51% Is Not the Answer: When Does Shareholding Actually Become Control

 By CA Surekha Ahuja

Where the percentage matters, where it does not, and why new and cross-border companies need a different test

10%, 45%, 49%, 50% or 51% — ownership is a number. Control is a legal conclusion. POEM is a factual conclusion. Withholding is a payment-level obligation. Disclosure is a separate compliance question.

That distinction becomes critical when a new company is incorporated, ownership crosses borders, management remains in India, or group entities begin transacting with each other.

The percentage starts the analysis. It does not finish it.

The 5-Layer Control Test

SHAREHOLDING
     ↓
RIGHTS
Voting | Board | Contract | Management
     ↓
CONTROL
Who has the relevant power?
     ↓
SUBSTANCE
Where are decisions actually made?
     ↓
TRANSACTIONS
Equity | Loan | Guarantee | Services | IP | Goods
     ↓
LAW
Companies Act | Ind AS | FEMA | Tax | TP
     ↓
TAX + WITHHOLDING + DISCLOSURE
     ↓
DO ALL RECORDS TELL THE SAME STORY?

One commercial fact can therefore produce several different legal consequences.

Where the Percentage Matters — and Where It Does Not

Percentage / fact	May matter for	Does not automatically mean
51%+	Majority ownership / specified statutory tests	POEM or every form of control
50%	Voting/economic position	Sole control
49%	Minority ownership	No control
10%+ listed foreign entity	Specific FEMA/ODI test	Universal control
<10% + control	FEMA/ODI analysis	“Too small to matter”
Any % + contractual rights	Potential control	Automatic control
100% foreign ownership	Complete ownership	Management outside India

Professional rule

Never ask only “What percentage?” Ask “Percentage for which law, for which purpose, and subject to what conditions?”

The 49% Trap

Indian Company → 45% → Singapore Company

The remaining shares are widely dispersed, but the Indian company has significant Board or contractual rights.

“Only 45%, therefore no control” may be an unsafe conclusion.

Under Ind AS 110, control is determined by power over relevant activities, exposure to variable returns and the ability to use that power to affect returns.

FEMA has its own definition of control.

Therefore: 49% is not a safe harbour from control.

The 10% FEMA Trap

Under the FEMA overseas investment framework, 10% or more in a listed foreign entity is relevant to ODI classification, while a below-10% investment with control can also fall within the ODI framework.

Therefore:  9% + no control ≠ 9% + control

And the FEMA analysis does not end at classification. Financial commitment, reporting, disinvestment and continuing compliance may follow.

Caution “Below 10%” is not a blanket FEMA exemption. Always identify the statutory condition attached to the threshold.

The POEM Trap: When Percentage Becomes Secondary

A foreign company may be 100% owned outside India, yet:

Strategy → India
Budget → India
Financing → India
Key management → India

The question may then become:  Where is its Place of Effective Management?

But: Control ≠ POEM

45% does not automatically create POEM.

51% does not automatically create POEM.

100% ownership does not itself prove POEM.

Incorporation tells you where the company was formed. POEM asks where effective management occurs.

Then the Border Is Crossed by the Transaction

Once the group enters into:  Loans | Guarantees | Management Fees | Technical Services | Royalty | IP | Cost Sharing | Goods

separate questions arise:

Question	Test
Taxability	Is the income chargeable?
Withholding	Does tax have to be deducted from the payment?
Transfer Pricing	Is the international transaction at arm's length?
FEMA	Is the investment/payment/financial commitment permitted and reported?
Disclosure	What must appear in accounts, returns or regulatory filings?

These are not interchangeable.

No POEM does not mean no withholding.
Consolidation does not mean no transfer pricing.
Taxability does not mean withholding.
One disclosure does not replace another statutory reporting requirement.

The New Company Trap

The control question should be settled when the structure is created, not after the first notice.

A typical structure: Promoter → Indian HoldCo → Foreign HoldCo → Operating Company

followed by: Equity → Debt → Guarantee → Services → IP → Royalty

creates a chain of legal questions. 

If management is also operating across borders, the risk multiplies.

Professional insight 

Document the control analysis at inception. Do not reconstruct it five years later from Board minutes, emails and tax returns.

One Fact. Multiple Consequences.

Fact	Primary review
51% in new company	Ownership + statutory/control analysis
49% + strong rights	Control
9% listed foreign investment + control	FEMA/ODI
45% foreign holding + India-based decisions	Control + POEM
Parent loan/guarantee	FEMA + tax + TP
Cross-border management fee	Taxability + withholding + TP + FEMA
Intra-group transaction eliminated in CFS	TP/tax analysis still required
Different relationship in different filings	Immediate reconciliation

The Real Default Risk

WRONG PERCENTAGE ASSUMPTION
          ↓
WRONG CONTROL CONCLUSION
          ↓
WRONG ACCOUNTING / FEMA / TAX ANALYSIS
          ↓
MISSED WITHHOLDING / TP / REPORTING
          ↓
INCONSISTENT DISCLOSURES
          ↓
INTEREST / PENALTY / REGULATORY ACTION /
LITIGATION / REWORK

Not every case produces every consequence.

But one wrong conclusion at inception can travel through the entire compliance chain.

