Need tax parity for Indian, foreign investors in listings abroad: Experts

Domestic investors selling shares of an Indian company listed overseas are taxed at 20 per cent.

The government must remove tax disparity between domestic and foreign investors selling shares of an Indian company listed abroad, experts have said.

Tax for a foreign investor selling securities in an unlisted company or a company listed on an overseas exchange is same: such transactions are taxed at 10 per cent. However, domestic investors selling shares in an Indian company listed overseas are taxed at 20 per cent.

The demand for parity was made amid media reports that the government is finalising norms for overseas direct listing. It is reportedly considering two proposals to tax foreign investors of Indian companies listed overseas: exempt foreign shareholders holding up to 10 per cent from long term capital gains tax; and tax everyone holding shares prior to the listing when the exit the investment.

“As of now Indian residents selling shares of an Indian entity listed at a foreign exchange, are taxed at long term capital gains tax rate of 20 per cent. In the same situation, foreign residents are taxed at the rate of 10 per cent. This difference in tax rates has been in existence for many years, and merits consideration,” said Amit Singhania, partner at Shardul Amarchand Mangaldas & Co.

The differential in rates could be bridged if the tax rate on capital gains on sale of offshore listed securities by Indian investors is reduced to 10 percent like the taxation regime of Indian listed securities, he said.

Although the government allows direct listing of securities overseas by Indian entities, it was looking at resolving certain issues to enable smooth trade in such securities.

Parliament, in September 2020, passed the Companies (Amendment) Bill, 2020 that permitted direct overseas listing of Indian companies. Amendments were made in Section 23 of the Companies Act 2013 to include enabling provisions to allow direct listing of securities by Indian public companies in permissible foreign jurisdictions.

However, its implementation has been delayed due to opposing views within the government whether capital gains tax should be imposed on such transactions