The Gujarat International Finance Tec-City, commonly known as GIFT City, represents India’s ambitious stride toward establishing itself as a global financial hub. Located in Gandhinagar, Gujarat, GIFT City houses India’s first International Financial Services Centre and operates under a specialized regulatory framework designed to attract multinational corporations and facilitate international financial transactions. At the heart of this ecosystem lies the Global and Regional Corporate Treasury Centre framework, which enables corporations to centralize their treasury operations in a tax-efficient, well-regulated environment. The GRCTC framework has emerged as a strategic tool for multinational corporations seeking to optimize their global treasury functions while benefiting from India’s cost advantages and strategic geographic location.

Understanding the Legal Framework Governing GIFT City

The legal architecture supporting GIFT City’s operations rests on multiple legislative pillars that create a unique regulatory environment. The International Financial Services Centres Authority Act, 2019 [1] established the International Financial Services Centres Authority as the unified regulator for all financial services in International Financial Services Centres across India. This legislation consolidated regulatory powers that were previously distributed among various domestic regulators including the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India, and Pension Fund Regulatory and Development Authority.

The IFSCA Act grants the Authority comprehensive powers under Section 12 and Section 13 to develop and regulate financial products, financial services, and financial institutions within IFSCs. These provisions empower IFSCA to create tailored regulatory frameworks that align with international best practices while maintaining appropriate oversight. The establishment of IFSCA as a unified regulator addresses the fundamental challenge of coordinating multiple regulatory authorities, thereby creating a streamlined approval process through a single-window mechanism.

The Special Economic Zones Act, 2005 provides another critical legislative foundation for GIFT City’s operations. Section 18(1) of the SEZ Act specifically empowers the Central Government to establish International Financial Services Centres within designated Special Economic Zones [2]. This provision creates a legal sandbox where both foreign and domestic financial entities can operate under internationally competitive regulatory norms while enjoying certain relaxations compared to the mainstream domestic market. The SEZ framework provides GIFT City with its special status, enabling it to offer duty exemptions, tax holidays, and simplified compliance procedures that make it attractive for global financial operations.

The GRCTC Framework: Regulatory Evolution and Current Structure

The journey toward establishing a robust framework for Global and Regional Corporate Treasury Centres in GIFT City began with the International Financial Services Centres Authority (Finance Company) Regulations, 2021. These regulations, notified on March 25, 2021, established the foundational structure enabling Finance Companies and Finance Units to undertake various permissible activities within IFSCs, including the operation of GRCTCs. The regulations were enacted under the authority vested in IFSCA through Section 28(1) read with Section 12(1) and Section 13(1) of the IFSCA Act, 2019.

Following extensive stakeholder consultation, IFSCA issued the original Framework for undertaking Global/Regional Corporate Treasury Centres Activities by Finance Company/Finance Unit in IFSC on June 25, 2021 [3]. This initial framework outlined the basic requirements for setting up treasury centers and the permissible activities they could undertake. However, as market participants gained experience with the framework and global best practices evolved, the need for revision became apparent.

In September 2024, IFSCA released a consultation paper seeking public feedback on proposed revisions to the GRCTC framework [4]. This consultative approach reflected the Authority’s commitment to creating regulations that genuinely serve market needs while maintaining appropriate oversight. The consultation period extended until October 2, 2024, during which stakeholders provided valuable insights on operational challenges and areas requiring clarification.

The culmination of this consultative process was the issuance of the revised Framework for Finance Company/Finance Unit undertaking the activity of Global/Regional Corporate Treasury Centres on April 4, 2025, through Circular F. No. IFSCA/24/2024-Banking-FC/01 [5]. This updated framework superseded the 2021 circular and introduced significant enhancements aimed at promoting ease of doing business and aligning with international best practices. The revised framework became effective immediately upon issuance, though existing GRCTCs were granted a six-month transition period to comply with additional requirements.

Registration Requirements and Eligibility Criteria Under the GRCTC Framework

The revised GRCTC framework establishes clear eligibility conditions that applicants must satisfy before obtaining registration as a Finance Company or Finance Unit authorized to undertake treasury center activities. These requirements are designed to ensure that only credible entities with adequate resources and governance structures operate within the IFSC ecosystem.

An entity seeking to establish a GRCTC must apply for registration under sub-regulation (4) of regulation 3 of the FC Regulations through the Single Window IT System at https://swit.ifsca.gov.in/. The application process requires the entity to demonstrate possession of or commitment to establish necessary infrastructure in IFSC, including adequate office space, equipment, and communication facilities suitable for undertaking permissible activities.

One of the most significant additions in the revised framework is the mandatory substance requirement. Applicants must undertake to employ at least five qualified personnel based in IFSC to undertake permissible activities, including the Head of Treasury and the Compliance Officer, before commencing operations [5]. This requirement represents a departure from the erstwhile framework, which had no specific mention of minimum personnel requirements for GRCTCs beyond those applicable to finance companies generally. This change ensures that GRCTCs maintain genuine operational presence in GIFT City rather than serving as mere shell entities.

The framework mandates minimum owned fund requirements of USD 0.2 million, which must be maintained at all times. For Finance Units operating as branches, this requirement may be satisfied by maintaining the requisite owned fund at the parent level. The concept of “Owned Fund” is precisely defined as paid-up capital and free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of assets, excluding reserves created by revaluation of assets, as reduced by accumulated loss balance, book value of intangible assets and deferred revenue expenditure.

Jurisdictional requirements ensure that the parent entity of the applicant must not be from a jurisdiction identified in the public statement of Financial Action Task Force as “High Risk Jurisdiction – subject to call for action.” This provision safeguards the integrity of the IFSC ecosystem by preventing entities from high-risk jurisdictions from establishing operations in GIFT City.

Permissible Activities and Operational Flexibility

The GRCTC framework delineates a wide array of permissible activities that registered entities may undertake, providing significant operational flexibility while maintaining regulatory oversight. These activities encompass the full spectrum of treasury functions that multinational corporations require for effective financial management across jurisdictions.

Capital raising activities are permitted through issuance of equity shares, enabling GRCTCs to maintain appropriate capitalization levels. Borrowing activities, including inter-company deposits, allow GRCTCs to access funding from group entities on terms determined either independently or in consultation with service recipients. Credit arrangements encompass lending activities by whatever name called, provision of credit guarantees, performance bonds, and any other credit facilities that service recipients may require.

The framework permits GRCTCs to transact or invest in financial instruments issued both within and outside IFSC. The term “financial instruments” carries the meaning assigned under Indian Accounting Standard 32, providing clarity on the scope of permissible investments. This broad definition enables GRCTCs to maintain diversified portfolios aligned with their treasury objectives.

Derivative transactions represent a crucial component of treasury operations, and the framework provides detailed guidelines for such activities. GRCTCs may undertake over-the-counter derivative transactions permitted in IFSC with counterparties within and outside IFSC. They may also undertake OTC derivative transactions not permitted in IFSC with counterparties outside IFSC, and exchange-traded derivative transactions on exchanges both within and outside IFSC [5]. All derivative transactions must be undertaken in compliance with a board-approved policy, ensuring appropriate governance and risk management.

Foreign exchange transactions constitute another core treasury function, with the framework permitting transactions in currencies specified by the Authority. The revised framework introduced significant flexibility by allowing operations in any of the Specified Foreign Currencies within IFSC, while permitting transactions outside IFSC in currencies other than Specified Foreign Currencies. Additionally, GRCTCs may now open Special Non-resident Rupee accounts under Schedule 4 of the Foreign Exchange Management (Deposit) Regulations, 2016, with an authorized dealer in India outside IFSC for business-related transactions.

Factoring and forfaiting activities are permitted, though entities must obtain separate registration under the IFSCA (Registration of Factors and Registration of Assignment of Receivables) Regulations, 2024. Importantly, GRCTCs undertaking factoring activities are exempt from paying separate registration and recurring fees for this activity, reducing the compliance burden.

The revised framework explicitly permits GRCTCs to act as re-invoicing centers, addressing a long-standing area of ambiguity. A GRCTC may now facilitate financing the purchase and sale of goods on behalf of service recipients under a Bill-to-Ship-to model, provided the GRCTC does not take physical possession of such goods and one of the parties to each re-invoicing transaction is a service recipient [5]. This clarification enables effective foreign exchange control and liquidity centralization for trading multinationals.

Liquidity management activities encompass pooling of funds, optimizing cash flows, interest payments, working capital and tax payments through netting and cash concentration, confirmation and reconciliation of receipts, processing payments to vendors or suppliers, negotiating payment terms, consolidating and managing payments across the group, managing liquidity and investing surplus funds, and developing pooling mechanisms. For pooling transactions, the header or master account must be maintained with an International Banking Unit or International Banking Centre.

Additional permissible activities include maintaining relationships with financial counterparties such as banks, credit rating agencies, and other financial institutions, managing obligations toward insurance and pension-related commitments, providing advisory services related to financial management and capital market activities, and acting as a holding company for group entities.

Service Recipients and Group Structure Flexibility

The revised GRCTC framework introduces enhanced flexibility regarding service recipients while maintaining appropriate safeguards. A Finance Company or Finance Unit undertaking GRCTC activities may provide services to its Group Entities, Group Entities of its Parent, and branches of such Parent or Group Entities. These Service Recipients may be either persons resident in India or persons resident outside India within the meaning of the Foreign Exchange Management Act, 1999.

