Law on taxing indirect transfer of shares likely to be amended

The government could be looking at amending the regulation on taxing indirect transfer of shares, days after it issued a clarification on the regulation, according to people familiar with the matter.

Foreign portfolio investors (FPIs), their custodians, private equity and venture capital funds have reached out to the Central Board of Direct Taxes and market regulator Sebi with their concerns on the matter.

Industry trackers expect Budget 2017 to see the announcement of the amendment.

One of the biggest concerns for foreign investors is the threshold of ownership on which transactions will be taxable. According to the government’s recent clarification, taxability applies to situations of transfer of any interest exceeding 5 per cent in the overseas entity. 
 

Many FPIs are worried as they see constant realignment of shareholding in their funds as investors exit, enter or change positions. FPIs are seeking a threshold of 26 per cent to trigger indirect transfer provisions, The Economic Times reported.