The Red Flags

🔴 Trigger	Stop and review
<50% + substantial rights	Control
<10% foreign listed investment + control	FEMA/ODI
Foreign company substantially managed from India	POEM
Parent funding / guaranteeing foreign entity	FEMA + tax + TP
Cross-border group charges	Tax + withholding + TP
CFS and FEMA show different relationships	Reconcile immediately
Board minutes and tax filings identify different decision-makers	Substance / POEM
No documented control assessment	Audit + disclosure risk

The “Stop Before Signing” Test

Before approving a new company, overseas investment, restructuring or cross-border transaction, ask:

1. Ownership — What percentage do we own?

2. Rights — What rights come with it?

3. Control — Who can direct the relevant activities?

4. Substance — Where are important decisions made?

5. Transaction — What crosses the border?

6. Tax — Is there taxability or withholding?

7. Pricing — Is TP applicable?

8. FEMA — Is the investment/payment/financial commitment permitted and reported?

9. Disclosure — Are all statutory disclosures aligned?

10. Evidence — Can we prove the conclusion years later?

If the answer to the last question is “No” — stop before signing.

The Real Turning Point

The conventional question is:  “Is it 51%?”

The professional questions are:

Why does 51% matter here?

Would 49% change the answer?

Would different rights change it?

Would management from India change it?

Would a cross-border payment change it?

Would withholding apply even if POEM does not?

Would TP apply even if the transaction disappears on consolidation?

Would the disclosure position differ?

That is the real analysis.

The Bottom Line

51% may matter for ownership and specified statutory tests.

49% may still involve control.

10% may matter under FEMA in specified circumstances.

Below 10% does not necessarily end the FEMA analysis.

100% ownership does not determine POEM.

Control does not automatically determine tax residence.

Taxability does not equal withholding.

Consolidation does not eliminate transfer pricing.

One disclosure does not replace another statutory reporting obligation.

And for a new or cross-border group, the real question is not:  “How much do we own?”

It is:  “What do our rights legally give us, what do we actually do, where do we do it, what crosses the border, what must be taxed or withheld, what must be reported, and can we prove the entire position later?”

**The percentage tells you what you own.

The rights tell you what you can control.
The facts tell you what you actually do.
The transaction tells you where the risk travels.
The statute determines what follows.**

Shareholding starts the analysis. It should never end it.

₹10 Crore Advertising Billing. ₹2 Crore Margin. Should GST Apply on ₹10 Crore or ₹2 Crore

The Principal, Pure Agent and Intermediary Test for Advertising Agencies, Media Buyers and Ad-Space Resellers

By CA Surekha Ahuja

The margin tells you what you earned. GST first asks what you supplied — and in what capacity.

An advertising agency purchases media space for ₹8 crore and bills its client ₹10 crore.

Its commercial margin is ₹2 crore.

The immediate question is whether GST should apply to ₹10 crore or ₹2 crore.

The answer does not lie in the margin, the accounting treatment or the description used on the invoice. It lies in the legal character of the transaction.

The agency may be supplying the service on its own account, acting for another person, qualifying as a pure agent, or merely arranging or facilitating another person's supply.

Each possibility can produce a different GST analysis.

The ₹10 Crore versus ₹2 Crore Question

Consider the same commercial arrangement under different legal structures:

Structure	₹8 crore media cost	₹2 crore earning	GST analysis
Principal	Agency procures media	Margin	₹10 crore may be relevant consideration
Qualifying pure agent	Client expenditure satisfying Rule 33	Agency fee	Eligible ₹8 crore may be excluded
Intermediary	Supply between client and media owner	Facilitation consideration	Agency's own facilitation supply is analysed

The lesson is fundamental:  ₹2 crore margin does not automatically mean ₹2 crore taxable value.

But equally:  ₹10 crore billing does not automatically mean ₹10 crore taxable value.

The ultimate taxable value follows from the applicable valuation provisions and the actual legal character of the transaction.

The First Question Is Not Valuation. It Is Characterisation.

GST is imposed on a supply, not on accounting profit.

Accordingly, before asking how much GST is payable, one must first determine what the agency has supplied and in what capacity.

Capacity	Basic character
Principal	Supplies advertising or media services on its own account
Agent	Acts for another person
Pure agent	Pays specified third-party expenditure on the client's behalf, subject to Rule 33
Intermediary	Arranges or facilitates another person's supply

These concepts are related but not interchangeable.

In particular, principal versus intermediary primarily concerns the character of the supply and place-of-supply consequences, whereas pure-agent treatment is essentially a valuation exclusion under Rule 33.

The Statutory Turning Point: “On His Own Account”

Section 2(13) of the IGST Act defines an intermediary as a broker, agent or other person who arranges or facilitates a supply between two or more persons.

However, the definition excludes a person who supplies goods or services on his own account.

That exclusion is critical for advertising businesses.

The mere use of a third-party media owner does not make an advertising agency an intermediary.

The real issue is whether the agency is: supplying the advertising service itself, using the media owner as its vendor

or  merely arranging a direct supply between the client and the media owner.

CBIC Circular 230/2024: The Advertising Industry Turning Point

CBIC Circular No. 230/24/2024-GST dated 10 September 2024 provides particularly important guidance for advertising agencies dealing with foreign clients.

CBIC considered an advertising agency providing a comprehensive service involving media planning, procurement of media space and campaign execution. The agency procured media space from media owners and invoiced the foreign client.

CBIC clarified that where the advertising agency supplies the advertising service on a principal-to-principal basis, it is not an intermediary, even though third-party media owners are involved.

The distinction can be seen clearly:

Principal model	Intermediary model
Client contracts with agency	Client contracts with media owner
Agency contracts with media owner	Agency merely facilitates
Media owner invoices agency	Media owner invoices client
Agency invoices client	Agency earns facilitation consideration
Agency supplies on own account	Agency arranges another person's supply

Third-party involvement is not the test. Own-account supply is.

