"In this context... 'Special Provisions relating to Conversion of Indian Branch of a Foreign Bank into a Subsidiary Company' in Income Tax Act, 1961, inter alia, exempting capital gains arising from such conversion from capital gains tax, with effect from April 1, 2013," RBI said in a release.
Foreign banks have been hesitant of local incorporation fearing tax and stamp duty liabilities. The central bank has been encouraging foreign lenders in India to operate through wholly owned units rather than branches so that the domestic banking system is insulated from any turmoil in overseas financial markets.
Foreign bank desirous of converting their branches into wholly owned subsidiaries may take into account the above developments, the RBI said. There were 43 foreign banks in India with a network of 333 branches as of March 2013. At present, foreign banks have presence in India only through branches.
Dion Global Solutions Ltd.