Taxation on Sale of Shares in a Foreign Holding Company

Often, divestments by foreign owners of Indian companies are effected through a sale of the stake outside India. More specifically, where foreign companies hold shares in Indian companies through intermediate offshore investment companies, they can effect a divestment by merely selling off shares of the offshore holding companies. This does not in any way result in a transfer of shares of the Indian company giving rise to taxation of capital gains in India. But, the question still remains as to whether such indirect sales that achieve the same end result should also be taxed in India. This issue is discussed in a column by Mukesh Butani in The Business Standard.