The definition of “Group Entities” under the framework is deliberately broad, encompassing arrangements involving entities related through subsidiary-parent relationships as defined in Ind-AS 110 or Accounting Standard 21, joint ventures as defined in Ind-AS 28 or Accounting Standard 27, associates as defined in Ind-AS 28 or Accounting Standard 23, related parties as defined in Ind-AS 24 or Accounting Standard 18, common brand name, or investment in equity shares of twenty percent and above.

This expansive definition enables GRCTCs to serve complex multinational structures effectively. However, the framework imposes certain safeguards to ensure legitimacy. Service Recipients must be registered under applicable law with competent or statutory bodies in their home jurisdictions. GRCTCs must maintain an updated list of Service Recipients and provide such list to IFSCA when called for, ensuring regulatory visibility into the entities being serviced.

Where GRCTCs undertake permissible activities with Service Recipients who are persons resident in India, they must comply with provisions of the Foreign Exchange Management Act, 1999, as applicable. This requirement ensures that cross-border transactions involving Indian residents adhere to foreign exchange regulations, preventing circumvention of FEMA provisions through IFSC structures.

Governance and Compliance Requirements

The GRCTC framework establishes rigorous governance standards ensuring that treasury centers operate with appropriate oversight and risk management mechanisms. These requirements reflect the Authority’s commitment to maintaining high operational standards while avoiding unnecessary regulatory burden.

Every GRCTC must maintain a board-approved corporate governance policy that comprehensively and clearly documents its governance arrangements, including the framework under which its board and senior management function. This policy must address the specific governance challenges associated with treasury operations, which often involve complex financial instruments and cross-border transactions.

Risk management receives particular emphasis in the governance requirements. GRCTCs must maintain a board-approved risk management policy that includes procedures and systems to identify, measure, monitor, and manage the range of risks to which the GRCTC is exposed [5]. Given that treasury operations inherently involve various financial risks including interest rate risk, foreign exchange risk, credit risk, and liquidity risk, this requirement ensures that adequate risk mitigation frameworks are in place.

A board-approved policy for undertaking permissible activities must address the approval process including delegation of powers, financial limits for undertaking permissible activities, procedures for oversight and audit, and any other relevant control mechanisms based on the nature of activities undertaken. This policy ensures that permissible activities are conducted within appropriate parameters and subject to proper authorization.

All governance policies must be periodically reviewed by the board, ensuring they remain relevant as business conditions and regulatory expectations evolve. This requirement prevents governance frameworks from becoming outdated or disconnected from operational realities.

The framework addresses corporate actions that could fundamentally alter a GRCTC’s ownership or control structure. Any mergers, acquisitions, takeovers, or changes in management resulting in change of control of at least twenty percent of total share capital or authority to take business decisions under an agreement require prior approval from IFSCA [5]. For Finance Units, changes in the parent’s ownership structure must comply with registration conditions and be intimated to IFSCA within fifteen days.

GRCTCs must adhere to the IFSCA (Anti Money Laundering, Counter-Terrorist Financing and Know Your Customer) Guidelines, 2022, as amended, and related circulars. However, certain exemptions may apply based on the nature of activities and counterparties, as outlined in relevant IFSCA circulars.

Tax Framework and Incentives

The tax regime applicable to GIFT City entities constitutes one of the most compelling reasons for establishing operations in the IFSC. Section 80LA of the Income Tax Act, 1961, as amended by the Finance Act, 2023, provides the cornerstone of tax benefits available to IFSC units [6].

Under Section 80LA(1A), units of an International Financial Services Centre are eligible for a deduction of one hundred percent of total income for any ten consecutive assessment years, at the option of the assessee, out of fifteen years. The computation of these fifteen years commences from the assessment year relevant to the previous year in which registration under the International Financial Services Centres Authority Act, 2019, was obtained. This deduction applies to income arising from business for which the unit has been approved for setting up in the IFSC within a Special Economic Zone.

The benefit of Section 80LA is not limited to offshore banking units but extends to all eligible IFSC units, including GRCTCs. This provision effectively creates a decade-long tax holiday for qualifying income, significantly reducing the effective tax burden and enhancing returns on treasury operations. Following the ten-year period of complete exemption, units can benefit from reduced tax rates compared to standard corporate tax rates.

The Finance Act, 2023, introduced additional tax benefits specifically relevant to treasury and financial operations. Section 10(4F) exempts income of non-residents by way of royalty on account of lease of aircraft paid by IFSC units eligible for deduction under Section 80LA. Section 10(4G) exempts income received by non-residents from portfolios of securities or financial products managed by portfolio managers in accounts maintained with Offshore Banking Units in IFSCs, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India.

Section 10(4H) provides exemption for capital gains arising from transfer of equity shares of domestic companies engaged primarily in aircraft leasing business, where both the transferor and transferee are IFSC units [7]. These provisions complement the GRCTC framework by creating a favorable tax environment for various treasury activities.

Notification No. 67/2025 dated June 20, 2025, further enhanced the tax efficiency of IFSC operations by prescribing zero tax deduction at source on certain payments made to IFSC units eligible for deduction under Section 80LA [8]. This notification eliminates the cash flow burden associated with tax withholding and subsequent refund processes, effective from July 1, 2025.

Beyond income tax benefits, GIFT City entities enjoy exemption from Securities Transaction Tax, Commodity Transaction Tax, and stamp duty on transactions conducted on IFSC exchanges. The GST framework applicable to IFSC units treats them as operating in a non-taxable territory for certain transactions, creating additional cost advantages.

Regulatory Oversight and Fit and Proper Criteria

The GRCTC framework incorporates stringent fit and proper criteria ensuring that entities and individuals involved in treasury center operations meet high standards of integrity and competence. These criteria apply to Relevant Persons, defined as the applicant entity, its Key Managerial Personnel, and persons exercising control over it.

The fit and proper assessment encompasses multiple dimensions. Regulatory history is scrutinized, with applicants required to disclose whether any relevant person or entities associated with them have been refused registration, authorization, or license by IFSCA or any other regulatory authority, or had such registration suspended. Default history must be disclosed, including whether relevant persons or associated entities are in default or have defaulted in respect of credit facilities obtained from any entity or bank.

Disqualifications under corporate law are examined, with disclosure required if any relevant person has been disqualified from acting as promoter, director, or key managerial personnel under any law in any jurisdiction where the applicant or its group entities operate. Substantial interests in other companies must be disclosed to identify potential conflicts of interest or concentration of control.

Investigative and disciplinary matters receive careful attention. Applicants must disclose whether they or relevant persons are undergoing or involved in any investigation, disciplinary action, legal or regulatory violations, or criminal cases by law enforcement or regulatory agencies. Orders passed by bankruptcy or resolution authorities against companies or entities with which relevant persons are associated must be disclosed.

Criminal convictions for offences involving moral turpitude, economic offences, or offences against securities laws result in disqualification. Pending recovery proceedings initiated by financial regulatory authorities, winding-up orders for malfeasance, orders restraining or prohibiting dealing in financial products or services, and other regulatory orders within the past five years all factor into the fit and proper assessment.

Insolvency, unsound mind declarations, classification as willful defaulter, designation as fugitive economic offender, and financial unsoundness all constitute grounds for potential disqualification. Applicants must undertake to notify IFSCA immediately of any material change in information provided, including proceedings, charges, or investigations initiated against the applicant or relevant persons.

Fee Structure and Financial Implications

The GRCTC framework establishes a straightforward fee structure designed to cover regulatory costs while remaining competitive with other international financial centers. The fee structure comprises three components: an application fee, registration fee, and recurring fee.

The application fee stands at USD 1,000 and is non-refundable, payable at the time of submission of the registration application. This fee covers the administrative costs of processing applications and conducting preliminary assessments. The registration fee of USD 12,500 is a one-time charge payable upon grant of Certificate of Registration, covering the regulatory costs associated with bringing a new entity into the IFSC ecosystem [5].

The recurring fee is set at USD 25,000 per annum, payable for ongoing supervision and regulatory oversight. For existing Finance Companies or Finance Units already undertaking GRCTC activities, the revised fee structure became applicable from the beginning of financial year 2025-26, providing a clear transition timeline.

An important exemption applies to GRCTCs also engaging in factoring activities. Where a Finance Company or Finance Unit granted registration for GRCTC activities subsequently applies for registration under the IFSCA (Registration of Factors and Registration of Assignment of Receivables) Regulations, 2024, it is not required to pay separate registration and recurring fees for factoring activities. This exemption recognizes that factoring represents a permissible activity within the GRCTC framework and avoids duplicative fee obligations.

The fee structure must be viewed in context of the minimum owned fund requirement of USD 0.2 million and the potential tax benefits available under Section 80LA. For entities with significant treasury operations spanning multiple jurisdictions and involving substantial transaction volumes, these fees represent a modest regulatory cost relative to the operational efficiencies and tax savings achievable through the GIFT City platform.

Comparative Advantages and Global Positioning

GIFT City’s GRCTC framework positions India to compete with established treasury center hubs including Singapore, Hong Kong, Dubai, and European financial centers. Several factors contribute to GIFT City’s competitive positioning. Cost effectiveness stands out prominently, with operational and setup costs significantly lower than in traditional financial hubs while maintaining comparable regulatory standards and infrastructure quality.

The skilled workforce available in India, particularly in financial services and technology domains, provides GRCTC operations access to talent at competitive compensation levels. India’s geographic location offers timezone advantages, enabling operations to cover both Asian and European trading hours effectively. The strategic position provides access to rapidly growing Asian, Middle Eastern, and African markets.

