The Reserve Bank of India has clarified that conversion of existing foreign bank branches into wholly-owned subsidiaries in India will not attract any capital gains tax nor stamp duty.

“In this context, it may be indicated that Government of India has inserted, by the Finance Act, 2012, a new Chapter XII-BB titled ‘Special Provisions relating to Conversion of Indian Branch of a foreign bank into a subsidiary company’ in Income Tax Act, 1961, inter alia, exempting capital gains arising from such conversion from capital gains tax, with effect from April 1, 2013,’’ the RBI said in a release.

On the applicability of stamp duty in the case of conversion of existing branch of a foreign bank into a wholly-owned subsidiary, the RBI pointed out that “a new section ‘8E’ had been inserted in Indian Stamp Act, 1899 vide Banking Laws (Amendment) Act, 2012 notified in Gazette of India Notification dated January 18, 2013, exempting from stamp duty on any conversion of a branch of a foreign bank into wholly-owned subsidiary or transfer of shareholding of a bank to a holding company in terms of the scheme or guidelines of RBI.’’

This clarification comes in the wake of RBI receiving several queries from foreign banks on capital gains tax and incidence of stamp duty on conversion of existing foreign bank branches into wholly-owned subsidiaries.

The RBI issued the ‘Framework for setting up of wholly-owned subsidiaries by foreign banks in India’ on November 6.

The apex bank had said that foreign banks with complex structures and which did not provide adequate disclosures would have to operate in India only through wholly-owned subsidiaries (WoS) in order to regulate and avoid 2008-type crisis.

Listing

While allowing foreign banks to list their subsidiaries in the local stock exchanges, the RBI had prescribed that the minimum paid-up equity capital or net worth for a WoS would be Rs. 500 crore.

However, it gave the foreign banks operating in India before August 2010 the option to continue their operations in branch model.

There were 43 foreign banks in India with a network of 333 branches as of March 2013. At present, foreign banks have presence in India only through branches.

More In: Economy | Business