Shares

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 November 2013 An NR company is a shareholder of an Indian Pvt Ltd Company. Now the Indian company / promoters wish to bring the shares back to India. Can somebody suggest a good option without involvement of tax in the transaction?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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12 November 2013 the taxation shall depend on the tax residency of the NR company. unless that detail is provided, no suggestion can be made.

Querist : Anonymous

Querist : Anonymous (Querist)

19 November 2013 Sir the tax residency of the NR company is singapore.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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25 July 2025 In your case, an Indian Private Limited Company wants to bring back shares held by a Singapore-based NR company (i.e., have the shares returned or transferred to Indian promoters/shareholders). You're looking for a tax-efficient way to do this.

✅ Key Facts:
Foreign shareholder: Singapore-based NR company

Target: Transfer shares to Indian resident promoters

Goal: Minimize or avoid tax liability

Type of shares: Unlisted shares of an Indian private company

🔍 Tax Considerations
1. Capital Gains Tax on Transfer by Singapore Entity
As per the India–Singapore DTAA (Double Taxation Avoidance Agreement), capital gains from sale of shares of an Indian company are taxable in India, not Singapore, subject to the revised protocol (effective from April 1, 2017).

If shares acquired before 1 April 2017 → Grandfathering benefit applies.

Gains accrued up to 31 March 2017 are exempt.

Only gains post-1 April 2017 are taxed in India.

If acquired after 1 April 2017 → Entire gain taxable in India.

Capital gains tax on unlisted shares held by a foreign company:

Long-term (holding > 24 months) → Taxed @ 10% without indexation (under Sec. 112(1)(c)(iii))

Short-term → Taxed at 30%

⚠️ There is no full exemption route unless you qualify for the grandfathering clause.

✅ Practical Options to Consider
Option 1: Transfer at Cost (No Gain / Nominal Consideration)
Transfer shares from Singapore NR company to Indian promoters at cost or minimal premium (if supported by fair valuation).

This minimizes capital gain in the hands of NR company.

Must be backed by valuation report from a merchant banker or CA (per FEMA/Income Tax).

File with RBI under FEMA regulations via FC-TRS on RBI’s FIRMS portal.

✔ Pros:
Lower tax liability if sale price ≈ acquisition cost.

✖ Cons:
Still needs capital gains computation

Subject to transfer pricing and fair market value (FMV) under Income Tax Act and FEMA.

Option 2: Buyback of Shares by Indian Company (Section 68)
Indian company buys back shares from NR shareholder.

Treated as capital gains in hands of Singapore entity.

Company pays tax at 20% on distributed income (buyback tax under Section 115QA).

No tax in hands of NR shareholder.

✔ Pros:
Clean structure

NR company receives net proceeds tax-free

Indian company bears tax, but at a flat 20%

✖ Cons:
Reduces company’s reserves

Procedural steps with ROC and RBI

Shareholder approval needed

Option 3: Gift of Shares
Singapore company gifts shares to Indian promoter (relative or otherwise)

Capital gains tax does not apply on gifts, but:

Gift from company to individual → Not recognized under FEMA unless part of group restructuring

Recipient may be taxed under Section 56(2)(x) if FMV > ₹50,000 and not from a “relative”

✔ Pros:
No capital gain for donor

No immediate outflow of funds

✖ Cons:
Tax may apply to Indian recipient

RBI approval may be required (gift from non-resident to resident)

Complicated compliance under FEMA

⚠️ Important Compliance (FEMA & RBI)
Any transfer of shares from an NR to resident (or vice versa) must:

Follow FEMA (Non-debt Instrument) Rules, 2019

Be reported via FC-TRS form

Be done at or above fair value certified by:

Chartered Accountant (as per discounted cash flow or NAV method), or

Category I Merchant Banker

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