Section 219 — Foreign Bank Branch Conversion | ITA 2025

Section 219 — - FOREIGN BANK BRANCH CONVERSION TO INDIAN SUBSIDIARY

Section 219 is the substantive equivalent of 1961 s. 115JG -- TAX NEUTRALITY framework for FOREIGN BANK BRANCHES converting to INDIAN SUBSIDIARIES (per RBI / regulator-approved scheme). Designed to facilitate the regulatory transition without triggering tax on the conversion event. Applies to foreign banking institutions (Citibank India / HSBC / Standard Chartered etc. moving from BRANCH to SUBSIDIARY model).

Statutory text — Income-tax Act, 2025

Marginal note -- Foreign bank branch to Indian subsidiary conversion

(1) Where a foreign company is engaged in the business of banking in India through its branch situated in India and such branch is converted into a sub- sidiary Indian company as per the scheme framed by the Reserve Bank of India, then, irrespective of anything contained in this Act and subject to the conditions as may be notified by the Central Government,—

(a) the capital gains arising from such conversion shall not be chargeable to tax in the tax year in which such conversion takes place; and

(b) the provisions of this Act relating to—

(i) treatment of unabsorbed depreciation, set off or carry forward and set off of losses;

(ii) tax credit in respect of tax paid on deemed income relating to certain companies; and

(iii) computation of income of the foreign company and subsidiary Indian company, shall apply with such exceptions, modifications and adaptations as specified in that notification.

(2) In case of failure to comply with any of the conditions specified in the scheme or in the notification issued under sub-section (1), all the provisions of this Act shall apply to the foreign company and the said subsidiary Indian company without any benefit, exemption or relief under the said sub-section.

(3) Where, in a tax year, any benefit, exemption or relief has been claimed and granted as per the provisions of sub-section (1) and, subsequently, there is failure to comply with any of the conditions specified in the scheme or in the notification issued under the said sub-section then,—

(a) such benefit, exemption or relief shall be deemed to have been wrongly allowed;

(b) the Assessing Officer may, irrespective of anything in this Act, re-com- pute the total income of the assessee for the said tax year and make the necessary amendment; and

(c) the provisions of section 287 shall, so far as may be, apply thereto and the period of four years specified in sub-section (8) of that section being reckoned from the end of the tax year in which the failure to comply with the condition referred to in sub-section (1) takes place.

(4) Every notification issued under this section shall be laid before each House of Parliament. Foreign company said to be resident in India.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 219	INCOME-TAX ACT, 1961 -- s. 115JG
Foreign bank branch -> Indian subsidiary conversion tax neutrality	1961 s. 115JG

MECHANICS: where foreign company engaged in banking in India through branch, AND such branch is CONVERTED into Indian SUBSIDIARY company per RBI-approved scheme, conversion event is TAX-NEUTRAL: (a) Capital assets transfer not taxed; (b) WDV / cost basis preserved in successor Indian subsidiary; (c) Loss / depreciation c/f preserved (subject to s. 115BAA-style restrictions if successor opts concessional regime); (d) MAT credit transition handled per Rules. Background: RBI regulatory framework for foreign bank presence shifted from BRANCH model to SUBSIDIARY model post 2010s for systemic-stability / capital-adequacy reasons. Section 219 (1961 s. 115JG) facilitates without tax friction. PRACTITIONER: relevant only for foreign banks; specific RBI scheme + CG approval required; documentation extensive.

CROSS-REFERENCES

Section 9(5)(b) -- PE bank-interest deeming (head-office to branch).
Section 70 -- Tax-neutral transactions.
Section 71 -- Withdrawal of exemption.
RBI Foreign Bank Subsidiarisation Framework.

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