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Date: 24-May-2023 Category: Extra Ordinary State: Union Government Country: India

Notification under sub clause (ii) of the first proviso to clause viib of sub section (2) of Section 56

Issued by Ministry of Finance · Department of Revenue

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Executive Summary & Key Takeaways

What it means

  • This notification, S.O. 2274(E), issued by the Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, specifies classes of persons exempt from Section 56(2)(viib) of the Income-tax Act. This section relates to the taxation of share premiums received by a company from residents. The notification provides exemptions to certain categories of investors, primarily non-residents, from the applicability of this section.

Key Changes

  • The notification exempts the following classes of persons:
  • 1. Government and Government-related investors: This includes central banks, sovereign wealth funds, international or multilateral organizations or agencies, and entities controlled or with 75% or more direct or indirect government ownership.
  • 2. Banks and entities involved in the insurance business: This applies to entities subject to regulations in their country of establishment, incorporation, or residence.
  • 3. Certain entities resident in specified countries/territories listed in the Annexure, subject to applicable regulations in their country of establishment, incorporation, or residence:
  • a. Entities registered with SEBI as Category-I Foreign Portfolio Investors.
  • b. Endowment funds associated with universities, hospitals, or charities.
  • c. Pension funds created or established under the law of a foreign country or specified territory.
  • d. Broad Based Pooled Investment Vehicles or funds with more than fifty investors, excluding hedge funds or funds employing diverse or complex trading strategies.
  • The Annexure lists 21 countries/territories: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Iceland, Israel, Italy, Japan, Korea, New Zealand, Norway, Russia, Spain, Sweden, United Kingdom, and United States.

Impact Analysis

Impact on Foreign Investors

  • Action Item: Foreign investors should assess their eligibility under these exemptions and ensure compliance with the specified conditions (e.g., registration with SEBI, regulatory compliance in their home country).

Impact on Indian Companies

  • Action Item: Indian companies should be aware of these exemptions when raising capital from foreign investors and ensure proper documentation to avail the benefits.

Impact on Government

  • Action Item: Monitor the impact of this notification on foreign investment flows and adjust policies as needed.