When Can ₹10 Crore Be the Relevant Value?

Suppose the agency:

• contracts with the client;
• undertakes the advertising obligation;
• procures media space from vendors;
• remains responsible for campaign delivery; and
• operates on a principal-to-principal basis.

The agency is then making its own outward supply.

Section 15 of the CGST Act generally determines value by reference to the transaction value where the statutory conditions are satisfied.

Accordingly, the ₹10 crore consideration may be relevant for valuation.

The fact that the agency retains only ₹2 crore as its commercial margin does not, by itself, reduce the value of its outward supply.

The Pure Agent Question: Can the ₹8 Crore Be Excluded?

This is a separate valuation issue.

Rule 33 permits specified expenditure incurred as a pure agent to be excluded from the value of supply, but only where its statutory conditions are satisfied.

Broadly, the agency must:

• be contractually authorised to act as pure agent;
• procure the third-party supply on behalf of the client;
• not hold or use that supply for its own interest;
• recover only the actual amount incurred; and
• separately identify the amount in its invoice.

Therefore:  “Reimbursement”, “pass-through” or “at actuals” does not, by itself, establish pure-agent treatment.

The statutory conditions of Rule 33 must actually be satisfied.

The Contract Is Important — But It Is Not Conclusive

The legal position should be capable of being demonstrated from the entire transaction trail.

Evidence	What it establishes
Client contract	What the agency undertook to provide
Media contract	Who purchased the media
Invoice	What was supplied and charged
Books	How the transaction was recorded
Actual conduct	What happened commercially

A strong position is one in which:

Contract + invoice + books + actual conduct = one consistent story.

A red flag arises where:

Contract says principal
Invoice says commission
Books show net revenue
Media owner deals directly with client

That is not merely a documentation issue.

It is a classification dispute waiting to happen.

A Foreign Client Does Not Automatically Mean Export

A foreign customer alone does not establish export of services.

The analysis should proceed through: 

Nature of service

↓ Principal or intermediary?

↓ Place of supply

↓ Section 2(6) export conditions

CBIC Circular 230/2024 clarifies that where an advertising agency supplies advertising services on its own account, the foreign client can remain the recipient even though the advertisement may be targeted at or viewed by persons in India.

Thus: Where the advertisement is seen is not necessarily where the service recipient is located.

Where all statutory conditions are satisfied, the principal-to-principal model can support export treatment.

When the Intermediary Analysis Changes the Result

Consider a different arrangement:  Foreign client

↓ direct contract  Media owner

with the Indian agency merely arranging the transaction

The agency may then be facilitating another person's supply.

Section 13(8)(b) of the IGST Act becomes relevant for intermediary services, potentially producing a very different place-of-supply consequence from the principal-to-principal model.

The relevant question is therefore not:  “How much commission did I earn?”

It is: “Whose supply did I arrange or facilitate?”

Foreign Media Vendors: The Inward Leg Matters Too

Consider:

Foreign media platform → Indian agency → Indian advertiser

There may be two distinct supplies:

Foreign media platform → Indian agency

and

Indian agency → Indian advertiser

The first leg may require an import of services and reverse charge analysis.

The second requires its own outward supply and valuation analysis.

The outward ₹10 crore invoice does not eliminate the separate inward GST question.

GST and TDS Are Separate Classification Exercises

The GST classification of an advertising transaction should not automatically determine its income-tax withholding treatment.

For every vendor payment, ask:

What exactly did the vendor supply?

It may be:

• media space;
• advertising services;
• commission;
• professional services;
• technical services;
• software or platform access;
• hosting; or
• referral services.

The vendor's industry does not determine the withholding treatment.

The actual payment, contractual obligation and applicable tax provision do.

For non-resident payments, the analysis should proceed through:

Nature of payment → Chargeability → Domestic law → DTAA, where applicable → Withholding

The CFO's 8-Point Check

Before finalising a large advertising transaction, management should be able to answer:

Question	Why it matters
Who contracts with the client?	Identifies the supplier
Who purchases the media?	Establishes the transaction structure
Who bears delivery responsibility?	Supports role classification
Is the agency supplying on its own account?	Section 2(13) analysis
Is Rule 33 being claimed?	Pure-agent valuation
Is the client outside India?	Place-of-supply/export analysis
Is there a foreign vendor?	Import/RCM analysis
What exactly is each vendor payment for?	TDS classification

The Decision Framework

                   WHAT DID THE AGENCY SUPPLY?
                              │
                ┌─────────────┴─────────────┐
                │                           │
          OWN-ACCOUNT                   FACILITATION
                │                           │
                ▼                           ▼
           PRINCIPAL                  INTERMEDIARY
                │                           │
                ▼                           ▼
        SECTION 15 VALUE             FACILITATION
                │                      SUPPLY
                ▼
       IS RULE 33 AVAILABLE?
                │
          ┌─────┴─────┐
          │           │
         YES          NO
          │           │
          ▼           ▼
  Eligible amount   Value under
  may be excluded   Section 15

Common Errors

Mistake	Why it fails
“My margin is ₹2 crore, so GST is on ₹2 crore.”	Margin is not the valuation rule
“I use a media owner, so I am intermediary.”	Third-party procurement does not decide the issue
“It is reimbursement, so GST does not apply.”	Rule 33 conditions must be satisfied
“Foreign client means export.”	Section 2(6) must be tested
“All advertising vendors have the same TDS treatment.”	Nature of payment controls
“The contract says principal, so the issue is settled.”	Actual conduct remains relevant

The Ultimate Legal Sequence

Do not begin with the margin, the GST rate or even the invoice value.

