CBDT Clarifications (19 FAQs) on ‘Indirect Transfer’ provisions under Income Tax

CBDT Clarifications on provisions relating to ‘Indirect Transfer’ under the Income Tax Act, 1961

The CBDT has clarified various issues raised by stakeholders, by way of 19 FAQs, regarding the provisions on ‘Indirect Transfer’ under the Income Tax Act, 1961, based on recommendations of a Working Group constituted to examine such issues, as under:

CBDT Circular No. 41/2016 dt. 21 Dec. 2016 F. No. 500/43/2012-FT&TR

1. Under the indirect transfer provisions contained in section 9(1)(i) of the Income Tax Act, 1961 (‘Act’), all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India or through the transfer of a capital asset situate in India, shall be deemed to accrue or arise in India. Explanation 5 thereof clarifies that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India. Explanation 6 provides that the said Explanation 5 will be applicable, if on the specified date the value of such assets exceeds the amount of ₹ 10 crore and represents at least 50% of the value of all the assets owned by the company/ entity. Explanation 7, however, provides a carve out from the applicability of Explanation 5 to small investors holding no right of management or control of such company/ entity and holding less than 5% of the total voting power/ share capital/ interest of the company/ entity that directly or indirectly owns the assets situated in India. Section 285A of the Act casts a reporting obligation on the Indian concern whose shares are substantially held directly or indirectly by a company or entity registered or incorporated outside India.

2. Queries have been received by the Board about the scope of the indirect transfer provisions. In this regard, the Board constituted a Working Group on 15th June, 2016 to examine the issues raised by stakeholders. The Board has considered the comments of the Working Group on the said issues and the following clarifications are issued: (….contd…. please refer the attachment)

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