Parthasarathi Shome’s suggestions on indirect transfer of assets under consideration: Finance Ministry

The finance ministry will soon consider tax expert Parthasarathi Shome’s suggestions on possible instances where offshore sale of Indian assets need not be taxed here, said a finance ministry official.

The Shome Committee had in its 2012 ‘Report on Retrospective Amendments Relating to Indirect Transfer of Indian assets’ suggested that capital gain from intra-group transfer of shares of foreign company having underlying assets in India should not be taxable here.

The panel had also suggested that capital gains arising from offshore deals should be taxable in India only if 50% of the total value of the global assets of the foreign company changing hand derives its value from assets in India. This was proposed by defining the word “substantially” used in the Income Tax Act to mean 50%.

“These issues are still under consideration. The definition of the word ‘substantial’ as well as the suggestion by the Shome Committee to exclude business restructure abroad from the law on indirect transfer of assets will soon be considered,” said an official at a post-budget interaction organised by industry chamber CII.

This marks a change in the government’s approach to extending relief to MNCs on the retrospective amendments on indirect transfer of Indian assets. During the UPA regime, the finance ministry had maintained that it would amend the Income Tax Act after it concludes conciliation talks with Vodafone on its Rs 20,000 crore tax dispute. Now, clearly, the government wants to consider these suggestions by the Shome panel, which would apply to both retrospective as well as prospective cases of indirect sale of Indian assets, as the conciliation attempt has fallen apart and these disputes are allowed to reach their logical conclusion at courts.

To meet the direct tax growth target this fiscal, the Income Tax Department would employ some non-invasive measures, said an official. Sunil Gupta, Joint Secretary in the Ministry of Finance said, “In the last fiscal year, we had sent letters to over 1 lakh assesses, who were not filing income tax returns, and it resulted in realisation of about Rs 6,000 crore of additional revenue for the government.” This year, the Department intends to send questionnaires too.