Form 49D Filing for Indirect Transfer of Foreign Company Shares for FY 2025-26

Indian entities having foreign holding structures must review whether any transfer of shares or interest in a foreign company/entity during FY 2025-26 triggers reporting under the Income-tax Act, 1961. This compliance is relevant where such foreign company/entity derives substantial value from assets located in India.

Background

Explanation 5 to Section 9(1)(i) of the Income-tax Act, 1961 provides that shares or interest in a foreign company/entity may be deemed to be situated in India if they derive substantial value, directly or indirectly, from assets located in India.

To ensure reporting of such indirect transfers, Section 285A requires the concerned Indian entity to furnish prescribed information and documents to the income-tax authority.

What is Form 49D?

As per Rule 114DB of the Income-tax Rules, 1962, read with CBDT Notification No. 55/2016 dated 28.06.2016, the information is required to be furnished in Form No. 49D electronically under digital signature to the Assessing Officer having jurisdiction over the Indian concern.

Who is Required to File?

Form 49D is required to be filed by an Indian concern where:

• Shares or interest in a foreign company/entity are transferred;

• Such foreign company/entity holds assets in India directly or indirectly through the Indian concern; and

• The shares or interest derive substantial value from assets located in India as referred to in Explanation 5 to Section 9(1)(i).

Due Date for FY 2025-26

As per Rule 114DB:

• Form 49D must generally be furnished within 90 days from the end of the financial year in which the transfer takes place.

• For transfers taking place during FY 2025-26, the filing should be completed within the prescribed 90-day period from the end of the financial year.

• However, where the transaction directly or indirectly results in transfer of rights of management or control in relation to the Indian concern, Form 49D must be filed within 90 days of the transaction itself.

Key Information and Documents to be Maintained

The Indian concern should maintain proper documentation, including:

• Details of immediate, intermediate and ultimate holding entities;

• Group structure and Indian group entities;

• Shareholding structure before and after the transfer;

• Transfer agreement or contract;

• Financial statements of the foreign company/entity;

• Valuation report and supporting evidence;

• Details of tax paid outside India, if any;

• Documents connected with the transaction.

Rule 114DB also requires such information and documents to be preserved for eight years from the end of the relevant assessment year.

Penalty for Non-Compliance

Failure to furnish information or documents in Form 49D may attract penalty under Section 271GA. The penalty may be:

• 2% of the transaction value where rights of management or control are transferred directly or indirectly; or

• Rs. 5,00,000 in any other case.

Conclusion

Indian companies, LLPs and other entities with foreign holding or investment structures should carefully examine any offshore share transfer during FY 2025-26. Timely review of group restructuring, share sale, merger, acquisition or change in ownership is essential to avoid non-compliance under Section 285A and Rule 114DB.

For expert guidance on this topic, contact your tax professional today.