Government puts on hold move to tax indirect transfers

New Delhi, Jan 17 (IANS) In a measure of relief to foreign portfolio investors (FPIs), venture capital and private equity investors, the government on Tuesday said it is putting on hold its recent circular on taxation of indirect transfers.

India’s Central Board of Direct Taxes (CBDT) had on December 21 issued a circular applying indirect transfer provisions on FPIs whereby any profits made by funds with the underlying assets would have been taxed, including equities in India.

Application of these provisions would have subjected foreign portfolio investors to greater scrutiny by the Income Tax department and would have led to double-taxation in many cases.

“After the issue of the aforementioned circular, representations have been received from various FPIs, FIIs (foreign institutional investors), VCFs (venture capital funds) and other stakeholders. The stakeholders have presented their concerns stating that the circular does not address the issue of possible multiple taxation of the same income,” a Finance Ministry release here said.

“The representations made by the stakeholders are currently under consideration and examination. Pending a decision in the matter the operation of the above mentioned circular is kept in abeyance for the time being,” it said.

Indirect transfer provisions deal with taxation of transactions, where even though the transfer of shares happened overseas, the underlying assets were in India.

Indirect transfer provisions were introduced in the Income Tax Act in 2012, with retrospective effect cluase by which the Indian government sought to bring British telecom major Vodafone’s $11 billion acquisition of Hutchison Essar in 2007 and other such transactions under the tax net.