« Top Headlines » Open DEMAT Account in 24 hrs  Income Tax Rules 2026: CBDT Introduces Revised Form 161 for Penalty Waiver, Clarifies Misreporting Categories and Taxpayer Relief  ITR Filing and Income Tax Audit Deadline Extended: 5 Critical Things Taxpayers Must Know  Filing Belated ITR for AY 2026-27? Know Which Losses You Can Carry Forward and Which You May Lose  CBDT Extends Tax Audit Report Deadline to October 21, ITR Filing Last Date to November 21 for AY 2026-27  CBDT Extends AY 2026-27 ITR Filing Deadline for Tax-Audit Cases: New Dates and Key Compliance Details  Foreign Assets Missing From Your ITR? 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In other words, the foreign shareholding in an Indian company that in turn owns shares in another Indian company will, pro rata, be added to the direct foreign shareholding in the latter, so as to determine the extent of its foreign shareholding. This view is reported to be in opposition to that held by the department of industrial policy and promotion (DIPP), which apparently has argued that only direct shareholding should be taken into account.   The finance ministrys view seems impractical, and could lead to operational difficulties. The basic point is that a company has no control over the actions of its shareholders, who may choose to raise or lower their own FDI levels without reference to the downstream company. Thus, if an investor-company changes its shareholding structure to increase foreign direct shareholding in itself, and if that is going to affect the calculations on the (indirect) foreign shareholding in a downstream company, then the latter may have breached the limit of its prescribed foreign shareholding although it has done nothing at all. If there is not one investor-company but a dozen or 100 such investors, then any of their actions could change FDI calculations downstream. Matters get even more complicated if portfolio investments by foreign institutional investors (FIIs) are also counted as part of foreign investment, as the rules now say for many sectors. So if an investor-company happens to be a listed one, and investments in it by foreign institutional investors change (as they will on a day-to-day basis), then the downstream invested company does not know at any given moment whether it is within the prescribed FDI limits or not. And if the ceiling has been breached, what is it to do? Ask specific shareholders to disinvest? What if they refuse to do that? For these reasons, the sensible course would appear to be to go with the view held by the DIPP.   The problem with doing that is that people can choose indirect methods to acquire control that goes beyond the prescribed FDI ceiling. This was seen most visibly in the telecom sector where the pyramiding of corporate holding structures gave overseas shareholders a much greater beneficial interest (though not perhaps control) in Indian entities than was the governments intention. The government became wiser after the fact, and such pyramiding was banned in later formulations, as with the insurance sector. Even the FII route was used, in at least one case involving a media company, to ensure overseas control, and the government can rightly argue that since it has no control over such back-to-back arrangements by FIIs in Mauritius and other tax havens, it has no choice other than to draft domestic regulations in the tightest manner possible.   That motivation may be understandable, but it does not take away from the fact that the end result is an impractical solution. A more nuanced set of rules might provide the answer. For instance, shareholders who own less than a threshold floor (it could be 5 per cent or 10 per cent) and who are not connected with any of the other shareholders, should not qualify for the indirect shareholding rule. Similarly, portfolio investments will be excluded from the calculations, since the bulk of such investments is purely for financial return, without the baggage of corporate control. The remaining shareholders would then have to come to an agreement that if any one of them does something that makes the invested company breach its FDI limit, then the offending shareholder-company should either undo its action or sell its shares in the invested company.