Rationalisation of definition of ‘dividend’ for treasury centres in IFSC

The Finance Bill, 2025, proposes several key changes in the Income Tax Act, 1961, to continue reforms in the direct tax system through tax reliefs, removing difficulties faced by taxpayers, and rationalizing¹ various provisions. Here are some of the key changes:

V. Rationalisation of definition of ‘dividend’ for treasury centres in IFSC
Sub-clause (e) of clause (22) of section 2, inter alia, provides that dividend includes any sum by way
of advance or loan to a shareholder paid by a company (not being a company in which the public are
substantially interested), where shareholder is the beneficial owner of shares holding not less than 10% of
the voting power, or to any concern in which such shareholder is a member or a partner and in which he has
a substantial interest or any payment by any such company on behalf, or for the individual benefit, of any
such shareholder, to the extent to which the company in either case possesses accumulated profits.
2. Sub-clause (ii) of clause (22) of section 2 excludes from the definition of dividend (may be
referred to as deemed dividend) any advance or loan made to a shareholder or the said concern by a
company in the ordinary course of its business, where the lending of money is a substantial part of the
business of the company.
3. Suggestions have been received that borrowings by the corporate treasury centre in IFSC from
any group entities could trigger deemed dividend provisions in the hands of the shareholder.
4. It is proposed to amend clause (22) of section 2 to provide that any advance or loan between two
group entities, where one of the group entity is a “Finance company” or a “Finance unit” in IFSC set up
as a global or regional corporate treasury centre for undertaking treasury activities or treasury services
and the ‘parent entity’ or ‘principal entity’ of such ‘group entity’ is listed on stock exchange in a
country or territory outside India, other than the country or territory outside India as may be specified
by the Board in this behalf, shall not be treated as ‘dividend’. The conditions for a ‘group entity’,
‘principle entity’ and the ‘parent entity’ shall be prescribed.
5. These amendments will take effect from the 1st day of April, 2025.
[Clause 3