|Rajendra Nayak||Aastha Jain|
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.
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