The Central Board of Direct Tax (CBDT) after receiving queries from various stakeholders has issued Circular no. 41 of 2016 providing clarification relating to Indirect Transfer [Section 9(1)(i) of the Income-tax Act, 1961 (the Act)]
Indirect Transfer [Section 9(1)(i)] |
Explanation 6 to section 9(1)(i):
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Explanation 6 to section 9(1)(i) (contd.) |
Specified date means:
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Clarification: [Question no. 8 and 16]
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Example:
If book value does not exceed by more than 15 per cent between the 2 dates, then the specified date would be 30th June i.e. last date of accounting period [Explanation 6(d)(i) to section 9(1)(i) of the Act]
If book value exceeds by more than 15 per cent between the 2 dates, then the specified date would be 30th September i.e. date of transfer of share/ entity outside India [Explanation 6(d)(ii) to section 9(1)(i) of the Act]
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Explanation 7 to section 9(1)(i) |
Explanation 7 to section 9(1)(i) (i.e. Exception to the above):
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Clarification: [Question no. 1, 2, 3, 4, 5] |
Condition 1 - value of Indian assets -
Condition 2 - voting power or share capital or interest of such investor does not exceed 5 percent of the total voting power or total share capital or total interest, directly or indirectly of such FPI Conclusion: Then the investors will not be covered under the provisions of section 9(1)(i) i.e. no income shall be deemed to accrue or arise in India from transfer of capital asset situated in India. Impact 1: The CBDT has clarified, by way of 5 different structures, that any investor requesting for redemption of the units of FPI / Offshore fund, etc., shall be governed by the provisions of section 9(1)(i) and unless exception under Condition 2 stated above (i.e. for small shareholders / investors) is satisfied, income shall be deemed to be accrued and arisen in India for the capital asset situated in India. Impact 2: The sale of shares of Indian companies by FPI / Offshore fund, etc., would attract income-tax considering the provisions of section 115AD or applicable tax treaty rates.
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Clarification: [Question no. 11] |
The CBDT has clarified that threshold of 5 per cent for excluding small shareholders is reasonable and the definition of ‘associated enterprises’ should be as referred in the Act (i.e. section 92A) and not in line with the definition as provided by SEBI.
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Transactions not considered as transfer [Section 47(viab)] |
Any transfer of share of a foreign company in a scheme of amalgamation, subject to compliance of certain conditions, shall not be regarded as a transfer
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Clarification: [Question no. 6, 7 and 14]
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The CBDT has clarified that exemption provided under Section 47(viab) of the Act, extends only to amalgamating foreign company or entity and not to shareholders/ investors of the amalgamating foreign company; and neither to non-corporate entities. Further, no income would deemed to accrue or arise in India in case of small investors/ shareholders satisfying Condition 2 (supra)
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Reporting requirement [Section 285A] Penalty [Section 271GA] |
as the case may be
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Clarification: [Question no. 9] |
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COMMENTS |
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