Amendments relating to Global Depository receipts (GDRs)

[Admin TMI]

Question - What are the proposed amendments in Global Depository receipts (GDRs) in Finance Bill 2015 ?

[Admin TMI]

Amendments relating to Global Depository receipts (GDRs)

The Depository Receipts Scheme, 2014 has been notified by the Department of Economic affairs (DEA) vide Notification F.No.9/1/2013-ECB dated 21st October, 2014. This scheme replaces “Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through depository receipt mechanism) Scheme, 1993”.

The current taxation scheme of income arising in respect of depository receipts under the Act is aligned with the earlier scheme which was limited to issue of Depository Receipts (DRs) based on the underlying shares of the company issued for this purpose (i.e sponsored GDR) or FCCB of the issuing company and where the company was either a listed company or was to list simultaneously. Besides, the holder of such DRs was a non-resident only.

As per the new scheme, DRs can be issued against the securities of listed, unlisted or private or public companies against underlying securities which can be debt instruments, shares or units etc; Further, both the sponsored issues and unsponsored deposits and acquisitions are permitted. DRs can be freely held and transferred by both residents and non-residents.

Since the tax benefits under the Act were intended to be provided in respect of sponsored GDRs and listed companies only, it is proposed to amend the Act in order to continue the tax benefits only in respect of such GDRs as defined in the earlier depository scheme.

These amendments will take effect from the 1st day of April, 2016 and will, accordingly, apply to the assessment year 2016-17 and subsequent assessment years.

[V B]

Hi Admin TMI,

I did read the note in the finance bill here is what it says :

It is proposed to amend the definition of “Global Depository Receipts” provided in the said clause to mean an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to investors against the issue of,-

1. ordinary shares of issuing company, being a company listed on a recognised stock exchange in India; or
2. foreign currency convertible bonds of issuing company.

Forgive my ignorance but no where does it talk about sponsored or unsponsored DRs. My reading would be that essentially it talks about only of equity as the underlying for DRs and also it talks about only listed companies stock. It doesn't differentiate between sponsored and unsponsored DRs. Can you please reclarify.

[Deepak Aggarwal]

Dear Sir,

Please refer to the memorandum of Budget 2015 explaining provisions of Finance Bill 2015

Thanks

Deepak Aggarwal

on behalf of TMI

AI Summary

Global Depository Receipts definition narrowed to equity backed listed issuances; tax benefits limited to earlier sponsored GDRs. Global Depository Receipts taxation will be narrowed by amending the definition to instruments issued by an overseas depository against ordinary shares of an issuing company listed on a recognised stock exchange in India or against foreign currency convertible bonds. This confines tax-favourable treatment to the class of GDRs contemplated under the earlier, limited depository regime and excludes the broader categories permitted under the newer Depository Receipts framework, thereby restricting eligibility for the Act's benefits to the redefined GDRs.