The proposal to exempt foreign banks on capital gains and permit them to carry forward unabsorbed losses would give a push for converting their branches into subsidiaries, according to bankers and tax experts.
While these sops are a big positive, there is no clarity on two aspects -- tax deduction for cost incurred on conversion and relief from payment of stamp duty. So, there is still some way to go, said a senior executive with a foreign bank.
“To support this effort, I propose to provide tax neutrality for such subsidiarisation,” said Finance Minister Pranab Mukherjee while presenting amendments to the Finance Bill.
Naresh Makhijani, partner, KPMG India, said the government’s two moves on capital gains and carry-forward were supportive of the conversion process. Sanjiv Bhasin, chief executive & general manager, DBS Bank India, said: “It is a positive step for supporting the subsidiarisation of Indian branches of foreign banks. We will have to see the fine prints to assess the impact.” The Singapore headquartered bank has 12 branches in India.
But, the amendments do not cover the issue of deductions from taxes for expenses incurred to convert a branch into a subsidiary. This is a relevant matter but not materially important to impact the conversion process, said Rajeshree Sabnavis, partner with BMR Advisors.
Plus, there is also the issue of getting relief (exemption) to pay stamp duty. This is a state government subject and would require a further push.
The Reserve Bank of India is formulating a scheme to subsidiarise Indian branches of foreign banks to ring-fence Indian capital and Indian operations from economic shocks external to the domestic economic scenario.