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India: Foreign tax credit; tax benefits for start-ups; securities taxation

India: Foreign tax credit; tax benefits for start-ups

The KPMG member firm in India has prepared reports about the following tax developments (read more at the hyperlinks provided below).


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  • Foreign tax credit allowed in proportion to income arising in foreign country; balance allowed as business expenditure: The Ahmedabad Bench of the Income-tax Appellate Tribunal held that the amount of tax paid in respect of income realized in a foreign country, but subject to tax both in India and in the foreign country, is allowable as a foreign tax credit against Indian tax. However, the foreign tax credit cannot exceed the amount of Indian tax that is proportionate to the income arising in the other country. The tribunal also held that for the amount of the foreign tax credit not allowed in India on the taxes paid abroad, the foreign taxes are allowable as a “business expenditure.” The case is: Elitecore Technologies Pvt Ltd. Read an April 2018 report [PDF 690 KB]
  • Process for “start-ups” applying for tax benefits: India’s Department of Industrial Policy and Promotion (DIPP) issued guidance outlining the process for start-ups to apply for and claim available tax relief. Also, an intergovernmental board will be formed to consider applications of start-ups that are claiming tax benefits. Read an April 2018 report [PDF 628 KB]
  • Interest earned on share application money: The Supreme Court of India held that interest income earned on share application money may be set off against the expense of the share issuance because the taxpayer was required by law to keep the share application money in the bank until such time that the allotment of shares was completed. The interest earned on the deposit was held to be inextricably linked to the requirement that the company raise share capital and was, thus, “adjustable” towards the expenses related to the share issuance. The Supreme Court also held that the purpose of the deposit of the share application money (received on the share issuance) was not to earn additional income but was to comply with the statutory requirement and that interest accruing on such deposit was merely incidental. The case is: Shree Rama Multi Tech Ltd. Read an April 2018 report [PDF 744 KB]
  • CBDT draft notification, securities transaction tax and taxation of capital gains of transfers of equity shares: The Central Board of Direct Tax issued draft guidance to clarify the tax treatment of certain transfers of equity shares. The Finance Act, 2018 revised the tax treatment of long-term capital gains arising from the transfer of certain capital assets—including equity shares in a company, units of an equity-oriented fund, or units of a business trust—provided that if equity shares are transferred, the securities transaction tax was paid on the acquisition and transfer of this capital asset. If the securities transfer tax was paid, then the amounts realized on the transfer of such capital gains would be taxable at a rate of 10% for amounts of capital gains exceeding one lakh rupees. If, however, the securities transaction tax was not paid, the law allows the government to specify the nature of acquisitions in respect of which the requirement for paying this tax would not apply. Read an April 2018 report [PDF 742 KB]

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