Key Entities Referenced

Ministry of Finance, Department of Revenue: The government ministry responsible for tax policy and revenue collection. Central Board of Direct Taxes (CBDT): The issuer of the notification and the primary authority for income tax matters in India. Securities and Exchange Board of India (SEBI): The regulator for the securities market in India. Category-I Foreign Portfolio Investors (FPIs) registered with SEBI are included in the exemption. Section 56(2)(viib) of the Income-tax Act: The section of the Income-tax Act that deals with the taxation of share premiums received by a company from residents. Government and Government related investors: Includes central banks, sovereign wealth funds, international or multilateral organizations or agencies including entities controlled by the Government or where direct or indirect ownership of the Government is seventy-five percent or more. Banks or Entities involved in Insurance Business: Entities involved in Insurance Business where such entity is subject to applicable regulations in the country where it is established or incorporated or is a resident. Category-I Foreign Portfolio Investors: Entities registered with Securities and Exchange Board of India as Category-I Foreign Portfolio Investors Broad Based Pooled Investment Vehicle or fund: Vehicle or fund where the number of investors in such vehicle or fund is more than fifty and such fund is not a hedge fund or a fund which employs diverse or complex trading strategies.
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रजिस्ट्री स.ं डी.एल.- 33004/99 REGD. No. D. L.-33004/99 सी.जी.-डी.एल.-अ.-24052023-246045 xxxGIDHxxx CG-DL-E-24052023-246045 xxxGIDExxx असाधारण EXTRAORDINARY भाग II—खण् ड 3—उप-खण्ड (ii) PART II—Section 3—Sub-section (ii) प्राजधकार स ेप्रकाजित PUBLISHED BY AUTHORITY स.ं 2180] नई ददल्ली, बुधिार, मई 24, 2023/ज्य ष्े ठ 3, 1945 No. 2180] NEW DELHI, WEDNESDAY, MAY 24, 2023/JYAISHTHA 3, 1945 जित्त मत्रं ालय (रािस्ट्ि जिभाग) (केन्द्रीय प्रत्यक्ष कर बोडड) अजधसचू ना नई ददल्ली, 24 मई, 2023 (आयकर) का.आ. 2274(अ).—केन्द्रीय सरकार, धारा 56 की उपधारा (2) के खडं (viiख) के पहल े परंतकु के उपखंड (ii) द्वारा प्रदत्त िजियों का प्रयोग करते हुए, उि खडं के प्रयोिनों के जलए, जनम्नजलजखत िग डया िगों के व्यजियों को अजधसूजचत करती ह,ै अथाडत्:- (i) सरकार और सरकार संबंधी जिजनधानकताड िैसे केन्द्रीय बैंक, संप्रभु धन जनजधयां, अंतरराष्ट्रीय या बहु पार्श्विक सगं ठन या अजभकरण जिनके अंतगडत सरकार द्वारा जनयंजत्रत अजस्ट्तत्ि भी ह ैं या िहां सरकार का प्रत्यक्ष या अप्रत्यक्ष स्ट्िाजमत्ि पचहत्तर प्रजतित का या अजधक ह ै; (ii) बीमा कारबार म ें लग े हुए बैंक या अजस्ट्तत्ि िहां ऐसा अजस्ट्तत्ि देि म ें लागू जिजनयमों के अधीन ह ै िहां िह स्ट्थाजपत या जनगजमत या जनिासी ह ै; 3297 GI/2023 (1)2 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(ii)] (iii) जनम्नजलजखत म ें से कोई अजस्ट्तत्ि, िो उपाबंध में सूचीबद्ध दकसी देि या जिजनर्ददष्ट राज्यक्षेत्र का जनिासी है, और ऐसा अजस्ट्तत्ि उस देि म ेंलागू जिजनयमों के अधीन ह ैिहा ंिह स्ट्थाजपत या जनगजमत या जनिासी ह:ै- (क) भारतीय प्रजतभूजत और जिजनमय बोडड म ें प्रिगड-1 जिदेिी पोर्डफोजलयो जिजनधानकताड के रूप में रजिस्ट्रीकृत अजस्ट्तत्ि ; (ख) जििजिद्यालय, जचदकत्सालय या पूतड सगं ठनों स ेसहबद्ध अक्षयजनजध जनजधयां ; (ग) अन्द्य दिे या जिजनर्ददष्ट राज्यक्षत्रे की जिजध के अधीन सृजित या स्ट्थाजपत पेंिन जनजधयां ; (घ) ब्रोड बेस्ट्ड पल्ू ड इंस्ट्िेस्ट्र्मेंर् जिजहकल या जनजध िहां ऐस े जिजहकल या जनजध म ें जिजनधानकताडओं की संख्या पचास से अजधक ह ै और ऐसी जनजध हिे जनजध नहीं ह ै या िह जनजध नहीं ह ै िो जिजिध या िटर्ल व्यापार रणनीजतयों को जनयोजित करती ह ै; उपाबधं देिों की सचू ी क्र. सं. देि/जिजनर्ददष्ट राज्यक्षेत्र का नाम (1) (2) 1. आस्ट्रेजलया 2. आजस्ट्रया 3. बेजल्ियम 4. कनाडा 5. चैक टरपजललक 6. डेनमाकड 7. दफनलैंड 8. फ्ांस 9. िमडनी 10. आइसलडैं 11. इिरायल 12. इर्ली 13. िापान 14. कोटरया 15. न्द्यूिीलैंड 16. नािे 17. रूस 18. स्ट्पेन 19. स्ट्िीडन 20. यूनाइर्ेड ककगडम 21. यूनाइर्ेड स्ट्र्ेट्स [अजधसूचना सं. 29/2023/फा. सं. 370142/9/2023-र्ीपीएल (पार्-ड 1)] अमृत प्रीतम चेजतया, अिर सजचि (कर नीजत और जिधान)[भाग II—खण् ड 3(ii)] भारत का रािपत्र : असाधारण 3 MINISTRY OF FINANCE (Department of Revenue) (CENTRAL BOARD OF DIRECT TAXES) NOTIFICATION New Delhi, the 24th of May, 2023 (INCOME-TAX) S.O. 2274(E).—In exercise of the powers conferred by sub-clause (ii) of the first proviso to clause (viib) of sub-section (2) of Section 56, the Central Government hereby notifies the following class or classes of persons, for the purposes of the said clause, namely:- (i) Government and Government related investors such as central banks, sovereign wealth funds, international or multilateral organizations or agencies including entities controlled by the Government or where direct or indirect ownership of the Government is seventy-five percent or more; (ii) Banks or Entities involved in Insurance Business where such entity is subject to applicable regulations in the country where it is established or incorporated or is a resident; (iii) Any of the following entities, which is a resident of any country or specified territory listed in Annexure, and such entity is subject to applicable regulations in the country where it is established or incorporated or is a resident :–– (a) entities registered with Securities and Exchange Board of India as Category-I Foreign Portfolio Investors; (b) endowment funds associated with a university, hospitals or charities; (c) pension funds created or established under the law of the foreign country or specified territory; (d) Broad Based Pooled Investment Vehicle or fund where the number of investors in such vehicle or fund is more than fifty and such fund is not a hedge fund or a fund which employs diverse or complex trading strategies. ANNEXURE List of Countries Sl. No. Name of Country/ Specified Territory (1) (2) 1 Australia 2 Austria 3 Belgium 4 Canada 5 Czech Republic 6 Denmark 7 Finland 8 France 9 Germany 10 Iceland 11 Israel 12 Italy 13 Japan 14 Korea 15 New Zealand 16 Norway 17 Russia4 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(ii)] 18 Spain 19 Sweden 20 United Kingdom 21 United States [Notification No. 29/2023/F. No. 370142/9/2023-TPL (Part-I)] AMRIT PRITOM CHETIA, Under Secy. (Tax Policy and Legislation) Uploaded by Dte. of Printing at Government of India Press, Ring Road, Mayapuri, New Delhi-110064 and Published by the Controller of Publications, Delhi-110054.

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