Section 219: conversion of an Indian branch of a foreign company into a subsidiary Indian company

The tax-neutral treatment

Where a foreign company carrying on banking business in India through an Indian branch converts that branch into a subsidiary Indian company under a scheme framed by the Reserve Bank of India, then, subject to conditions notified by the Central Government:

• Capital gains arising from the conversion are not chargeable to tax in the tax year of conversion; and
• The Act's provisions on unabsorbed depreciation, set-off/carry-forward of losses, tax credit for tax paid on deemed income relating to certain companies, and computation of income of both the foreign company and the subsidiary Indian company apply with such exceptions, modifications and adaptations as specified in that notification.

What happens if the conditions are not met

If any condition specified in the scheme or in the notification is not complied with, all provisions of the Act apply to the foreign company and the subsidiary Indian company without any benefit, exemption or relief under this section.

Clawback for a later breach of conditions

If a benefit, exemption or relief was claimed and granted under this section for a tax year, and there is a subsequent failure to comply with any condition of the scheme or notification:

• The benefit, exemption or relief is deemed to have been wrongly allowed;
• The Assessing Officer may, irrespective of anything else in the Act, recompute the assessee's total income for that tax year and make the necessary amendment; and
• Section 287 applies, with the four-year period under section 287(8) reckoned from the end of the tax year in which the failure to comply took place.

Parliamentary oversight

Every notification issued under this section must be laid before each House of Parliament.

Frequently asked questions