Indirect Transfer of Shares – Meaning & Background

In news: The Holcim-Adani deal could be the first high-profile merger and acquisition deal that will face the test of India’s amended indirect transfer of shares regulations, especially in connection with the country’s double taxation avoidance agreement (DTAA) or tax treaties.


In India, non-residents are taxed on income that accrues, arises or received, or is deemed to accrue, arise, or received in India. However, many developing countries including India have concerns with non-residents avoiding capital gains on assets located in the source country, by transferring those assets indirectly, i.e. by transferring interests in entities that own such assets, rather than the assets themselves. This is possible where global businesses are held through multi-tiered structures with the intermediate holding companies outside India deriving substantial value from assets/business carried on in India.

In order to tax such offshore indirect transfers deriving value from Indian business/assets/entities, India has deemed such indirect transfers to accrue in India so as to tax them in certain circumstances.


  • When shares of a foreign company or interest in any entity incorporated or registered outside India are transferred and if such shares or interest derives its substantial value from assets located in India directly or indirectly, then such transfer is commonly referred to as ‘Indirect Transfer’.
  • In case of such indirect transfer, the income shall be deemed to accrue or arise in India and would be taxable for all including not ordinarily residents as well as non-residents.
  • As per the indirect transfer of shares regulations any asset that derives most of its value (50%) from Indian assets, should be taxable domestically even if the deal is between two foreign entities or holding entities that are registered outside India.
  • In 2012, the government had amended existing income tax laws to say that any transfer of assets — where most of the value (more than 50%) was derived from Indian assets — will be taxable domestically.
  • The law was again “amended” in 2020 to only include prospective transactions under scrutiny. The government even settled legacy issues with companies such as Vodafone and Cairn.

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