CBDT issues Circular Clarifying provisions relating to Indirect Transfers [Read Circular]

Sushil Chandra - CBDT - IRS Officer - Taxscan

The Central board of Direct Taxes (CBDT), on Wednesday issued a circular clarifying the provisions relating to indirect transfers under the Income Tax Act. The new circular has been issued with an aim to remove the controversies arose at the time of Vodafone case. Though the Government had issued a clarification earlier, the same was had created a stir among many foreign investors who were concerned about getting taxed in India.

The circular illustrates 19 situations which could result in indirect transfers and the impact of such transfers.

The Circular stipulates that if the value of assets sold is more than Rs 10 crore and represents at least 50% of the total value of the assets owned by a company, fund or an entity, it comes under the purview of income tax net. That means, a company, who sells even their global business, at a value more than 50% of the total valuation is derived from India, the transaction can be taxed in India.

The recent move could create more situations where a global merger and acquisition could be taxed in India. This is mainly because the valuing a company is a complex issue. The  circular further states that there are clear rules to valuation and those would be followed while valuing a company.

Read the full text of the circular below.