Section 219 Income Tax Act 2025: Conversion of Foreign Bank Branch into Indian Subsidiary
Section 219 of the Income-tax Act, 2025 contains the current tax provisions relating to conversion of an Indian branch of a foreign banking company into its subsidiary Indian company under a scheme framed by the Reserve Bank of India. The corresponding provision under the Income-tax Act, 1961 was Section 115JG.
- Current provision: Section 219 of the Income-tax Act, 2025.
- Corresponding earlier provision: Section 115JG of the Income-tax Act, 1961.
- The foreign company must be carrying on banking business in India through an Indian branch.
- The branch is converted into a subsidiary Indian company under the applicable RBI scheme.
- Subject to the prescribed conditions, capital gains arising from the conversion receive the special statutory treatment.
- Non-compliance with the applicable conditions can result in withdrawal of the benefit and recomputation.
What is Section 219 of the Income Tax Act 2025?
Section 219 deals with a specific restructuring involving a foreign banking company. It applies where the foreign company conducts banking business in India through a branch situated in India and that branch is converted into a subsidiary Indian company in accordance with the scheme framed by the Reserve Bank of India.
The provision is intended to prescribe the tax consequences of such a qualifying conversion, subject to the conditions applicable under the law and the relevant notification.
Tax treatment of a qualifying conversion
Capital gains
For a conversion satisfying the statutory and notified requirements, the special provision protects the qualifying conversion from an immediate capital-gains charge in the tax year in which the conversion takes place.
Depreciation, losses, tax credits and computation
The provision also addresses continuity in matters such as unabsorbed depreciation, carry-forward and set-off of losses, relevant tax credits and computation of income of the foreign company and the Indian subsidiary company, subject to the exceptions, modifications and adaptations prescribed for the conversion.
Important terms explained
Foreign company
In the context of this provision, the relevant foreign company is one engaged in the business of banking in India through a branch situated in India. The provision is therefore not a general tax exemption for conversion of every foreign company's Indian branch.
Indian subsidiary company
The Indian subsidiary company is the Indian company into which the qualifying Indian banking branch is converted. The restructuring must satisfy the applicable statutory requirements and the RBI framework.
RBI scheme
The tax provision is linked to the regulatory framework of the Reserve Bank of India governing the establishment of wholly owned subsidiaries by foreign banks in India, including qualifying conversion of an existing branch presence into an Indian subsidiary.
Failure to comply with the conditions
The tax treatment is conditional. If the foreign company or Indian subsidiary fails to comply with conditions specified in the applicable RBI scheme or the relevant notification, the special benefit may cease to apply.
Where a benefit, exemption or relief has already been claimed and granted and there is a subsequent failure to satisfy the applicable conditions, the law permits the earlier benefit to be treated as wrongly allowed and provides for recomputation or amendment in accordance with the applicable statutory mechanism.
Earlier Section 115JG of the Income Tax Act 1961
Section 115JG of the Income-tax Act, 1961 governed this subject before the commencement of the Income-tax Act, 2025. It applied where a foreign company engaged in banking business in India through an Indian branch converted that branch into its subsidiary Indian company in accordance with the RBI scheme.
Subject to conditions notified by the Central Government, Section 115JG provided special treatment for capital gains arising from the conversion and for unabsorbed depreciation, losses, relevant tax credits and computation of income.
It also provided consequences where the conditions of the RBI scheme or the relevant notification were not fulfilled, including withdrawal of relief already granted and recomputation of income.
Section 115JG and Section 219: transition
| Subject | Earlier law | Current law |
|---|---|---|
| Statute | Income-tax Act, 1961 | Income-tax Act, 2025 |
| Provision | Section 115JG | Section 219 |
| Subject | Conversion of Indian branch of foreign banking company into subsidiary Indian company | Corresponding current provision for such conversion |
| Earlier tax periods and proceedings | The repeal and savings provisions of the Income-tax Act, 2025 must be considered to determine which law governs a particular earlier period or proceeding. | |
Official resources
Frequently asked questions
Is Section 115JG still the current section?
Section 115JG belongs to the Income-tax Act, 1961. For the corresponding current-law provision under the Income-tax Act, 2025, refer to Section 219. For an earlier tax period or proceeding, the repeal and savings provisions should be checked before determining which provision applies.
Does the provision apply to every foreign company branch?
No. The provision specifically concerns a foreign company engaged in banking business in India through a branch and the qualifying conversion of that branch into a subsidiary Indian company under the applicable RBI framework.
Is the tax relief unconditional?
No. The statutory treatment depends on compliance with the requirements of the provision, the RBI scheme and the conditions prescribed or notified for the conversion. Failure to comply can affect or reverse the relief.
This article provides general information. The applicable Act, Rules, notifications, RBI directions and transaction facts should be examined for a specific conversion or tax proceeding.