Begin with:  Role

Principal, agent, pure agent or intermediary?

↓ Supply  What exactly was supplied?

↓ Account On whose account?

↓ Value What is the consideration, and is any amount legally excludable?

↓ Place Where is the place of supply?

↓ Export If cross-border, are the conditions of section 2(6) satisfied?

↓ Inward Leg Is there a foreign vendor and a separate import/RCM issue?

↓ Withholding What exactly is each payment for?

CA Surekha Ahuja's Take

The invoice tells you what was charged.
The books tell you what was earned.
The contract and conduct tell you what was actually supplied.

For the ₹10 crore advertising transaction, the correct sequence is not: Margin → GST

It is: Role → Supply → Account → Value → Place → Tax

And for a cross-border transaction: Role → Supply → Place → Export Test

The real question is therefore not: “Did I earn ₹2 crore?”

It is: “Did I supply a ₹10 crore service on my own account, incur ₹8 crore as qualifying pure-agent expenditure, or merely facilitate someone else's supply?”

That distinction determines the GST analysis. The ultimate taxable value follows from the applicable valuation provisions, including any valid Rule 33 exclusion.

In a cross-border structure, the same classification can also determine whether export treatment is available or intermediary provisions alter the place-of-supply result.

Classify first.
Value second.
Determine place third.
Calculate tax last.

Statutory Framework

Section 2(6), IGST Act — Export of services
Section 2(13), IGST Act — Intermediary
Section 13, IGST Act — Place of supply of services
Section 15, CGST Act — Value of taxable supply
Rule 33, CGST Rules — Pure agent
CBIC Circular No. 159/15/2021-GST dated 20 September 2021 — Intermediary clarification
CBIC Circular No. 230/24/2024-GST dated 10 September 2024 — Advertising services provided to foreign clients

REIT & InvIT taxation in 2026: the SPV’s tax choice can no longer decide the investor’s dividend exemption

 By CA Surekha S Ahuja

The 2026 amendment is not merely a tax relief for REIT and InvIT investors. It is a structural correction: the tax regime chosen by an SPV is now separated from the dividend exemption of the unit holder.

The Taxation and Other Laws (Amendment) Act, 2026 has corrected an unintended conflict between the new MAT framework, the concessional corporate-tax regime and the pass-through taxation of REITs and InvITs.

The change is effective from 1 April 2026. The result is simple but significant:

SPV chooses its tax regime → SPV bears its own tax consequences → unit holder's dividend exemption is no longer lost merely because the SPV opted for Section 200.

However, Parliament has simultaneously increased the surcharge for qualifying business-trust SPVs opting for the concessional regime from 10% to 25%.

The problem Parliament has actually fixed

The Income-tax Act, 2025 carries forward the business-trust pass-through architecture through Section 223 read with Schedule V.

Schedule V, Table Serial No. 3 exempts specified interest and dividend received by a business trust from its SPV. Table Serial No. 5 deals with the corresponding distributed income in the hands of the unit holder. But the original wording of Serial No. 5 contained an important restriction:

Dividend from an SPV that had exercised Section 200 → corresponding dividend component was not exempt in the unit holder's hands.

So the investor's tax position could depend upon a decision taken by the underlying SPV.

The anomaly

SPV opts for concessional regime

↓

SPV gets its own corporate-tax benefit / MAT-credit opportunity

↓

REIT/InvIT receives dividend

↓

Unit holder loses dividend exemption

The investor had not made the tax election. Yet the investor bore its consequence. That was the structural mismatch.

Why did this become a 2026 problem?

Because the MAT reforms of Finance Act, 2026 made migration to the concessional regime more relevant for companies having accumulated MAT credit or facing the changed consequences of remaining under the old regime.

For an SPV, therefore, the commercial question could legitimately become: Should we move to the concessional regime?

But under the earlier business-trust framework, the answer could indirectly become: If we move, our REIT/InvIT investors may lose their dividend exemption.

This was precisely the wrong interaction between two policy objectives.

MAT policy

Encourage rational migration to the concessional regime versus 

Business-trust policy

Preserve the intended pass-through treatment for investors

TOLA 2026 resolves the conflict by removing the condition linking the unit-holder exemption to the SPV's Section 200 election. The amendment specifically omits the relevant clause in Schedule V, Table Serial No. 5.

What changed — in one table

Particular	Earlier position	From 1 April 2026
Dividend received by business trust from SPV	Exempt under Schedule V	Continues to be exempt
SPV under regular regime	Unit-holder dividend exemption	Exempt
SPV under Section 200	Unit-holder exemption could be denied	Exempt
Unit-holder exemption dependent on SPV's regime	Yes	No
Concessional-regime surcharge for specified SPV	10%	25%

The amendment therefore does not make all REIT/InvIT distributions tax-free. It specifically removes the adverse consequence attached to the dividend component arising from the qualifying SPV.

Interest, rental income, capital gains and other components continue to require separate analysis.

The most important policy insight: decoupling

The amendment should be understood as a decoupling exercise.

Earlier

SPV's tax election

→ investor's dividend exemption

Now

SPV's tax election

→ SPV-level tax consequences

while separately:

Qualifying dividend

→ business trust

→ unit holder exemption

This is more than a tax concession.

It restores a basic principle of pass-through taxation: A tax decision made at the SPV level should not, merely because of that decision, alter the tax character of an otherwise exempt distribution in the hands of the ultimate investor.

But the relief is not free: 25% surcharge

Parliament has created a fiscal counterweight.

