Non-resident investors get tax relief from indirect transfer rules
New Delhi: Central Board of Direct Taxes (CBDT) on Wednesday gave relief to all non-resident investors that indirectly invest in India through offshore subsidiaries from the far-reaching provisions of the law meant to tax offshore deals, subject to certain riders. The benefit is available to all private equity funds and venture capital funds.
The CBDT circular issued on Wednesday said that so long as the investor pay taxes in India on the sale or redemption of shares within the country, India’s indirect transfer provisions introduced in 2012 will not apply. Foreign institutional investors already enjoy this exemption.
The indirect transfer provisions introduced in 2012 and amended subsequently allow the government to tax offshore change of hands of companies that result in sale of assets in India.
“The clarity with respect to taxation on indirect transfer is a welcome development and is expected to significantly boost the confidence on foreign investors investing in India through multi-layered structures.” said Rakesh Nangia, managing partner, Nangia & Co. LLP.
The tax department said the clarification was made as concerns were expressed that on account of the existing indirect transfer provisions in the tax law, non-resident investment funds investing in India, which are set up as multi-layered structures, suffer multiple taxation of the same income at the time of redemption or buy back.
“The Circular issued by CBDT is a welcome step and is in line with budget announcement of 2017 exempting category one and category two foreign portfolio investors from the rigours of indirect transfer provisions. This circular now extends this benefit to all non-residents,” said Amit Singhania, partner, Shardul Amarchand Mangaldas & Co., a law firm.