No capital gains tax or stamp duty on foreign banks converting to WoS
As per a notification by the Reserve Bank of India (RBI), the conversion of existing foreign bank branches into Wholly-owned Subsidiaries (WoS) in India will not be liable to capital gains tax or stamp duty.
The central bank clarified that Government of India has inserted, by the Finance Act, 2012, a new Chapter XII-BB titled ‘Special Provisions relating to Conversion of Indian Branch of a foreign bank into a subsidiary company’ in Income Tax Act, 1961, inter alia, exempting capital gains arising from such conversion from capital gains tax, with effect from April 1, 2013.
It further added that a new section ‘8E’ had been inserted in Indian Stamp Act, 1899 vide Banking Laws (Amendment) Act, 2012, exempting from stamp duty on any conversion of a branch of a foreign bank into wholly-owned subsidiary or transfer of shareholding of a bank to a holding company in terms of the scheme or guidelines of RBI.
As per RBI, foreign banks with complex structures and which did not provide adequate disclosures would have to operate in India only through WoS in order to regulate and avoid 2008-type crisis.
Although RBI has allowed foreign banks to list their subsidiaries in the local stock exchanges, it has also prescribed that the minimum paid-up equity capital or net worth for a WoS would be Rs. 500 crore. However, foreign banks functioning in India before August 2010 have been given the option to continue their operations in branch model.
Some Facts:
- State-run banks in the country control about 2/3rd of the aggregate assets of the Indian banking system, whereas, foreign banks manage around 4.3% of total deposits.
- Citibank is the largest foreign bank operating in India in terms of asset base. Other key foreign banks are StanChart, which has 100 branches, HSBC 50, Deutsche Bank 17 and DBS 12 branches.
- As of March 2013, there were 43 foreign banks in India with 333 branches.
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Month: Current Affairs - December, 2013