For specified SPVs of business trusts opting for Section 200 or Section 201, the surcharge has been increased from 10% to 25%. Ordinary domestic companies opting for those concessional regimes continue to fall under the 10% category.

This is important because 25% is the surcharge on income-tax, not a 25% corporate tax rate.

For a company otherwise taxed at 22%:

	Earlier	Now
Base tax	22%	22%
Surcharge	10% of tax	25% of tax
Tax + surcharge	24.20%	27.50%
Including 4% cess	25.17%	28.60%

Thus the Government has effectively shifted the fiscal cost:

Earlier potential cost → unit holder

Now additional cost → qualifying SPV

while restoring the investor exemption.

That is the key economic trade-off.

The real impact on SPV decision-making

This is where the amendment becomes commercially important.

An SPV should now evaluate its tax regime primarily on its own economics:

• accumulated MAT credit;
• future MAT exposure;
• concessional tax rate;
• 25% surcharge;
• project life;
• expected taxable profits;
• cash flows;
• debt servicing;
• expected distributions.

It no longer needs to treat loss of the investor's dividend exemption as an automatic consequence of choosing Section 200.

Therefore: The amendment improves tax neutrality inside the REIT/InvIT structure, even though it makes the concessional regime more expensive for the qualifying SPV.

The ₹100 dividend test

Suppose an SPV ultimately distributes ₹100 of post-tax profit as dividend to the REIT/InvIT.

Earlier - SPV on regular regime

₹100 → REIT/InvIT → Unit holder
Dividend exemption available

SPV on Section 200

₹100 → REIT/InvIT → Unit holder
Dividend exemption could be denied

From 1 April 2026

SPV on either regime

₹100 → REIT/InvIT → Unit holder
Dividend exemption is no longer denied merely because Section 200 was chosen.

The SPV still pays tax under its applicable regime, including the enhanced surcharge where applicable.

The amendment therefore does not eliminate tax at the SPV level.

It removes the second-level tax consequence for the investor.

The one important loose end: TDS

This is the issue that deserves professional attention. The substantive exemption has been widened.

But Section 393(4), which specifies circumstances where TDS is not to be deducted, still contains the earlier condition for business-trust income: no TDS where the relevant dividend income is from an SPV that has not exercised the option under Section 200.

The current Income-tax Department text of Section 393 expressly contains this condition.

That creates a potential mismatch: Substantive law → dividend exemption restored irrespective of SPV regime but

TDS law → no-deduction condition still refers to an SPV not having exercised Section 200.

This should not be casually dismissed. 

Professional implication

Tax exemption ≠ automatic TDS exemption.

Until the provision is amended or CBDT clarifies the position, REITs/InvITs should separately review their withholding position before changing their TDS systems or distribution processes.

This is arguably the most important unresolved technical point in the amendment.

Before and after: the complete professional picture

Issue	Before 1 April 2026	From 1 April 2026
SPV's choice of concessional regime	Could affect investor exemption	Does not by itself affect exemption
Dividend at business-trust level	Exempt	Exempt
Dividend at unit-holder level	Conditional	Condition removed
SPV surcharge under concessional regime	10%	25%
MAT-credit-driven regime decision	Could create investor-level collateral consequence	Investor consequence removed
TDS relaxation	Aligned with old condition	Potential statutory mismatch
Overall architecture	SPV choice could disturb pass-through	Pass-through restored

What REITs, InvITs and SPVs should do now

SPVs - Recompute the tax-regime decision.

Do not compare only headline tax rates. Model: MAT credit + future MAT + concessional tax + 25% surcharge + cash-flow impact.

REITs / InvITs - Revisit distribution modelling.

Map each SPV's tax regime and separately identify:

dividend | interest | rental income | other income | capital gains | redemption-related amounts.

Tax teams - Review Section 393 TDS separately.

Do not assume that the amended substantive exemption automatically changes the withholding obligation.

The professional conclusion

The 2026 amendment should be read as a policy correction, not merely a tax concession.

The Government had created an incentive for companies to reconsider the concessional tax regime through the MAT reforms. That incentive could, however, have unintentionally penalised REIT/InvIT investors because the SPV's election could destroy their dividend exemption.

Parliament has now removed that link. 

The new architecture is:

MAT reform

↓
SPV may rationally migrate to concessional regime

↓
Investor's dividend exemption remains protected

↓
Qualifying SPV bears 25% surcharge

↓
TDS alignment remains the unfinished issue

The most important takeaway

The SPV's tax regime now determines the SPV's tax cost—not, merely by itself, the investor's dividend exemption.

That is the real significance of the 2026 REIT/InvIT amendment. And for professionals, the next question is not whether the dividend is exempt.

It is:  Has the withholding mechanism under Section 393 moved with the substantive exemption?

As the law presently reads, that question still deserves a careful answer.

The 31 March Revenue Trap: One Contract, Three Clocks & One Profit Question

By CA Surekha S Ahuja

How Accounting, GST and Income Tax can treat the same transaction differently — and why ignoring related costs can distort year-end profit.

31 March is over. Balance sheets are being finalised.

A ₹1 crore service contract is completed and accepted on 31 March. The invoice is raised on 5 April and payment received on 30 April.

Which year gets the ₹1 crore — and which costs go with it?

The answer does not start with the invoice.

ONE TRANSACTION. THREE STATUTORY TESTS

Framework	Core question	Key test
Accounting	When is revenue recognised?	Ind AS 115 / AS 9, performance, acceptance, contractual rights
GST	When does GST arise?	Applicable time-of-supply provisions
Income Tax	How is taxable income computed?	Applicable tax provisions / ICDS
Costs & Profit	What belongs with the revenue?	Direct costs, WIP, accruals, cost to complete, obligations

The dates may coincide — or may differ. Getting revenue right but costs wrong can still produce the wrong profit.

