DRs with voting rights to be taxed like equity

Depository Receipts are likely to be treated as equity for the purpose of taxation if such securities entail voting rights.

These changes, according to officials, are to be announced in the Budget as part of the exercise to encourage domestic companies to raise funds from overseas markets.

"The recommendations of the Sahoo committee has been accepted in total and tax related amendments would be made in Budget in the I-T Act," a Finance Ministry official told PTI.

The tax treatment of DRs should be similar to that of underlying securities, the official added.

Another official said that the conversion of a DR into the underlying securities and vice versa would not be taxable events.

"The trading of DRs outside India should not attract any tax in India," the official added.

Depository Receipts are used by companies to raise capital from overseas investors.

The Sahoo Committee was set up in September last year to review of rules governing foreign currency convertible bonds (FCCBs) and DRs.

The Committee has recommended that the DRs should be counted as "public shareholding if they have attached voting rights for the holders".

It has also suggested that companies (listed or unlisted) should be allowed to issue DRs against any underlying securities, which may be equity or debt.

It further said that DRs can be issued for raising funds by issuing new shares or against the existing equity.

The Committee was set up under ICSI Secretary and former Sebi member M S Sahoo to review the decade-old Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993.

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