I-T sops for foreign bank branches converting to Indian subsidiaries

The government has proposed to exempt branches of foreign banks converting to Indian subsidiaries of the parent banks from provisions of capital gains tax arising from such conversions.

The relaxation will be available up to 31 December 2017, a finance ministry release said.

To facilitate this, the Finance Act, 2012 has been amended by inserting a new Chapter XII-BB consisting of Section 115JG in the Income-tax Act, 1961 which contains ''special provisions relating to conversion of Indian branch of a foreign bank into a subsidiary company''.

Section 115JG of the Act, inter alia, provides that in case the conversion of Indian branch of foreign bank fulfils the conditions notified by the central government, capital gains arising from such conversion shall not be chargeable to tax.

Also, the provision relating to unabsorbed depreciation, set-off or carry forward and set-off of losses, tax credit in respect of tax paid on deemed income relating to certain companies and the computation of income in case of foreign company and Indian subsidiary shall apply with such modification, exception etc as may be specified in the notification, it added.

The Reserve Bank of India (RBI) has released the 'Scheme for setting-up of wholly owned subsidiaries (WOS) by foreign bank in India' on 6 November 2013.

The scheme, inter alia, provides the procedure for conversion of existing branches of foreign bank into WOS.  A foreign bank is required to set up a WOS in India and the Indian branch shall amalgamate with WOS as per the amalgamation scheme approved by the shareholder of foreign bank and WOS, which is sanctioned by the RBI.

It is proposed to issue notification specifying the conditions to be fulfilled by the conversion and also specifying modifications, exceptions, in applicability of certain provisions of the Act to such conversion. In order to have wider consultations, the draft of proposed Notification has been uploaded on the website incometaxindia.gov.in.