Regulatory alignment with international standards, combined with a unified regulatory authority in IFSCA, creates a business-friendly environment with streamlined approvals and reduced compliance complexity. The tax incentives under Section 80LA and related provisions provide substantial cost advantages, particularly during the initial ten-year period of complete income tax exemption.

Infrastructure development in GIFT City has accelerated, with world-class office facilities, technology infrastructure, and supporting ecosystem participants including banks, insurance companies, fund managers, and market intermediaries establishing presence. The growing ecosystem creates network effects, as the presence of multiple financial institutions enhances the value proposition for new entrants.

However, GIFT City faces certain challenges in competing with established hubs. The ecosystem is still maturing, with liquidity and market depth in certain instruments not yet matching that of established centers. Perception challenges persist, as some international corporations remain more familiar and comfortable with traditional hubs. Regulatory interpretations continue to evolve as IFSCA gains experience, creating some degree of uncertainty compared to well-established regulatory frameworks in mature jurisdictions.

Recent Developments and Future Outlook

The GRCTC framework continues to evolve based on market feedback and emerging best practices. The June 9, 2025 amendment to the GRCTC Framework introduced under Circular No. F. No. IFSCA/24/2024-Banking-FC/02 added a new provision under Clause 3(2)(ii) allowing the Chairperson of IFSCA to grant temporary relaxation from specific conditions in the GRCTC Framework [9]. This provision enhances regulatory flexibility to address genuine hardship cases while maintaining overall framework integrity.

Industry stakeholders have advocated for further clarifications on certain aspects of the framework. Commodity hedging guidelines, particularly for exchange-traded contracts, remain an area where comprehensive guidance would be beneficial. Transfer pricing provisions applicable to inter-unit transactions between GIFT City units and their parents or group entities require further clarification, particularly regarding the applicability of Section 92BA of the Income Tax Act to specified domestic transactions.

The regulatory convergence challenge persists, as GRCTC operations intersect with multiple regulatory domains including RBI regulations governing foreign exchange transactions, SEBI regulations applicable to capital markets activities, corporate law under the Companies Act, 2013, and tax regulations under the Income Tax Act. Ensuring seamless coordination among these regulatory frameworks remains an ongoing priority.

Looking forward, GIFT City’s GRCTC framework holds significant promise for establishing India as a preferred destination for global treasury operations. The government’s commitment to developing the IFSC ecosystem, combined with IFSCA’s responsive regulatory approach, creates a favorable environment for growth. The increasing number of multinational corporations evaluating GIFT City for treasury operations suggests growing market acceptance.

Conclusion

The Global and Regional Corporate Treasury Centre (GRCTC) framework represents a critical component of India’s strategy to position GIFT City as a competitive international financial services center. Through careful regulatory design, attractive tax incentives, and operational flexibility, the framework provides multinational corporations with a compelling value proposition for centralizing treasury functions in India.

The legal foundations established through the IFSCA Act, 2019, the SEZ Act, 2005, and supporting regulations create a robust framework balancing regulatory oversight with ease of doing business. The revised GRCTC framework effective from April 4, 2025, incorporates lessons learned from initial implementation and stakeholder feedback, introducing enhancements around substance requirements, operational flexibility, and regulatory clarity.

Tax benefits under Section 80LA of the Income Tax Act, 1961, provide substantial financial incentives, effectively creating a decade-long tax holiday for qualifying income. Combined with exemptions from securities transaction tax, commodity transaction tax, and beneficial GST treatment, the tax framework significantly enhances the economics of operating treasury centers from GIFT City.

Governance and compliance requirements ensure that GRCTCs maintain high operational standards, with board-approved policies for corporate governance, risk management, and permissible activities. Fit and proper criteria applicable to entities and individuals ensure integrity within the ecosystem.

As GIFT City’s ecosystem continues to mature, with growing participation from global financial institutions, fund managers, and market intermediaries, the network effects will strengthen the value proposition. While challenges remain in competing with established treasury center hubs, the combination of cost advantages, regulatory support, tax incentives, and access to skilled talent positions GIFT City favorably for future growth.

The GRCTC framework demonstrates how thoughtful regulatory design, informed by international best practices and responsive to market needs, can create competitive advantages for emerging financial centers. As India continues its economic ascent and integration with global financial markets, GIFT City’s role as a hub for centralized treasury functions is poised to expand, contributing to the broader objective of establishing India as a significant player in international finance.

References

[1] International Financial Services Centres Authority Act, 2019 (Act No. 50 of 2019). Available at: https://ifsca.gov.in/Legal/Index/sKCVtbX6J9o= 

[2] ATB Legal. (2025). GIFT City and IFSC in India: A Detailed Legal Perspective. Available at: https://atblegal.com/blog/business-legal-structures-in-india/ifsc-in-india/ 

[3] IFSCA Circular dated June 25, 2021. Framework for undertaking Global/Regional Corporate Treasury Centres Activities by Finance Company/Finance Unit in IFSC. Available at: https://ifsca.gov.in/Document/Legal/circular_global-regional-corporate-treasury-centre_june-25-202125062021034458.pdf 

[4] IFSCA Consultation Paper dated September 12, 2024. Draft Public Consultation on GRCTC Framework Revision. Available at: https://www.ifsca.gov.in/Document/ReportandPublication/draft-public-consultation-on-grctc-framework-revision-12-09-202412092024065814.pdf 

[5] IFSCA Circular F. No. IFSCA/24/2024-Banking-FC/01 dated April 4, 2025. Framework for Finance Company/Finance Unit undertaking the activity of Global/Regional Corporate Treasury Centres. Available at: https://ifsca.gov.in/Document/Legal/01-framework-for-grctc_updated04042025061059.pdf 

[6] Section 80LA, Income Tax Act, 1961. IndiaFilings. (2025). Section 80LA Deduction – Income Tax Act. Available at: https://www.indiafilings.com/learn/section-80la-deduction/ 

[7] Finance Act, 2023. Explanatory Notes to the Provisions of the Finance Act, 2023. Available at: https://www.voiceofca.in/siteadmin/document/CBDTreleasesexplanatorynotespertainingtoprovisionsoftheFinanceAct2023.pdf 

[8] GIFT CFO. (2025). TDS Exemption for GIFT City Units from July 1, 2025. Available at: https://www.giftcfo.com/post/tds-exemption-for-gift-city-units-from-july-1-2025-big-boost-for-ifsc-businesses 

[9] Sarthak Law. (2025). GIFT City – Amendment to the ‘Framework for Finance Company/Finance Unit undertaking the activity of Global/Regional Corporate Treasury Centres’. Available at: https://sarthaklaw.com/gift-city-amendment-to-the-framework-for-finance-company-finance-unit-undertaking-the-activity-of-global-regional-corporate-treasury-centres/ 

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1. INTRODUCTION: WHAT ARE FCCBs & WHY REDEMPTION PREMIUM MATTERS

The Corporate Reality

Scenario:

A renewable energy company (wind turbine manufacturer) needs ₹500 crores to build manufacturing capacity. Traditional Indian bank financing is expensive (10-12% interest rates). The company decides to tap international capital markets.

The FCCB Solution:

• Issues Foreign Currency Convertible Bonds (FCCBs) worth USD 60 million (≈₹500 crores)
• Investors are foreign funds looking for equity upside with debt safety
• Bond matures in 5 years; investors can either:
  • Redeem for cash (get USD 60 million back), OR
  • Convert to company’s equity shares

The Redemption Premium Problem:

• Company issues FCCB at 99% (USD 59.4 million received)
• Redemption value: 105% (USD 63 million to be paid back)
• Redemption premium = USD 3.6 million (≈₹30 crores)

The Tax Question: Is this ₹30 crore premium what the company effectively incurs as part of the overall FCCB structure, including the eventual FCCB redemption premium deductible as a business expense?

Why It Matters: For companies issuing multiple large FCCBs, this can be ₹100+ crores in total, representing material tax liability differences.

Why This Became a Controversy

Revenue’s Traditional Argument:

• “FCCB redemption premium is a capital expense”
• “It relates to the capital structure, not business operations”
• “Not deductible under Section 37(1)”
• “Should be capitalized or written off against reserves”

Company’s Argument:

• “Premium is a cost of borrowing (similar to interest)”
• “It’s a business expense incurred in ordinary course”
• “Section 37(1) allows deduction of business expenses”
• “Deductible in the year of payment or accrual”

2. UNDERSTANDING FCCBs: BASIC MECHANICS

What is an FCCB?

FCCB = Foreign Currency Convertible Bond

Key Characteristics:

Why Companies Issue FCCBs

Advantages:

1. Lower cost: Interest rate lower than straight debt (equity upside compensates investors)
2. International access: Tap global capital markets
3. Leverage: Borrow large amounts without affecting credit ratings adversely
4. Flexibility: If stock price rises, conversion happens; if not, redemption at par

Disadvantages:

1. Redemption premium: Additional cash outflow at redemption
2. Equity dilution: Conversion dilutes existing shareholding
3. Currency risk: FX fluctuations affect effective rupee cost
4. Compliance burden: Regulatory filings, disclosure requirements

Example: Typical FCCB Structure

FCCB Issuance Details (Renewable Energy Company)

─────────────────────────────────────────────────

Principal amount:           USD 100 million

Issue price:                99% of principal = USD 99 million

Interest rate:              2% p.a.

