Govt fixes threshold for taxing indirect transfer of shares

Seeking to improve the ease of doing business, government today fixed a threshold of Rs 10 crore for applicability of provisions regarding indirect transfer of shares by MNCs and hiked the same for domestic transfer pricing norms from Rs 5 crore to Rs 20 crore.
"The indirect transfer provisions would not apply if the value of Indian assets does not exceed Rs 10 crore," Finance Minister Arun Jaitley said in his Budget speech.
The move, experts said, will bring about clarity in taxation of indirect transfer of assets by MNCs.
There was confusion among investor community as the term "substantial value" was not defined in the I-T Act for the sale of Indian assets of an MNC.

Jaitley clarified that "the share or interest shall be deemed to derive its value substantially from the assets located in India, if on the specified date, the value of such assets represents at least 50 per cent of the fair market value of all the assets owned by the company or entity".
The provisions, he further said, will apply if the value of the Indian asset is more than Rs 10 crore.

With regard to the applicability of transfer pricing norms on domestic companies under the I-T Act, he said the threshold for taxation will be raised from Rs 5 crore to Rs 20 crore. The decision, he added, will reduce the associated hassles to smaller taxpayers and the compliance costs in domestic transfer pricing.

Commenting on the decision, KPMG (India) Partner and Head of Transfer Pricing Rohan Phatarphekar said it will "aid in reduction of compliance for companies benefiting from this".
EY Tax leader Financial Services Sameer Gupta said the 50 per cent threshold for indirect transfers is very pragmatic and provides specific clarity.