Foreign Listing: Only Large Shareholders may be taxed

India could tax only large foreign shareholders of domestic companies that list directly on overseas exchanges, and such listing may initially be limited to select jurisdictions, including the International Financial Services Centre at GIFT City.

Overseas listing is likely to help Indian startups raise funds at good valuations abroad, where demand may be higher.

A detailed framework is expected to be announced in the budget for FY23 and may also list jurisdiction where Indian companies could list and provide clarity on Taxability of Investments.

The decision to permit overseas direct listing was announced in March 2020, but there has been no follow-up action.

According to people in the know, at least two structures or mechanism are under consideration to tax foreign investors in Indian companies listing overseas.

One, exempt all foreign share-holders holding up to 10% from long-term capital gains tax. Two, tax everyone holding share prior to listing when they actually exit the investment.

“Multiple deliberations within ministries and at regulatory levels have been held. The idea is to help value creations in India, but at the same time not to have a situation like Vodafone,” a government official said.

Sources says the same framework may be applied to companies listing overseas and the limit can be revised up to 10% in all cases of transfer, listed or unlisted.

According to the official, levying tax on foreign retail investors trading in Indian shares on foreign exchanges is likely to be ruled out. However, Indian investors earning profits on buying and selling equity of Indian firms listed abroad would be liable to capital gains tax under income-tax laws.

On the jurisdiction part, the people said the government is planning to initially allow listing in seven to eight jurisdictions.

Experts said Indian shares must be treated on par with American Depositary Receipts and Global Depositary Receipts.

“Most countries do not tax capital gains on listed securities for investors outside their home jurisdiction,” said Bhavin Shah, Leader (deals) at PwC India. S-ET

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