India: Exclusion of overseas dividend from indirect transfer provisions
International Tax Review is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

India: Exclusion of overseas dividend from indirect transfer provisions



Rajendra Nayak

Aastha Jain

Under the Indian Tax Law (ITL), income arising from any asset in India or from transfer of a capital asset situated in India would be taxable in India. In 2012, the ITL was retroactively amended to introduce provisions for the taxation of indirect transfer (IDT provisions) under which it was clarified that an asset or a capital asset being any share in a foreign company shall be deemed to be situated in India, if such shares derive their value substantially from the assets located in India. Accordingly, transfer of such deemed asset was taxable in India. The legislative intent of such provision was to tax gains having an economic nexus with India, irrespective of the mode of realisation of such gains. Apprehensions were raised by various stakeholders on the overreaching scope of deeming fiction under the IDT provisions, which deems the shares of a foreign company to be situated in India. Concern was raised that the provisions would result in taxation in India of dividend income declared by such foreign company outside India. This was perceived as an unintended consequence of the IDT provisions.

The Central Board of Direct Taxes (CBDT), the apex administrative body for taxation in India, recently issued a circular (Circular 4 of 2015) to clarify that:

  • the IDT provisions would trigger tax for the transaction which has the effect of transferring, directly or indirectly, the underlying assets located in India, as income accruing or arising in India; and

  • declaration of dividend by a foreign company outside India does not have an effect of transfer of any underlying asset located in India. Accordingly, such dividend paid by foreign company would not be taxable in India by virtue of the IDT provisions of the ITL.

This clarification from the CBDT addresses the concern which had arisen on account of the wide scope of the IDT provisions. This is also in line with the intent of the present Indian Government to provide certainty and stability in India's tax regime.

Rajendra Nayak ( and Aastha Jain (

Ernst & Young

Tel: +91 80 6727 5275


more across site & bottom lb ros

More from across our site

Yusuf Akhmadi of Indonesia’s Directorate General of Taxation reports on the country’s latest domestic and cross-border initiatives to clamp down on tax evasion
The new rate is a blow to Samsung, while two law firms have made significant tax hires into their respective Washington DC offices
Rema Serafi, KPMG’s first-ever female vice chair for tax, talks about breaking the mould in an exclusive interview with ITR
The metal multinational’s victory, in a case worth $12 million, continues the trend of companies coming out on top against India’s revenue department
Guy Bud and Matthew Greene from litigation firm Stewarts review a dispute on tiered partnerships, which raises questions on corporation tax and partnership law
The stagnating pay and tax bonuses cap follow slashed payouts for the deals team and business consolidation in the last month
A greater UN role has been secured after disagreements between developed and developing countries over the OECD’s influence in global tax reform
The US-based firm picks up investment fund specialist Ceinwen Rees, while Ireland nearly doubles its corporation tax receipts in three years
The order comes amid controversy over another of David Collard’s companies’ tax and TP affairs
NASSCOM, which represents over 3,000 Indian companies, has argued for the removal of the segmentation rule