Para 9 - Taxation on shares issued under Global Depositary Receipt Mecha­nism - Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993

Taxation on shares issued under Global Depositary Receipt Mecha nism. 9. (1) Under the provisions of the Income-tax Act, income by way of dividend on shares will be taxed at the rate of 10 per cent. The issuing company shall transfer the dividend payments net after deduct tax at source to the Overseas Depositary Bank. (2) On receipt of these payments of dividend after taxation, the Overseas Depositary Bank shall distribute them to the non-resident investors proportionate to their holdings of Global Depositary Receipts evidencing the relevant shares. The holders of the Depositary Receipts may take credit of the tax deducted at source on the basis of the certification by the Overseas Deposi tary Bank, if permitted by the country of their residence. (3) All transactions of trading of the Global Depositary Receipts outside India, among non-resident investors, will be free from any liability to income-tax in India on capital gains therefrom (4) If any capital gains arise on the transfer of the aforesaid shares in India to the non-resident investor, he will be liable to income-tax under the provisions of the Income-tax Act. If the aforesaid shares are held by the non-resident investor for a period of more than twelve months from the date of advice of their redemption by the Overseas Depositary Bank, the capital gains arising on the sale thereof will be treated as long-term capital gains and will be subject to income-tax at the rate of 10 per cent under the provisions of section 115AC of the Income-tax Act. If such shares are held for a period of less than twelve months from the date of redemption advice, the capital gains arising on the sale thereof will be treated as short-term capital gains and will be subject to tax at the normal rates of income-tax applicable to non-residents under the provisions of the Income-tax Act. (5) After redemption of the Depositary Receipts into underlying shares, during the period, if any, which these shares are held by the redeeming non-resident foreign investor who has paid for these shares in foreign exchange at the time of purchase of the Global Depositary Receipt, the rate of taxation of income by way of dividends on these shares would continue to be at the rate of 10 per cent, in accordance with section 115AC(1) of the Income-tax Act. The long-term capital gains on the sale of these redeemed underlying shares held by non-resident investors in the domestic market shall also be charged to tax at the rate of 10 per cent, in accordance with the provisions of section 115AC(1). (6) When the redeemed shares are sold on the Indian Stock Exchanges against payment in rupees, these shares shall go out of the purview of section 115AC of the Income-tax Act and income therefrom shall not be eligible for the concessional tax treatment provided thereunder. After the transfer of shares where consideration is in terms of rupees payment, the normal tax rates would apply to the income arising or accruing on these shares. (7) Deduction of tax at source on the amount of capital gains accruing on transfer of the shares would be made in accordance with sections 195 and 196C of the Income-tax Act.