The Central Board of Direct Taxes (CBDT) recently notified rules to determine whether a share or interest in a foreign company or entity derives its value substantially from assets located in India.
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Under section 9 of the Income Tax Act, 1961 (ITA), income arising from the indirect transfer of assets situated in India is deemed to accrue or arise in India and is therefore subject to tax in India. Section 9 further provides that the share or interest in a foreign company or entity shall be deemed to derive its value substantially from assets located in India if the fair market value (FMV) of assets located in India comprises at least 50% of the FMV of all the assets of the foreign company or entity. The rules also prescribe the manner in which the FMV of assets located in India and the FMV of the total assets of the foreign company or entity is to be arrived at.
Further, under section 285A of the ITA, an Indian concern is also required to fulfil certain reporting requirements in relation to an indirect transfer of its shares or interests. The rules prescribe the information to be furnished and the manner in which it is to be given to the tax authorities.
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