RSM India

NF-CBDT Notifies Rules regarding "Indirect Transfer" Provisions-Fair Market Value & Reporting Requirement for Indian concern

  • Presently, any capital gains arising to a non-resident on Indirect transfer of shares is deemed to accrue or arise in India on account of ‘retrospective amendment’ carried out through Finance Act, 2012.
  • Thus currently, India taxes capital gains arising to a non-resident on transfer of shares of a foreign company if such shares derive its value substantially from the assets located in India:
  • the fair market value (FMV) of assets located in India exceeds Rs. 10 crores, and
  • FMV of assets located in India represents at least 50% of FMV of total assets of the foreign company or entity.
  • For the operationalization of the above, the following were to be prescribed:
  • the manner of computation of fair market value (FMV) of Indian and global assets of the foreign company or entity,
  • determination of income attributable to assets situated in India, and
  • information or documents required to be maintained and furnished by the Indian concern under section 285A of the Income Tax Act (‘the IT Act’)
  • In this regard, the Central Board of Direct Taxes (CBDT) had released draft rules on 23 May 2016, which were available for comments and suggestions from stakeholders and general public upto 29 May 2016.
  • After due consideration of the comments received, the CBDT has notified final Rules relating to “indirect transfer” on 28th June 2016 and which are applicable from 28th June 2016.

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