Which one of the following situations best reflects "Indirect Transfers" often talked about in media recently with reference to India?
Answer & explanation
Answer: (d) A foreign company transfers shares and such shares derive their substantial value from assets located in India
An 'indirect transfer' is the sale of shares of a company based outside India whose value comes mainly from assets in India — the Indian assets change hands indirectly. The Finance Act, 2012 made such gains taxable in India with retrospective effect, and the Taxation Laws (Amendment) Act, 2021 withdrew that retrospective tax for deals before 28 May 2012.
- ✓ (d) Since 2012, Section 9(1)(i) of the Income-tax Act treats shares of a foreign company as situated in India if they derive their value substantially from Indian assets, so their transfer offshore can be taxed in India.
- ✗ (b) A foreign investor paying tax at home on its profits is ordinary cross-border taxation; no Indian assets are being transferred through offshore shares.
- ✗ (a) This is simply outward investment by an Indian company taxed abroad; it has nothing to do with Indian assets changing hands through a foreign entity.
Remember · Indirect transfer = offshore sale of shares of a foreign company that derive substantial value from Indian assets. The 2012 retrospective tax on such pre-28 May 2012 deals was withdrawn in 2021.
Sources
- Union Budget 2012-13 — Memorandum explaining the provisions in the Finance Bill, 2012 ↗ “registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India”
- PIB (Ministry of Finance), 28 August 2021 — Framing of rules for the amendments made by the Taxation Laws (Amendment) Act, 2021 ↗ “no tax demand shall be raised in future on the basis of the amendment to section 9 of the Income-tax Act made vide Finance Act, 2012 for any offshore indirect transfer of Indian assets”
Question and answer: UPSC's official GS Paper I (2022, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·