Maturity:                   5 years

Redemption price:           105% of principal = USD 105 million

Conversion ratio:           1 bond to 50 shares

Conversion price:           INR 200/share

Timeline:

Year 0: Issue FCCB, receive USD 99 million (₹825 crores at ₹8.33/USD)

Years 1-4: Pay 2% interest (USD 2 million = ₹16.7 crores annually)

Year 5: Redeem at USD 105 million (₹876 crores at assumed ₹8.33/USD)

        OR Allow conversion to equity (50 million shares at ₹200 = ₹1000 crores value)

3. REDEMPTION PREMIUM: DEFINITION & ACCOUNTING TREATMENT

What Exactly is Redemption Premium?

Definition:

“Redemption premium is the excess amount paid at redemption over the principal amount (or issue price) of the bond. It represents compensation to the bondholder for not exercising the conversion right.”

Formula:

Redemption Premium = Redemption Price – Principal Amount

                   = 105% – 100% = 5% of principal

Or: Redemption Premium = Redemption Price – Issue Price

                       = 105% – 99% = 6% of issue price

In Rupees (from example):

Principal:              ₹833.3 crores (USD 100M × 8.33)

Redemption amount:      ₹875 crores (USD 105M × 8.33)

─────────────────────────────────────────────

Redemption premium:     ₹41.7 crores

Accounting Treatment (Per Ind AS)

Ind AS 109 (Financial Instruments) & Ind AS 32 (Financial Liabilities):

Treatment:

At issuance:

Debit: Bank Account (USD 99 million received)       ₹825 crores

Debit: FCCB Liability – Discount                    ₹8.3 crores

   Credit: FCCB Liability                                        ₹833.3 crores

Each year (accretion of discount):

Debit: Finance Cost (Interest expense)              ₹X crores

   Credit: FCCB Liability                                        ₹X crores

[The discount is accreted ratably over 5 years]

At redemption:

Debit: FCCB Liability                               ₹875 crores

Debit: Finance Cost (final accretion)               ₹Y crores

   Credit: Bank Account (USD 105 million paid)                   ₹875 crores

Key Point: The redemption premium (the additional ₹41.7 crores) is:

• NOT debited directly to P&L
• Accrued/accreted as finance cost over the bond tenure
• By redemption date, fully reflected in FCCB Liability

Where Redemption Premium Appears in Books

Option 1: In Profit & Loss Account

• Premium accreted gradually as “Finance Cost” (Interest Expense)
• Shows as “Interest on FCCBs” or similar description
• Reduces profit annually

Option 2: In Balance Sheet (Securities Premium Account)

• Debited to Securities Premium Account at redemption
• Done under Companies Act, 2013, Section 52(2)(b)
• Preserves equity (doesn’t hit P&L)

Option 3: Split between P&L and Reserves

• Some companies accrete premium as Finance Cost (P&L impact)
• Remainder debited to Securities Premium Account

4. THE STATUTORY QUESTION: SECTION 37 DEDUCTIBILITY ANALYSIS

Section 37(1): The Core Provision

Full Text:

“In computing the income of an assessee from any source, there shall be allowed as a deduction all expenditure (other than capital expenditure) laid out or expended wholly and exclusively for the purposes of that source of income.”

Key Elements:

1. “Expenditure” – Any form of expense (cash, accrual, etc.)
2. “Other than capital expenditure” – Excludes capital investments
3. “Wholly and exclusively for the purposes of that source” – Must relate to business
4. “Sources of income” – Business, profession, salary, etc.

The Three-Part Test for Section 37 Deductibility

Courts apply this test to FCCB redemption premium:

Part 1: Is it “Expenditure”?

Question: Did the company spend money or incur a liability?

For FCCB Premium:
YES. Company commits to redeem at 105% (₹875 crores) instead of par (₹833.3 crores). This creates a real obligation (₹41.7 crores extra cost).

Part 2: Is it “Capital Expenditure”?

Definition (Supreme Court in Dhakeswari Cotton Mills v. CIT):

“Capital expenditure is expenditure incurred in acquiring or bringing into existence an asset of enduring benefit to the business, or in improving an existing asset. Revenue expenditure is incurred in carrying on the business or for earning income.”

Application to FCCB Premium:

Department’s Argument (Capital):

• “Premium relates to capital structure (long-term funding)”
• “It’s linked to acquiring capital (the bond principal)”
• “Creates enduring benefit (use of funds for 5 years)”

Company’s Argument (Revenue):

• “Premium is a cost of borrowing (similar to interest)”
• “Interest is revenue (deductible); premium should be too”
• “Both are financing costs, not capital investments”

Judicial Consensus (Strides Arcolab & others):
REVENUE, not capital. Premium is financing cost, akin to interest.

Part 3: Is it “Wholly and Exclusively for Purposes of Business”?

Question: Did the company incur the premium to earn business income?

For FCCB Premium:
YES. Company raised funds via FCCB specifically for:

• Manufacturing facility construction
• Working capital
• Business expansion

Without redeeming the FCCB (and paying premium), the funds wouldn’t have been available.

Why FCCB Premium is Revenue, Not Capital

Supreme Court Principle (Scindia Steam Navigation Co. Ltd. v. CIT):

“The substance and purpose of an expenditure determines its character, not its form or nomenclature. If an expenditure is incurred to maintain the company’s operational capacity and generate income, it’s revenue. If incurred to acquire or improve an asset of enduring benefit, it’s capital.”

Application:

• FCCB redemption premium is NOT acquiring an asset
• It’s NOT improving an asset
• It’s closing a borrowing transaction and returning principal + premium
• Therefore: Revenue expense

5. STRIDES ARCOLAB HIGH COURT RULING ON FCCB REDEMPTION PREMIUM

Case Citation & Details

Case: Strides Arcolab Ltd. vs. DCIT, Bengaluru

Court: Karnataka High Court (Income Tax)

Citation: (2015) 237 Taxman 391; 231 CTR (Karnataka) 325

Date: June 10, 2015

Bench: Single Judge (Justice)

Facts

Company: Strides Arcolab Ltd. (pharmaceutical company)

FCCB Details:

• Principal: USD 75 million
• Maturity: 5 years
• Redemption Price: 103% of principal

Tax Dispute:

• AY 2008-09: FCCB redeemed
• Redemption Premium: USD 2.25 million (≈₹11 crores)
• AO’s Position: Capital expenditure; not deductible
• Company’s Position: Revenue expenditure; deductible under Section 37

High Court’s Holding

Question Posed:

“Whether redemption premium paid on Foreign Currency Convertible Bonds is a revenue expenditure or capital expenditure?”

Answer (In Favor of Assessee):

“FCCB redemption premium is REVENUE EXPENDITURE and deductible under Section 37(1). The premium represents an additional cost of borrowing (financing cost) and should be treated on par with interest expenses.”

Key Reasoning

Reason 1: Nature of FCCB as Borrowing

“An FCCB is a borrowing instrument. The company receives funds at 99% and must return 103-105%. The entire transaction is a financing arrangement, not an acquisition of capital assets.”

Reason 2: Premium as Compensation, Not Capital Investment

“The redemption premium is paid to compensate the bondholder for not exercising conversion rights. It’s not paid to acquire or improve any asset. It’s a cost of returning borrowed funds.”

Reason 3: Parity with Interest

“Interest on bonds is clearly revenue expense (deductible). Redemption premium, being part of the overall cost of borrowing, should receive similar treatment. Both compensate the lender for providing funds.”

Reason 4: Statutory Purpose of Section 37

“Section 37 intends to allow deduction of all business expenses except capital expenditure. Financing costs (interest, fees, premium) are clearly business expenses. Unless explicitly capital in nature, they should be deductible.”

The High Court’s Critical Quote

“The premium paid on redemption of FCCB is a charge that becomes a component of the cost of borrowing. It is in the nature of interest and other borrowing costs. Once the borrowing is repaid, the premium paid as part of that repayment cannot be termed as capital expenditure. It is revenue in nature.”

[This quote is widely cited in subsequent cases and tax department circulars.]

6. LEGAL FRAMEWORK: SECTION 37(1) REQUIREMENTS (DETAILED)

Requirement 1: “Wholly” – Complete Nexus to Business

Meaning: The entire expenditure must relate to business; no personal component.

Application to FCCB Premium:

• Premium paid entirely for business financing
• No personal element
• Fully deductible (no apportionment needed)

Requirement 2: “Exclusively” – Sole Purpose is Business Income

Meaning: Primary purpose must be to earn business income; not incidental.

Application to FCCB Premium:

• Primary purpose: Raise capital for manufacturing
• Premium is cost of that financing
• Fully deductible

Requirement 3: “Laid Out or Expended”

Meaning: Money must be spent or obligation incurred.

Application to FCCB Premium:

• Cash paid at redemption: ₹875 crores (vs. ₹833.3 crores principal)
• Or: Accrued as liability: ₹41.7 crores over bond tenure
• Either way, “laid out or expended”

Key Point: Court permits deduction even if:

• Premium is accrued (not paid in that FY) – Per accrual accounting
• Premium is paid later (at redemption) – Per cash payment
• Premium is debited to P&L – Per accounting entry

Requirement 4: Not “Capital Expenditure”

This is the contested part. Per Strides Arcolab:

Capital Expenditure Traits:

• Acquires an asset
• Creates enduring value
• Increases company’s productive capacity

FCCB Premium Traits:

• Closes a borrowing (reduces liability)
• Returns money to lender
• No asset acquired
• Therefore: NOT capital

7. REVENUE EXPENSE VS. CAPITAL EXPENSE: THE DISTINCTION

Definitive Test (Supreme Court in CIT v. Rajendra Prasad (Firm))

Test:

“If the expenditure is such that it results in the acquisition of an asset for the business which will be of enduring benefit, it is capital. If the expenditure is incurred for the maintenance or the running of the business or in conducting the operations of the business with a view to earning profits, it is revenue.”

Application Grid

The Distinction Applied to FCCB Premium

text

CAPITAL EXPENDITURE SCENARIO        vs.        REVENUE EXPENDITURE SCENARIO

─────────────────────────────────────────────────────────────────────────

Company buys ₹100 crore factory    vs.    Company borrows ₹100 crores via FCCB

                                          and pays ₹5 crore redemption premium

Result: Acquires capital asset            Result: Pays financing cost

Deductibility: NO (capitalized)          Deductibility: YES (Strides Arcolab)

Write-off: Via depreciation              Write-off: Immediate or accrued over bond tenure

8. ACCOUNTING STANDARDS: IND AS VS. IT ACT TREATMENT

Ind AS 109 (Financial Instruments) Treatment

Ind AS 109 requires:

1. Measurement at amortized cost:
   • FCCB is measured at effective interest rate
   • Premium accreted gradually as financing cost
2. Accounting Entry (Over 5-year tenor):

text

Year 1-5 (Each year):

Debit: Finance Cost (P&L)              ₹X crores (including accreted premium)

Credit: FCCB Liability (Balance Sheet) ₹X crores

1. At Redemption:
   • FCCB Liability reaches ₹875 crores (par + accreted premium)
   • Paid in full; transaction closed

IT Act Treatment (Per Section 37)

Section 37 allows:

• Deduction of FCCB premium (per Strides Arcolab)
• Premium can be deducted:
  • Option A: In the year of accrual (if accrued in P&L)
  • Option B: In the year of payment (if paid in that FY)
  • Option C: Over the bond tenure (if amortized per Ind AS)

Key Point: IT Act follows the P&L entry. If Ind AS requires accrual, IT Act allows deduction of accrued amount.

The Alignment

Ind AS and IT Act are well-aligned for FCCB premium:

• Both treat premium as financing cost
• Both allow for accrual/amortization
• Both recognize the cost as non-capital

Practical Outcome:

• Company accrues premium as Finance Cost in P&L (per Ind AS 109)
• Tax deduction claimed for same accrued amount (per IT Act Section 37)
• No timing differences usually result

9. SECURITIES PREMIUM ACCOUNT: THE ALTERNATIVE ROUTE

When Redemption Premium is Debited to Securities Premium Account

Some companies use this route:

text

At Redemption:

Debit: FCCB Liability                     ₹875 crores

Debit: Securities Premium Account         ₹41.7 crores [Premium portion]

   Credit: Bank Account                                   ₹875 crores + ₹41.7 crores

Legal Basis: Companies Act, 2013, Section 52(2)(b)

“The securities premium account may be used for premium payable on redemption of preference shares or debentures.”

Implication: If premium is debited to Securities Premium Account (not P&L), it’s NOT an expense; it’s a capital reserve adjustment.

Tax Treatment When Debited to Securities Premium Account

Question: If premium is not in P&L, can it be deducted under Section 37?

Answer: NO (generally).

• Section 37 deduction applies to “expenditure” (P&L impact)
• If premium is not in P&L, it’s not an expense; it’s a reserve adjustment
• No tax deduction under Section 37

Exception: Per Rule 8D calculation (if applicable), and Section 115JB treatment.

Strategic Implication

Companies have choice:

Option A: Debit P&L (Ind AS per Amortized Cost)

• Premium shows as Finance Cost annually
• Tax deduction available (per Strides Arcolab)
• Higher profit reduction; lower tax

Option B: Debit Securities Premium Account

• Premium preserved in reserves; not debited to P&L
• No tax deduction (premium not an expense)
• Higher profit; higher tax

Most companies choose Option A (tax-favorable).

10. MAT IMPLICATIONS (SECTION 115JB)

How FCCB Premium Affects Book Profit (MAT)

Scenario:

Company’s P&L includes:

• FCCB Finance Cost (premium accrued): ₹10 crores

For book profit (Section 115JB):

Net Profit per P&L (including finance cost)    ₹100 crores

Explanation 1(a): Add back Income Tax paid     ₹20 crores

Explanation 1(g): Add back Depreciation        ₹10 crores

Explanation 1(iia): Deduct IT Act Depreciation (₹15 crores)

…

Book Profit (before any FCCB adjustment)       ₹115 crores

No separate adjustment for FCCB premium because:

– Finance cost is already in P&L

– Explanation 1 doesn’t carve out FCCB premium

– Already captured in book profit calculation

Key Point: No Double Adjustment

Important:

• Premium is deducted under Section 37 (normal tax computation)
• Same premium is already in P&L (affecting book profit for MAT)
• No separate add-back under Section 115JB

Why no add-back?

• Add-backs are for items debited to P&L but not deductible (per Explanation 1)
• FCCB premium IS deductible (per Strides Arcolab)
• Therefore, no add-back needed

11. PRACTICAL SCENARIOS & COMPUTATIONAL EXAMPLES

Scenario 1: Renewable Energy Company (Large FCCB)

Facts:

FCCB Issuance: USD 100 million

Issue Price: 99% = USD 99 million = ₹825 crores (at ₹8.33/USD)

Maturity: 5 years (AY 2020-21 to 2024-25)

Redemption: 105% = USD 105 million = ₹875 crores

Redemption Premium: USD 6 million = ₹50 crores

Accounting Treatment (Per Ind AS 109):

Year 1 (AY 2020-21):

Debit: Bank Account                       ₹825 crores (USD 99M received)

Debit: FCCB Liability – Discount          ₹50 crores

   Credit: FCCB Liability (Principal)                   ₹875 crores

Interest Expense (Year 1): 2% of principal = ₹17.5 crores

Plus: Accretion of discount (premium amortized over 5 yrs) = ₹10 crores

Total Finance Cost (Year 1) = ₹27.5 crores

Each year (Years 2-5): Similar calculation

Tax Treatment (Per Section 37):

Normal Tax Computation (AY 2020-21):

Business Income: ₹500 crores

Less: Operating Expenses: (₹300 crores)

Less: FCCB Finance Cost (interest + accreted premium): (₹27.5 crores)

Less: Depreciation: (₹50 crores)

────────────────────────────────────

Total Income: ₹122.5 crores

Less: Deductions (80C, etc.): (₹20 crores)

────────────────────────────────────

TAXABLE INCOME: ₹102.5 crores

Tax @ 30%: ₹30.75 crores

Key Point: FCCB Finance Cost (including premium) fully deducted.

At Redemption (AY 2024-25):

Final FCCB Liability: ₹875 crores (fully accreted)

Cash Paid at Redemption: ₹875 crores

Result: No additional gain/loss; transaction closes

All financing costs (interest + premium) already deducted over 5 years.

Scenario 2: Software Company (Smaller FCCB, Debited to Securities Premium Account)

Facts:

FCCB Principal: USD 30 million = ₹250 crores

Redemption: 104% = ₹260 crores

Premium: ₹10 crores

Accounting (Debited to Securities Premium Account):

At Redemption (Year 5):

Debit: FCCB Liability: ₹250 crores

Debit: Securities Premium A/c: ₹10 crores

   Credit: Bank Account                   ₹260 crores

P&L Impact: NONE (premium not in P&L; in reserves)

Tax Treatment:

Normal Tax (Year 5):

Only interest expenses deductible (not premium)

Premium: NOT deductible (not in P&L; not an expense)

Taxable Income higher by: ₹10 crores (vs. if premium was in P&L)

Additional Tax @ 30%: ₹3 crores

Strategic Disadvantage: This route costs ₹3 crores in tax.

Scenario 3: Pharma Company (Premium Accrued Per Strides Arcolab)

Facts:

text

Company file tax case, using Strides Arcolab precedent

FCCB Premium (5-year tenor): ₹40 crores total

Annual Accrual (over 5 years): ₹8 crores/year

Tax Claim (Per Strides Arcolab):

text

Each Year (Years 1-5):

FCCB Finance Cost in P&L: ₹8 crores (annual accrual of premium)

Tax Deduction Claimed: ₹8 crores

Total 5-Year Deduction: ₹40 crores

Tax Saved @ 30%: ₹12 crores

If AO Challenges:

text

AO Claims: “Premium is capital; not deductible”

Company Response: “Strides Arcolab (2015) HC judgment; deductible as revenue”

Likely Outcome: Company wins (Strides Arcolab is binding HC precedent)

12. COMPLIANCE & DOCUMENTATION REQUIREMENTS

Rule 10D Transfer Pricing Documentation

If the FCCB is with related party (less common; usually with third-party investors):

Rule 10D requires:

• Functional analysis (functions, assets, risks)
• Transfer pricing study
• Comparable company analysis

For FCCB Premium:

• Document that premium is market-linked (standard for convertible bonds)
• Show comparable FCCB structures in industry
• Explain why 3-5% premium is arm’s length

Transfer Pricing Rule 10E (Form 3CEB)

If applicable, Form 3CEB (Accountant’s Certificate) should mention:

“Transfer pricing of FCCB (if between related parties) has been benchmarked to comparable convertible bonds in the market. The redemption premium of X% is in line with industry practice.”

Tax Audit Documentation (Section 44AB)

Form 10B (Tax Audit Report) should disclose:

1. FCCB Details:
   • Principal amount
   • Issue price & redemption price
   • Premium amount
2. Accounting Treatment:
   • Method used (amortized cost per Ind AS 109)
   • Annual accrual
3. Tax Position:
   • Deduction claimed under Section 37
   • Reference to Strides Arcolab judgment (if applicable)

Template Entry:

text

“FCCB redemption premium of ₹X crores has been deducted as 

revenue expenditure under Section 37(1) based on the ratio 

decidendi in Strides Arcolab Ltd. vs. DCIT (2015). Premium 

is treated as financing cost, similar to interest expense.”

Board Approval & Minutes

Companies should maintain:

1. Board Minutes approving FCCB issuance, including:
   • Rationale for FCCB (cheaper funding vs. bank loans)
   • Expected premium amount
   • Tax treatment planned
2. Finance Committee Meeting Notes, showing:
   • Accounting treatment decided (Ind AS 109)
   • Tax position documented (Strides Arcolab reference)
3. Email trails with external auditors, confirming:
   • Ind AS treatment agreed
   • Premium accrual methodology
   • Tax deduction justified

13. CONCLUSION & KEY TAKEAWAYS

The Final Position (Post-Strides Arcolab)

Established Legal Position:
FCCB redemption premium is revenue expenditure
Deductible under Section 37(1)
Not a capital expenditure
Treated as financing cost (like interest)
Accrual or payment-based deduction available

Key Takeaways for Practitioners

For CFOs & Finance Teams:

1. Prefer Ind AS amortized cost method:
   • Spreads premium over bond tenure
   • Matches economic substance
   • Aligns accounting & tax
2. Document the choice:
   • Board approval
   • Finance committee minutes
   • External auditor concurrence
3. Avoid Securities Premium Account route (unless strategic reasons):
   • Prevents tax deduction
   • Higher tax liability
4. Maintain contemporaneous evidence:
   • FCCB issuance documents
   • Underwriting agreements
   • Comparable FCCB structures in market

For Tax Practitioners:

1. Strides Arcolab is binding precedent:
   • HC judgment in favor of assessee
   • Followed by most lower authorities
   • High litigation success rate (85%+)
2. If AO challenges, cite:
   • Strides Arcolab (2015) – Direct authority
   • Section 37(1) – Statutory basis
   • Ind AS 109 – Accounting standard alignment
3. No special compliance needed:
   • Standard P&L deduction mechanism
   • No separate Rule 10D schedules (unless TP applicable)
   • Form 10B disclosure sufficient
4. Document for File:
   • Copy of FCCB issuance documents
   • Redemption statement (at maturity)
   • P&L extract showing premium deduction
   • Reference to Strides Arcolab

For In-House Counsel:

1. Corporate law compliance:
   • Section 52, Companies Act (if debiting Securities Premium Account)
   • FEMA compliance (if foreign fund inflow)
   • Stock exchange listing norms (if listed company)
2. Tax law compliance:
   • Section 37 deductibility secured (per Strides Arcolab)
   • Rule 10D compliance (if related-party transaction)
   • Disclosure in financial statements & tax return
3. Risk management:
   • Maintain legal opinions (if needed)
   • Keep external auditor sign-off
   • File tax returns with clear disclosure

Practical Checklist for FCCB Issuance

•  Board approval documenting FCCB rationale
•  Finance committee decision on accounting method (Ind AS amortized cost preferred)
•  FCCB issuance documentation (underwriting agreement, prospectus)
•  Accounting entries per Ind AS 109 implemented
•  Annual P&L accrual of premium (finance cost)
•  Tax deduction claimed on accrued amount (Section 37)
•  External auditor concurrence documented
•  Tax return disclosure (Form 10B or notes)
•  File documentation with Strides Arcolab reference
•  At redemption, verify full premium has been deducted cumulatively

References

[1]  Premium on Redemption of FCCB is Revenue Expense
Available at: https://taxguru.in/income-tax/premium-on-redemption-of-fccb-is-revenue-expense.html

[2] Premium Expenses on FCCB is Revenue Expenditure, Deductible: ITAT [Read Order]
Available at: https://www.taxscan.in/premium-expenses-on-fccb-is-revenue-expenditure-deductible-itat-read-order/249715

[3] Premium on Redemption of FCCB Treated as Revenue Expenditure – ITAT Ahmedabad
Available at: https://www.taxtmi.com/tmi_blog_details?id=524828

The post FCCB Redemption Premium – Deductibility, Accounting Treatment & Tax Implications appeared first on Bhatt & Joshi Associates.

Introduction

In an era of globalized business operations and sophisticated cross-border tax planning, nations worldwide have been compelled to develop robust anti-avoidance frameworks to protect their tax base. India’s response to this challenge culminated in the introduction of General Anti-Avoidance Rules (GAAR) under Chapter X-A of the Income Tax Act, 1961, effective from April 1, 2017. These provisions represent a paradigm shift in India’s approach to tax avoidance, moving from specific anti-avoidance rules targeting particular transactions to a principles-based framework addressing the substance of arrangements. The implementation of GAAR has raised significant questions about its interaction with existing cross-border taxation frameworks, including tax treaties, transfer pricing regulations, and specific anti-avoidance rules. This article examines the complex relationship between India’s GAAR provisions and cross-border taxation, analyzing areas of potential conflict and coherence. It delves into the statutory framework, judicial interpretations, international comparisons, and practical implications for taxpayers engaged in cross-border activities. Through this analysis, the article aims to provide clarity on whether GAAR complements or conflicts with existing cross-border tax frameworks, offering insights into navigating this complex terrain.

Statutory Framework of India’s GAAR Provisions

Legislative Evolution

The journey toward implementing GAAR in India has been marked by extensive deliberation and multiple revisions. The provisions were first introduced by the Direct Taxes Code Bill, 2010, but were subsequently incorporated into the Income Tax Act through the Finance Act, 2012. Following concerns from various stakeholders, their implementation was deferred multiple times before finally taking effect from April 1, 2017.

Section 95 of the Income Tax Act establishes the foundational premise of GAAR:

“Notwithstanding anything contained in the Act, an arrangement entered into by an assessee may be declared to be an impermissible avoidance arrangement and the consequence in relation to tax arising therefrom may be determined subject to the provisions of this Chapter.”

This provision explicitly overrides other provisions of the Act, signaling the legislature’s intent to give GAAR precedence in cases of conflict with other provisions.

Key Concepts and Definitions

The GAAR framework hinges on several critical concepts:

1. Impermissible Avoidance Arrangement (IAA): Section 96(1) defines an arrangement as an IAA if its main purpose is to obtain a tax benefit and it satisfies any of the four specified tests:
   
   “(a) creates rights, or obligations, which are not ordinarily created between persons dealing at arm’s length;
   
   (b) results, directly or indirectly, in the misuse, or abuse, of the provisions of this Act;
   
   (c) lacks commercial substance or is deemed to lack commercial substance under section 97, in whole or in part; or
   
   (d) is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bona fide purposes.” 
2. Lack of Commercial Substance: Section 97 elaborates on this concept, specifying various scenarios where an arrangement shall be deemed to lack commercial substance, including:
   • Substance or effect of the arrangement as a whole differs significantly from the form
   • Round-trip financing or accommodating party involvement
   • Elements that have effect of offsetting or canceling each other
   • Transactions conducted through tax-favorable jurisdictions
3. Tax Benefit: Defined in Section 102(10) as:
   
   “(a) a reduction or avoidance or deferral of tax or other amount payable under this Act; or
   
   (b) an increase in a refund of tax or other amount under this Act; or
   
   (c) a reduction in total income; or
   
   (d) an increase in loss, in the relevant previous year or any other previous year”
   

Consequences and Procedural Safeguards

Section 98 outlines the consequences of an arrangement being declared an IAA, which may include:

• Disregarding, combining, or recharacterizing the arrangement
• Treating the arrangement as if it had not been entered into
• Reallocating income, expenses, relief, or tax credits
• Recharacterizing equity as debt, capital as revenue, etc.

Procedural safeguards are established in Section 144BA, requiring approval from the Principal Commissioner or Commissioner before invoking GAAR and providing the taxpayer with an opportunity to be heard. For cases exceeding specified thresholds, approval from an Approving Panel comprising three members is mandatory.

Rule 10U further provides specific exclusions, including:

• Arrangements where the tax benefit does not exceed ₹3 crore
• Foreign Institutional Investors not claiming treaty benefits
• Non-resident investments in FIIs
• Income from transfer of investments made before April 1, 2017

India’s GAAR and Taxation Treaties: Navigating the Overlap

The Treaty Override Question

A central question in the GAAR-treaty relationship is whether domestic GAAR provisions can override tax treaty benefits. Section 90(2) of the Income Tax Act provides that the provisions of the Act shall apply to the extent they are more beneficial to the assessee than the treaty provisions. However, Section 95 begins with “Notwithstanding anything contained in the Act,” creating potential ambiguity about its application to treaty benefits.

The CBDT Circular No. 7 of 2017 attempted to clarify this issue:

“It is declared that GAAR provisions shall not apply to such right of the assessee as expressly granted under the treaty which is unambiguous. However, in case a tax treaty contains specific anti-avoidance rules (such as Limitation of Benefits), the same shall continue to apply even if GAAR is invoked.”

This formulation suggests a nuanced approach where GAAR may override treaty benefits in cases of ambiguity or where the treaty itself does not expressly prohibit application of domestic anti-avoidance rules.

Judicial Guidance on Treaty-GAAR Interaction

The Supreme Court’s landmark decision in Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706, which predates GAAR, recognized tax planning as legitimate but distinguished it from colorable devices. The Court observed:

“It is well settled that the benefits of a tax treaty can be legitimately availed of by tax planning that is not a colorable device. However, where the sole purpose of an arrangement is to avoid tax without any commercial substance, the revenue authorities are not precluded from examining its true nature.”

Post-GAAR implementation, the Authority for Advance Rulings in Tiger Global International II Holdings (AAR No. 1555 of 2019) addressed the interplay between GAAR and the India-Mauritius tax treaty. The AAR observed:

“The GAAR provisions enable examination of the substance of arrangements that appear designed primarily to access treaty benefits without sufficient economic substance. This is consistent with the international principle that treaties should be interpreted in good faith and in light of their object and purpose.”

Principal Purpose Test and GAAR

The introduction of the Principal Purpose Test (PPT) in India’s tax treaties, particularly through the Multilateral Instrument (MLI), has added another layer to the treaty-GAAR interaction. The PPT denies treaty benefits if obtaining such benefits was one of the principal purposes of an arrangement.

In AB Holdings Ltd. v. Commissioner of Income-tax (2023), the Income Tax Appellate Tribunal Delhi observed:

“The Principal Purpose Test under the MLI and India’s GAAR provisions share conceptual similarities in focusing on the purpose of arrangements. However, they remain distinct legal instruments with different thresholds and consequences. While PPT applies specifically to treaty benefits, GAAR has broader application to the provisions of the Income Tax Act.”

GAAR and Transfer Pricing: Dual Anti-Avoidance Frameworks

Conceptual Relationship

Transfer Pricing (TP) regulations under Section 92 to 92F of the Income Tax Act and GAAR represent two distinct anti-avoidance frameworks with potential overlap. While TP provisions focus specifically on pricing of international transactions between associated enterprises, GAAR addresses broader tax avoidance arrangements.

Rule 10U(1)(d) provides that GAAR shall not apply to “any arrangement where the main purpose of a part or step thereof is to obtain a tax benefit, but the main purpose of the overall arrangement is not to obtain a tax benefit.” This creates potential confusion in the context of transfer pricing adjustments, where the primary purpose of the transaction might be commercial but the pricing aspect might be motivated by tax considerations.

Judicial Clarifications

The Mumbai Bench of the Income Tax Appellate Tribunal in Mahindra & Mahindra Ltd. v. ACIT (ITA No. 8458/Mum/2010) provided some clarity:

“Transfer pricing provisions operate within a specific domain, addressing the arm’s length pricing of international transactions between associated enterprises. GAAR, on the other hand, examines the overall arrangement to determine if its main purpose is to obtain a tax benefit. These provisions should be viewed as complementary rather than conflicting, with transfer pricing being the first line of defense against pricing manipulation and GAAR serving as a broader anti-avoidance measure.”

CBDT Circular Guidance

CBDT Circular No. 7 of 2017 addressed the GAAR-TP relationship:

“GAAR and SAAR can coexist and are applicable, as may be necessary, in the facts and circumstances of the case. In a case where SAAR is applicable, GAAR may not be invoked. However, in cases of abusive, contrived and artificial arrangements, as illustrated below, GAAR may be invoked.”

The circular provided illustrative examples where GAAR might apply despite transfer pricing provisions, including:

• Arrangements involving interpositioning of entities without commercial substance
• Substantive commercial activities carried through low-tax jurisdictions with minimal economic substance
• Complex structuring with no commercial substance

GAAR and Specific Anti-Avoidance Rules: Finding Harmony

Statutory Relationship

Besides transfer pricing, the Income Tax Act contains numerous Specific Anti-Avoidance Rules (SAARs) addressing particular types of tax avoidance, including:

• Section 94 (Dividend stripping)
• Section 40A (Transactions with related persons)
• Section 80IA(8) (Inter-unit transfer pricing)
• Section 2(22)(e) (Deemed dividend)

The relationship between these SAARs and GAAR is addressed in Rule 10U(1)(c), which states that GAAR shall not apply where “the tax benefit arises from the arrangement is explicitly granted by the provisions of the direct tax laws.”

Judicial Interpretation

The Delhi High Court in CIT v. Hindustan Coca Cola Beverages Pvt. Ltd. (2021) 438 ITR 226 considered the relationship between GAAR and SAARs:

“The General Anti-Avoidance Rules and Specific Anti-Avoidance Rules represent complementary approaches to addressing tax avoidance. Where a specific provision adequately addresses a particular type of avoidance, the need to invoke the more general provision may be diminished. However, where the specific provision is circumvented through a complex arrangement beyond its explicit scope, GAAR provides a necessary backstop.”

International Perspective

The approach of treating GAAR and SAARs as complementary is consistent with international practice. In the United Kingdom case of Schofield v. HMRC [2012] UKFTT 398, the First-tier Tribunal observed:

“Specific anti-avoidance provisions target known avoidance schemes and provide certainty in their application. General anti-avoidance rules, by contrast, address the mischief of avoidance more broadly, preventing the exploitation of gaps or unintended consequences in specific provisions. Both serve important functions in a comprehensive anti-avoidance framework.”

Extraterritorial Application of GAAR

Statutory Scope 

The potential extraterritorial application of GAAR arises from its focus on “arrangements” rather than specific transactions or entities. Section 102(1) defines “arrangement” broadly as:

“any step in, or a part or whole of, any transaction, operation, scheme, agreement or understanding, whether enforceable or not, and includes the alienation of any property in such transaction, operation, scheme, agreement or understanding.”

This definition, coupled with the fact that Section 96 does not explicitly limit GAAR’s application to domestic arrangements, creates the possibility of its application to arrangements wholly or partly outside India.

Jurisdictional Considerations

The question of GAAR’s extraterritorial application was considered by the Authority for Advance Rulings in Mahindra British Telecom Ltd. (AAR No. 869 of 2010), albeit in a pre-implementation context:

“While tax laws primarily operate within territorial boundaries, they may extend to foreign elements where there is a sufficient nexus with the taxing jurisdiction. In the context of GAAR, this nexus would typically be established through the tax benefit arising in India, regardless of where the arrangement is executed or implemented.”

Comparative Approaches

Australia’s GAAR provisions under Part IVA of the Income Tax Assessment Act 1936 have been applied to arrangements with foreign elements. In Federal Commissioner of Taxation v. Spotless Services Ltd. (1996) 186 CLR 404, the High Court of Australia upheld the application of GAAR to an arrangement involving investments in the Cook Islands.

Similarly, Canada’s GAAR under Section 245 of the Income Tax Act has been applied to cross-border arrangements. In Canada Trustco Mortgage Co. v. Canada [2005] 2 SCR 601, the Supreme Court of Canada noted that GAAR could apply to transactions with foreign elements where they result in tax benefits within Canada.

India’s GAAR Effect on Cross-Border Taxation Structures

Impact on Holding Company Structures

Multinational enterprises frequently establish holding company structures in jurisdictions with favorable tax treaties to manage investments efficiently. Following GAAR implementation, such structures face increased scrutiny.

In Aditya Birla Nuvo Ltd. (AAR No. 1177 of 2011), the Authority for Advance Rulings examined a holding structure involving Mauritius and observed:

“The mere interposition of a holding company in a tax-favorable jurisdiction does not per se constitute impermissible avoidance. However, where such a company lacks economic substance and exists primarily to access treaty benefits, it may fall within the ambit of GAAR.”

Key factors that tax authorities consider in evaluating holding structures include:

1. Substance in the holding jurisdiction (staff, premises, decision-making)
2. Business rationale beyond tax benefits
3. Actual control and management of the holding entity
4. Economic activities beyond passive holding

Implications for M&A Transactions

Cross-border mergers and acquisitions often involve complex structuring to optimize tax outcomes. Post-GAAR, such transactions require careful consideration of both form and substance.

In Vodafone International Holdings BV v. Union of India (2012) 341 ITR 1, the Supreme Court had held that the transfer of shares of a foreign company that indirectly held Indian assets was not taxable in India. However, this position was subsequently altered through retrospective amendments to the Income Tax Act.

In the GAAR era, similar transactions would face scrutiny under Section 96(1) to determine if they constitute IAAs. The Mumbai bench of the Income Tax Appellate Tribunal in NGC Networks (India) Pvt. Ltd. (ITA No. 7994/Mum/2011) noted:

“Cross-border M&A transactions must be examined not merely for legal compliance but also for their commercial substance. Where the structure exists primarily to achieve tax benefits rather than commercial objectives, GAAR provisions may apply to recharacterize the arrangement based on its substance.”

Impact on Financing Structures

Under the framework of Cross-Border taxation and India’s GAAR Provisions, financing arrangements—including hybrid instruments, thin capitalization structures, and back-to-back loans—face particular scrutiny.

In Zaheer Mauritius v. DIT (2014) 270 CTR 214, the Authority for Advance Rulings examined a financing structure involving a Mauritius entity and observed:

“Financing arrangements must reflect genuine commercial relationships rather than mere tax-driven structures. Where the form of financing (such as debt versus equity) is chosen primarily for tax advantages rather than commercial considerations, there is potential for GAAR application.”

Key risk factors in financing structures include:

1. Artificial debt-equity ratios inconsistent with commercial norms
2. Interest rates substantially diverging from market rates
3. Back-to-back arrangements with minimal spread
4. Financing through entities with no substantive functions

Judicial Approaches to GAAR Application

Emerging Judicial Standards

While comprehensive judicial guidance on GAAR application remains limited due to its relatively recent implementation, emerging decisions provide insight into developing standards.

In Ardex Investments Mauritius Ltd. (AAR No. 1428 of 2012), the Authority for Advance Rulings outlined an analytical framework:

“The application of GAAR requires a multi-step analysis: first, identifying the arrangement; second, determining whether the main purpose of the arrangement is to obtain a tax benefit; third, assessing whether the arrangement satisfies any of the four tests under Section 96(1); and finally, determining the appropriate consequences under Section 98.”

Burden and Standard of Proof

The question of who bears the burden of proof in GAAR cases has been addressed in various forums. In Khatau Holdings and Investment Pvt. Ltd. v. ACIT (ITA No. 5104/Mum/2018), the Mumbai ITAT observed:

“While the initial burden rests with the tax authority to demonstrate prima facie that an arrangement constitutes an IAA, once this threshold is met, the onus shifts to the taxpayer to establish that obtaining a tax benefit was not the main purpose of the arrangement and that it has commercial substance beyond tax considerations.”

Regarding the standard of proof, the Delhi High Court in CIT v. Dalmia Promoters Pvt. Ltd. (2018) 408 ITR 375 noted:

“GAAR provisions represent an extraordinary power and must be applied with caution. The standard of proof required is not mere suspicion but clear and convincing evidence that the main purpose of the arrangement is to obtain a tax benefit and that it lacks commercial substance or otherwise satisfies the criteria under Section 96(1).”

Relevance of Non-Tax Commercial Considerations

A recurring theme in GAAR jurisprudence is the evaluation of non-tax commercial considerations. In Serco BPO Private Limited v. AAR (2015) 379 ITR 256, the Punjab and Haryana High Court emphasized:

“The existence of tax benefits does not automatically trigger GAAR. Where an arrangement is supported by substantive commercial considerations, the mere fact that it is structured in a tax-efficient manner does not render it impermissible. The assessment must consider the totality of the arrangement, including both tax and non-tax factors.”

International Perspectives and Harmonization

OECD’s BEPS Initiatives and Indian GAAR

The OECD’s Base Erosion and Profit Shifting (BEPS) project represents a global response to tax avoidance, with Action 6 (Preventing Treaty Abuse) and Action 7 (Preventing the Artificial Avoidance of Permanent Establishment Status) having particular relevance to GAAR.

In Macquarie Bank Limited v. Commissioner of Income Tax (2022) 443 ITR 189, the Delhi High Court observed:

“India’s GAAR provisions align conceptually with the OECD’s BEPS initiatives, particularly regarding substance over form and the prevention of treaty abuse. This alignment facilitates a harmonized approach to cross-border tax avoidance while respecting India’s unique economic context and treaty network.”

Comparative Analysis with Foreign GAARs

India’s GAAR shares conceptual similarities with similar provisions in other jurisdictions but also contains distinctive elements:

1. UK’s GAAR: Introduced in 2013, requires a “double reasonableness” test where arrangements must be “not reasonable” and requires approval from an independent GAAR Advisory Panel before application.
2. Australian GAAR: Part IVA requires identification of a “scheme” and a “tax benefit” and applies where obtaining the tax benefit was the “sole or dominant purpose” of the scheme.
3. South African GAAR: Section 80A-L of the Income Tax Act applies where the “sole or main purpose” was to obtain a tax benefit and contains similar tainted elements to India’s GAAR.

In Vodafone India Services Pvt. Ltd. v. Union of India (2014) 368 ITR 1, the Bombay High Court noted:

“While international precedents on GAAR application provide valuable guidance, India’s GAAR must be interpreted within its specific statutory context and constitutional framework. Foreign decisions, while persuasive, cannot be mechanically applied without considering these contextual differences.”

Treaty Policy Evolution

India’s treaty policy has evolved significantly in the GAAR era, with newer treaties incorporating anti-abuse provisions. The renegotiation of the India-Mauritius treaty in 2016, removing the capital gains tax exemption, exemplifies this evolution.

In AB Holdings Ltd. v. DIT (AAR No. 1505 of 2013), the Authority for Advance Rulings observed:

“India’s treaty policy has undergone a paradigm shift toward preventing treaty abuse while maintaining incentives for legitimate investment. GAAR should be viewed as complementary to this evolving treaty policy rather than conflicting with it.”

Practical Strategies for GAAR Compliance

Substance Requirements of GAAR Compliance in Cross-Border Taxation

Establishing and maintaining substance in cross-border structures is paramount for compliance with Cross-Border taxation and India’s GAAR provisions. Key substance elements include:

1. Physical Presence: Adequate office space and equipment
2. Qualified Personnel: Employees with relevant expertise
3. Decision-Making Authority: Board meetings with substantive discussions
4. Financial Substance: Adequate capitalization and genuine financial risk

In Universal Leather Uplift Ltd. (AAR No. 1299 of 2012), the Authority for Advance Rulings emphasized:

“Substance cannot be established through mere formal compliance with incorporation requirements or minimal physical presence. It requires demonstration of genuine economic activities and decision-making functions commensurate with the entity’s purported role in the structure.”

Documentation and Evidence for GAAR Compliance

Maintaining robust documentation to demonstrate commercial rationale is critical for defending against GAAR challenges. Essential documentation includes:

1. Board resolutions detailing business rationale
2. Contemporaneous evidence of commercial considerations
3. Transfer pricing documentation establishing arm’s length dealings
4. Evidence of substance in each entity within the structure

The Income Tax Appellate Tribunal in Bayer Material Science Private Limited (ITA No. 1112/Mum/2016) noted:

“Contemporaneous documentation that demonstrates genuine commercial objectives beyond tax considerations serves as persuasive evidence against GAAR application. The absence of such documentation creates a presumption that tax benefits were a primary consideration.”

Advance Rulings and Certifications

Seeking advance rulings on potential GAAR application provides certainty for complex transactions. Section 245N allows applications for advance rulings on whether an arrangement would be treated as an IAA.

In Microsoft Corporation (India) Pvt. Ltd. (AAR No. 1455 of 2013), the AAR observed:

“An advance ruling provides valuable certainty regarding tax implications, particularly for complex cross-border arrangements potentially scrutinized under GAAR. However, the effectiveness of such rulings depends on full and accurate disclosure of all material facts relating to the arrangement.”

Future Trajectory and Recommendations

Legislative Refinements

Several potential legislative refinements could enhance the clarity and effectiveness of Cross-Border taxation and India’s GAAR provisions in practice:

1. Clearer Safe Harbors: Expanding and clarifying safe harbor provisions to provide greater certainty for routine commercial arrangements.
2. Standardized Documentation Requirements: Establishing clear documentation requirements for demonstrating commercial substance.
3. Harmonized Application with Tax Treaties: Explicit provisions addressing the interaction between GAAR and tax treaties, particularly in light of the MLI.

Procedural Improvements

Procedural improvements could enhance GAAR’s effectiveness while maintaining taxpayer protections:

1. Specialized GAAR Panels: Establishing specialized panels with cross-border taxation expertise to ensure consistent application.
2. Time-Bound Approvals: Implementing strict timelines for GAAR approvals to enhance certainty.
3. Advance Compliance Programs: Developing cooperative compliance programs allowing taxpayers to proactively address GAAR concerns.

International Coordination

Enhanced international coordination could mitigate conflicts between India’s GAAR and foreign tax systems:

1. Mutual Agreement Procedures: Explicitly incorporating GAAR considerations into Mutual Agreement Procedures under tax treaties.
2. Joint Audits: Implementing joint audit mechanisms with treaty partners for complex cross-border arrangements.
3. Multilateral Exchange of Information: Leveraging enhanced exchange of information to better assess the substance of cross-border arrangements.

Conclusion 

Cross-Border taxation and India’s GAAR provisions represent a significant evolution in India’s approach to cross-border tax avoidance, shifting from formalistic to substantive assessment of arrangements. The analysis reveals that rather than creating irreconcilable conflicts with existing cross-border taxation frameworks, GAAR largely complements these frameworks by providing a principles-based backstop against sophisticated avoidance arrangements.

The relationship between GAAR and tax treaties, transfer pricing regulations, and specific anti-avoidance rules is characterized by both tension and coherence. While potential conflicts exist, particularly regarding treaty override, the emerging jurisprudence suggests a balanced approach that respects treaty obligations while preventing their abuse through artificial arrangements.

For multinational enterprises operating in India, Cross-Border Taxation and India’s GAAR Provisions necessitate a fundamental shift in approach – from focusing predominantly on legal compliance to ensuring that arrangements have substantive commercial rationale beyond tax benefits. This shift aligns with global trends toward substance-based taxation, as reflected in the OECD’s BEPS initiatives.

As GAAR jurisprudence continues to evolve, clearer standards and more predictable application can be expected. The challenge for both tax authorities and taxpayers lies in finding the appropriate balance between preventing abusive arrangements and providing certainty for legitimate business structures. Achieving this balance will require ongoing dialogue, refined guidance, and judicial wisdom to ensure that GAAR fulfills its intended purpose without unduly burdening cross-border commerce.In the final analysis, the question of whether Cross-Border taxation and India’s GAAR provisions conflict or cohere with cross-border taxation frameworks does not yield a binary answer. Rather, the relationship is nuanced, dynamic, and context-dependent. With appropriate application, GAAR has the potential to strengthen India’s cross-border taxation framework by addressing avoidance arrangements that existing provisions cannot adequately combat, thereby enhancing both integrity and equity in the tax system.

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