ACCOUNTING CLOCK

For Ind AS 115:

Contract → Performance obligation → Satisfaction → Right to consideration → Contract asset / receivable

Do not equate:

Completion = invoicing
Invoiceability = revenue recognition
Unbilled revenue = receivable

For AS 9, apply the relevant service-revenue principles separately.

Trigger: A material April invoice relating to March activity requires a cut-off review.

GST CLOCK

GST has its own statutory timing.

March accounting revenue ≠ automatically March GST.

April invoice ≠ automatically April GST.

Apply the applicable time-of-supply provisions independently.

⚠️ Never derive GST timing merely from the P&L date.

INCOME-TAX CLOCK

“Revenue in the books = taxable income in the same year.”

Not necessarily.

Apply the Income-tax provisions and ICDS, where applicable. ICDS IV contains specific service rules and Section 43CB addresses specified construction and service contracts.

Book revenue and taxable income must be separately analysed and reconciled.

THE COST CLOCK — OFTEN MISSED

If ₹1 crore is recognised in March, ask what costs belong with it:

Direct employee/project costs • Materials • Subcontractors • Unbilled vendor costs • Direct expenses • WIP • Cost to complete • Contractual obligations • Potential losses

Expense incurred ≠ invoice received.

A March service received from a vendor but invoiced in April may require an accrual, subject to the applicable accounting framework.

But:  Future expenditure ≠ automatically a provision.

WORK STILL TO BE DONE

Ask: 

What remains incomplete?
What will it cost to complete?
Does the contract indicate a loss?
Does any liability/provision require recognition?

Test	Key question
Revenue	What performance was completed?
Costs	What costs relate to it?
WIP	What remains?
Cost to complete	What will completion cost?
Obligations	Is any liability/provision required?
Margin	What is the expected final profit/loss?

Revenue recognition and contract profitability must be tested together.

CONTRACT CLAUSES THAT CAN CHANGE THE ANSWER

Performance obligations • Milestones • Acceptance • Right to payment • Billing conditions • Completion certificates • Retention • Variable consideration • Termination • Post-year-end obligations

The contract can change both the revenue and cost conclusion.

THE 10-POINT YEAR-END TEST

Check	Question
1. Contract	What exactly was promised?
2. Performance	What was completed by 31 March?
3. Acceptance	Was acceptance required and substantive?
4. Consideration	What contractual right existed?
5. Accounting	Ind AS 115 or AS 9?
6. GST	What is the time of supply?
7. Income Tax	What do tax rules / ICDS require?
8. Direct Costs	What costs relate to completed work?
9. WIP	What remains and what will it cost?
10. Obligations	Is accrual / provision / loss recognition required?

FIVE DANGEROUS SHORTCUTS

“Invoice is April, so revenue is April.” → Not necessarily.
“Work is complete, so everything is March revenue.” → Not necessarily.
“March revenue means March GST.” → Different statutory test.
“Books show ₹1 crore, so tax is ₹1 crore.” → Separate tax analysis.
“Revenue is right, so profit is right.” → Not without cost analysis.

YEAR-END RISK MAP

Risk	Potential consequence
Revenue before required performance	Overstatement / audit risk
Revenue deferred merely due to later invoice	Cut-off risk
GST timing derived from accounting	GST + interest
Books copied into tax computation	Tax adjustment + interest
Direct costs not accrued	Profit overstatement
Unsupported WIP	Asset overstatement
Cost-to-complete ignored	Margin / loss misstatement
Obligations ignored	Liability / provision risk
Books–GST–Tax differences unexplained	Scrutiny / audit risk

THE YEAR-END CONTROL

For every material March–April contract:

Contract → Performance & Acceptance → Revenue → Direct Costs & WIP → Cost to Complete / Obligations → GST → Income Tax → Invoice / Collection

Then reconcile:

Books ↔ GST Returns ↔ Tax Computation ↔ Contract

Every material difference needs a reason, evidence and closure trail.

THE FINAL CAUTION

Do not conclude “March” or “April” merely from the:

Invoice date • completion date • accounting entry • GST return • payment date

First establish what the contract required and what actually happened by 31 March.

Then apply Accounting + GST + Income Tax + Cost recognition separately and reconcile the complete position.

BEFORE SIGN-OFF, ASK ONE QUESTION

Can we defend the revenue, related costs, WIP, contractual obligations, GST and tax treatment of every material March–April contract from the contract, actual performance and contemporaneous evidence?

If not:  STOP. REVISIT THE CUT-OFF.

The contract tells you what was agreed. Performance tells you what happened. Accounting determines recognition.

GST determines GST timing.
Income-tax law determines tax computation.
Costs determine whether the margin is real.
The invoice tells you when you billed.

ONE CONTRACT. THREE CLOCKS. ONE PROFIT QUESTION.

An invoice after 31 March is a trigger for investigation — never the conclusion.

The Earn-Out Tax Trap: What Every Founder Must Know Before Signing the SPA

By CA Surekha S Ahuja

 “The real value of an exit is not the headline price. It is what the seller can legally secure and ultimately retain after tax, costs and risk.”

When a business is sold, the entire consideration may not be payable upfront. A buyer may agree to pay ₹80 crore at closing plus up to ₹20 crore if the business achieves specified future targets.

That additional contingent consideration is an earn-out.

