CBDT Clarification on Indirect Transfer Provisions in case of Redemption of Share or Interest outside India under the Income-tax Act, 1961
There could be situations in multi-tiered investment structures, where interest or share held indirectly by a non-resident in an Investment Fund or a Venture Capital Company or a Venture Capital Fund (hereinafter referred to as ‘specified funds’), is redeemed in an upstream entity outside India in consequence of transfer of shares or securities held in India by the specified funds, the income of which have been subject to tax in India. In such cases, application of indirect transfer provisions on redemption of share or interest in the upstream entity may lead to multiple taxation of the same income. In respect of Category I and Category II FPls though, such multiple taxation will not take place on account of the insertion of proviso to Explanation 5 to section 9(1)(i) of the Act, vide Finance Act, 2017.
Accordingly, in view of above issues, the CBDT has issued a Clarification on Provisions under the Income Tax Act, 1961 relating to Indirect Transfer in case of Redemption of Share or Interest outside India, as under: