Foreign bank arms may get tax relief
In an effort to encourage foreign banks to incorporate in the country, finance minister Pranab Mukherjee on Monday proposed to limit tax liability when they convert from branches into subsidiaries. The Reserve Bank of India is in the process of formulating a scheme for local incorporation of Indian branches of foreign banks to ring fence local depositors from external shocks. Existing laws require overseas lenders to pay up to 30% of the market value of their assets as capital gains and stamp duty while converting branches to a new entity. "To support this effort, I propose to provide tax neutrality for such incorporation,'' said Mukherjee in the Parliament on Monday. The RBI, on the behest of the banks in December 2011, had sought a one-off tax exemption from the government for foreign banks that convert to local subsidiaries. But foreign bankers are still skeptical of the proposed tax neutrality and are awaiting clarity on the matter. They are also awaiting clarity on national treatment and priority sector norms in the final guidelines.