It helps bridge a valuation gap, but creates the most important question:

When does the earn-out become taxable

Is it taxable when the shares are sold, when the right becomes enforceable, when the performance condition is achieved, or when the money is received?

And a second question can be equally important:  Is the payment genuinely for the shares, or is it compensation for the founder's future services?

The answer can affect timing, tax character, withholding, liquidity and ultimately the founder's net exit value.

Earn-Out Is Not the Same as Deferred Consideration

Structure	What it means	Main concern
Fixed consideration	Amount agreed for the shares	Capital-gains taxation
Deferred consideration	Agreed amount, payment postponed	Accrual and timing
Escrow / holdback	Consideration retained for specified risks	Release and tax treatment
Earn-out	Additional amount dependent on future conditions	Accrual, characterisation and taxability

The critical question is: At closing, does the seller have an enforceable right to the money, or only a possibility of receiving it?

When Does the Earn-Out Become Taxable

Consider: 2026: Shares sold for ₹80 crore + up to ₹20 crore earn-out.

2029: EBITDA target achieved and ₹15 crore becomes payable.

The issue is whether the ₹15 crore: accrued in 2026, or

arose only when the contingency was satisfied in 2029.

Indian jurisprudence requires caution. In Hemal Raju Shete, the Bombay High Court recognised the importance of the contingency and did not treat the maximum possible future amount as automatically accrued merely because it was mentioned in the agreement.

In Ajay Guliya, the Delhi High Court adopted a different approach in the context of deferred/contingent consideration and the capital-gains provisions.

Therefore:  It is unsafe to say that every earn-out is taxable only on receipt — or that every earn-out is automatically taxable in the year of sale.

The contractual right, contingency and statutory framework must be examined together.

Under the Income-tax Act, 2025, capital gains continue to be linked to the year of transfer and the consideration received or accruing from the transfer. The Act also contains specific rules dealing with situations where consideration is not ascertainable or cannot be determined. The precise application to an earn-out is therefore transaction-specific.

The Earn-Out May Also Become a Salary Problem

Suppose:  ₹80 crore is paid for shares.

Another ₹20 crore is payable if EBITDA reaches the target.  But the founder loses the ₹20 crore if he leaves employment.

The question becomes: Is the ₹20 crore really consideration for the shares, or is it remuneration for continuing services?

Factors requiring attention include: 

• whether payment depends on the founder personally;
• forfeiture on resignation;
• continuing employment;
• separate salary or consultancy arrangements;
• business performance versus individual performance;
• whether the payment resembles a retention or performance bonus.

Golden rule - The SPA label does not determine the tax character. Substance, rights and documentation must be consistent.

The Best Tax-Planning Strategy: Reduce Unnecessary Contingency

The objective should not be to artificially label an earn-out as capital consideration.

The better approach is to ask: How much of the valuation genuinely needs to remain contingent?

Suppose the buyer agrees to a maximum value of ₹100 crore.

Less secure :  ₹80 crore fixed + ₹20 crore earn-out

Better :  ₹90 crore fixed + ₹5 crore guaranteed deferred consideration + ₹5 crore genuine earn-out

Now only ₹5 crore remains genuinely exposed to future performance.

If the buyer's concern is only cash flow:

Consider: ₹90 crore fixed + ₹10 crore deferred consideration  rather than creating a ₹10 crore performance contingency.

If the buyer's problem is funding, solve funding — do not transfer unnecessary performance risk to the seller.

If an Earn-Out Is Necessary, Make It More Secure

Risk	Better structuring
Entire amount contingent	Fixed consideration + guaranteed floor
All-or-nothing target	Sliding-scale earn-out
Vague performance condition	Objective measurable formula
Buyer controls EBITDA	Agreed accounting principles and verification
Buyer can frustrate target	Anti-manipulation protections
Buyer sells business	Change-of-control protection
Founder leaves	Clearly defined termination treatment
Buyer alone calculates	Independent verification / dispute mechanism

For example, instead of:  EBITDA below ₹100 crore = ₹0

₹100 crore+ = ₹20 crore

consider a graduated formula where partial achievement produces partial consideration.

The seller should accept genuine business-performance risk — not avoidable buyer-control risk.

Protect the Earn-Out in the SPA

The earn-out clause should clearly define: EBITDA / revenue methodology, accounting policies,  extraordinary items, related-party charges, group allocations, acquisitions and disposals, business restructuring, calculation and certification, information rights, independent determination, dispute resolution, change of control, termination / resignation

The purpose is simple:

The buyer should retain operational freedom, but should not be able to manipulate the measurement mechanism to defeat the seller's agreed entitlement.

Multiple Founders Need Separate Tax Models

Four founders may sell under one SPA but have different tax outcomes. One may be a resident individual, another a company, another a non-resident and another may continue as CEO.

Therefore: One transaction does not mean one tax calculation.

Before signing, calculate for every seller: 

Exit calculation	Amount
Fixed consideration	₹X
Guaranteed deferred consideration	₹X
Minimum earn-out	₹X
Maximum earn-out	₹X
Potential tax	₹X
Withholding	₹X
Tax reserve	₹X
Transaction costs	₹X
Net minimum exit value	₹X
Net expected exit value	₹X
Net maximum exit value	₹X

Model the outcome at:

0% | 50% | 100% earn-out

This is far more meaningful than simply saying: “The business was sold for ₹100 crore.”

The Founder’s Pre-Signing Checklist

Before signing the SPA, every seller should know:

Economics

• What is fixed?
• What is guaranteed?
• What is contingent?
• What is realistically achievable?

Tax

• When could each amount become taxable?
• Could any amount be characterised as salary?
• What withholding may apply?
• How much should be reserved?

