TaxTMI 
TaxTMI 
Disclosure Norms for Indian Concerns in Cross-Border Transactions : Clause 506 of the Income Tax Bill, 2025 Vs. Section 285A of the Income Tax Act, 1961
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....use 506 of the Income Tax Bill, 2025, represents a legislative effort to sustain and update the compliance architecture governing the furnishing of information by Indian concerns in cases where the value of shares or interests in foreign companies is substantially derived from Indian assets. This commentary provides a detailed analysis of Clause 506, situating it within the broader legal framework by comparing it with the existing Section 285A of the Income Tax Act, 1961, and the operational specifics set out in Rule 114DB of the Income-tax Rules, 1962. The analysis explores the legislative intent, the practical and compliance implications for stakeholders, the interpretative nuances, and potential areas for future reform or clarification.....
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....sets in India through, or in, an Indian concern, then, such Indian concern shall, for the determination of any income accruing or arising in India under the said clause, furnish within such period, the information or documents in such manner, as prescribed, to the prescribed income-tax authority. The provision can be dissected into the following key elements: * Triggering Event: The clause is activated when a share or interest in a foreign company or entity derives substantial value from Indian assets, as defined u/s 9(9)(a) of the Bill. This aligns with the concept of "indirect transfer" whereby offshore transfers can have Indian tax implications if underlying value is derived from Indian assets. * Holding Structure: The for....
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....rtainties until the relevant rules are notified. Comparative Analysis with Section 285A of the Income Tax Act, 1961 Section 285A, inserted by the Finance Act, 2015 (effective from 1 April 2016), is the existing statutory provision that Clause 506 seeks to replace or update. The language and structure of Clause 506 closely mirror Section 285A, with minor modifications to align with the new Bill's internal referencing. Section 285A: Where any share of, or interest in, a company or an entity registered or incorporated outside India derives, directly or indirectly, its value substantially from the assets located in India, as referred to in Explanation 5 to clause (i) of sub-section (1) of section 9, and such company or, as the case may b....
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....the end of the financial year in which the transfer takes place. If the transfer results in a change in management/control, the period is 90 days from the transaction. * Nature of Information/Documents: * Details of immediate, intermediate, and ultimate holding companies/entities. * Details of other group entities in India. * Holding structure before and after the transfer. * Transfer agreements/contracts. * Financial statements of the foreign company/entity for two years prior to transfer. * Details of the decision/implementation process. * Information on business operations, personnel, finance, properties, audits, valuation reports, etc. * Asset valuation reports and supporting evidence to establish the location of the t....
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.... Original provision Unique Features and Potential Conflicts * Comprehensive Information Requirement: The breadth of information required u/r 114DB is notable, extending beyond mere transactional details to include group structures, management/control changes, financial statements, audit/valuation reports, and tax payments outside India. * Group Filing Mechanism: The option for a designated Indian concern to file on behalf of a group is a pragmatic feature but may raise coordination and liability issues. * Potential Conflicts: The information sought may overlap with disclosures under the Companies Act, SEBI regulations (for listed entities), and transfer pricing documentation, raising questions of duplication and confidentiality. *....
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....e Indian entity. * Valuation Complexities: Determining whether the "substantial value" threshold is met involves complex asset valuations, often requiring expert reports and supporting evidence. * Overlap with Other Regulations: Compliance with these requirements may overlap with transfer pricing, company law, and foreign exchange regulations, necessitating a coordinated approach. * Potential for Disputes: Ambiguities in definitions, valuation disputes, and the scope of required information may lead to litigation, particularly in high-stakes transactions. Conclusion Clause 506 of the Income Tax Bill, 2025, is a reaffirmation and modernization of the compliance obligations originally set out in Section 285A of the Income Tax Act, 196....