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ARTICLE · 25 JULY 2016

CBDT Issues Final Rules For Taxing Indirect Transfers

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The Draft Rules provided that the FMV of share of an Indian listed company is to be the observable price of the share on the recognized stock exchange.

IndiaTax
Daksha Baxi
Daksha Baxi
Ritu Shaktawat
Ritu Shaktawat
Raghav Bajaj
Raghav Bajaj
Ankit Namdeo
Ankit Namdeo
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Background

The Finance Act 2012 had retrospectively amended Indian domestic tax law, to enable India to tax capital gains arising to non-residents on transfer of shares or interest in a foreign company (Foreign Target) which derives 'substantial value' from the underlying Indian assets (Underlying Indian Assets).

Thereafter, to clarify the applicability of this retrospective amendment, the Finance Act, 2015 made certain critical amendments, including laying down criteria for 'substantial value', providing for taxability of only the income attributable to Indian assets and introducing a reporting requirement for underlying Indian entities. In furtherance of these amendments, the Central Board of Direct Taxes (CBDT) had released draft rules (Draft Rules), in May 2016 setting out the valuation methods and related filings (as applicable) in relation to indirect transfer of Underlying Indian Assets. The CBDT had then invited comments and suggestions of stakeholders and

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