, statutory audit, ROC filings, transfer pricing for intra-group transactions, and group reporting. See the annual compliance calendar and transfer pricing for Indian subsidiaries.

Sources: Foreign Exchange Management (Non-debt Instruments) Rules, 2019, rules 6, 9(6) and 21; Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019; RBI Master Direction on Foreign Investment in India; Income-tax Act, 2025, section 393; SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; Competition Act, 2002, section 5. Last reviewed: November 2026 · Reviewed by CA Regi Tom Antony, Regi Tom Antony & Associates. General guidance; every acquisition needs advice on its own facts.