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Income on Transfer of Capital Asset situated in India

Buyer and seller may be non-resident but if the property is situated in India, it is deemed to accrue or arise in India and hence taxable in India

 

Share or interest in a company or entity registered or incorporated outside India

shall be treated as asset situated in India only if

if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.

AMEDMENT 

How to determine Whether its value Substantial or not?

If value of Indian assets is 

More than 10 crore

+

represent atleast 50% of total assets owned by company

as on the Specified Date

 

Specified Date means Date prior to transfer of asset when books are closed (It is normally 31 March but may be different also as per laws of the country)

Value of asset means Fair market value of all assets  on Specified Date without reduction of liability)

 

Explanation 7

No income shall be deemed to accrue or arise to a non-resident  if

it sells assets of foreign company if

 

 

In case Foreign Company directly owns assets in India

In case Foreign Company indirectly owns assets in India

 

Transferor does not hold

More than 5% voting power in foreign company

or

Right of management or control in foreign company

 

 

 

 

 

 

 

 

During anytime in last 12 months

 

 

(whether individually or through associated enterprises)

Transferor does not hold

More than 5% voting power in foreign company

or

Right of management or control in foreign company

or

Right of management or control in foreign company which would entitle him to the right of management or control in the

company or entity that directly owns the assets situated in India;

 

 

During anytime in last 12 months

 

(whether individually or through associated enterprises)

 

 

Note:-

When all the assets are not located in India,

the income of the non-resident transferor, from transfer outside India of a share of, or interest in the foreign company or entity,

deemed to accrue or arise in India under this clause,

shall be only such part of the income as is reasonably

attributable to assets located in India and determined in the prescribed manner. 

 

  1. Income Tax
  2. Residential Status
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About the Author

CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 8 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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