India’s finance ministry on January 17 announced that it will suspend the operation of a circular issued last month concerning the taxation in India of indirect transfers of Indian assets through offshore stock sales.
The government said that foreign portfolio investors, foreign institutional investors, venture capital funds, and others have expressed concern that the circular does not address the issue of potential multiple taxation of the same income.
“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,” the ministry said.
The circular, released December 21, sets out 19 questions and answers clarifying the operation of Section 9 of the Income Tax Act, 1961, which provides that if a share or interest in a foreign company or entity derives its value ‘substantially’ from assets located in India, the transfer would be subject capital gains tax in India.
The issue may be addressed in the Union Budget, to be presented on February 1.
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