Contract

• Who controls the earn-out calculation?
• Is the formula objective?
• What happens if the founder leaves?
• What happens if the buyer sells the business?
• Can the buyer's actions reduce the earn-out?

Net Exit

• What do I retain if the earn-out is zero?
• What do I retain at 50%?
• What do I retain at 100%?

The Real Objective Is Not “Zero Tax”

The right question is not:  “How do I avoid tax on the earn-out?”

It is: “How do I maximise secure, post-tax value while ensuring the tax treatment reflects the genuine commercial substance of the transaction?”

That means:  i) more genuine fixed consideration less unnecessary contingency 

& a guaranteed minimum where commercially justified

ii) objective earn-out mechanics and protection from buyer-controlled events

iii) clear separation of genuine service compensation & seller-wise tax modelling

and a proper tax reserve.

Conclusion: Secure the Value Before You Sign

An earn-out is not simply money payable later.

It can represent: future consideration, future tax, future uncertainty

and future contractual risk.

The Indian judicial position, including Hemal Raju Shete and Ajay Guliya, shows why the taxability of contingent consideration cannot be reduced to a universal “tax on receipt” or “tax on sale” rule.

The founder's objective should therefore be to de-risk the economics before signing:

Make as much consideration fixed or genuinely guaranteed as commercially possible.

Keep only the genuinely uncertain value contingent.

Make the earn-out objective and independently verifiable.

Protect it from buyer-controlled events.

Separate genuine future-service compensation from share consideration.

Calculate each seller's tax and net exit value before signing.

Because ultimately: The best exit is not the one with the highest headline valuation.

It is the one where the founder knows what is certain, what is taxable, what is at risk — and what will actually remain in their hands. 

Plan the tax. Structure the consideration. Protect the earn-out. Calculate the net exit. Then sign.

Professional Caution

Earn-out taxation is highly fact-specific. The result depends on the SPA, enforceability of the right, nature of the contingency, timing, seller status, continuing employment, applicable tax provisions and judicial interpretation. Marren v. Inglis may provide conceptual guidance but is not settled Indian law. Transaction-specific tax, legal, FEMA and SPA advice should be obtained before signing the definitive agreements.

UAE Small Business Relief 2026: The AED 3 Million Tax Trap That Every SME Must Understand Before Claiming Zero Tax

 By CA Surekha S Ahuja

Why “Revenue Below AED 3 Million” Is Not Enough and How Businesses Can Protect Their Corporate Tax Position

“The most expensive tax mistake is not paying tax. It is claiming a benefit that you cannot defend.”

A UAE business owner sees one number:   AED 3 Million

The immediate conclusion:  “My revenue is below AED 3 million. My Corporate Tax is zero.”

But this simple assumption can become the biggest compliance risk.

Because under UAE Corporate Tax, Small Business Relief is not a free pass.

It is a carefully structured benefit with conditions, exclusions, elections and documentation requirements.

The real question is not: “Are we below AED 3 million?”

The real question is: “Can we prove that we qualify?”

The UAE Tax Story Has Changed

For years, the UAE was known as a low-tax destination.

Today, it remains one of the world's most attractive business locations.

But the winning formula has changed. Earlier:  Set up a company → Enjoy tax benefits

Today:  Build the right structure → Maintain substance → Document decisions → Claim benefits correctly

The UAE Corporate Tax environment rewards businesses that are organised, not businesses that simply search for zero tax.

Small Business Relief: A Powerful Benefit With a Hidden Message

Small Business Relief can provide significant benefit to eligible UAE Resident Persons.

Where conditions are satisfied and the required election is made, the business can effectively have no taxable income for that tax period.

However, three words are critical: Where conditions are satisfied.

The relief is not automatic. It requires analysis.

The Biggest Myth: AED 3 Million Means Automatic Zero Tax

This is the most common misunderstanding.

The AED 3 million revenue threshold is important, but it is only the first filter.

A proper review requires asking:

Question	Why It Matters
Is the entity eligible?	Not every person or entity qualifies
Is revenue correctly calculated?	Incorrect turnover can affect eligibility
Are previous tax periods considered?	Past periods may impact the claim
Are exclusions applicable?	Certain businesses cannot claim relief
Has the election been properly made?	Relief is not automatic
Are records available?	The position must be supported

The Revenue vs Profit Confusion

A surprisingly common mistake is:  “My profit is low, so I should qualify.”

That is not how the relief works. The focus is revenue.

Example:

Business	Revenue	Profit	Practical View
Business A	AED 2.70 million	AED 15 lakh	May qualify if conditions are met
Business B	AED 3.20 million	AED 25,000	Low profit does not solve eligibility
Business C	AED 1.90 million	Loss	Loss does not remove compliance obligations

A business can have high profits and still qualify. A business can have losses and still fail.

The Hidden Compliance Trap: Zero Tax Does Not Mean Zero Responsibility

This is where many SMEs may make a costly mistake.  They think:

“No tax payable = no action required.”

The correct position:  A business claiming Small Business Relief still needs to consider:

✔ Corporate Tax registration
✔ Corporate Tax return filing
✔ Correct relief election
✔ Accounting records
✔ Supporting documentation

Tax liability and compliance responsibility are two different things.

The Management Question Every UAE SME Should Ask

Before claiming relief, management should ask:

“If the FTA reviews our claim tomorrow, can we explain why we qualify?”

A strong tax position should have:

1. Commercial Logic

Why does the business structure exist?

2. Accurate Numbers

How was revenue determined?

3. Supporting Evidence

Where are the records?

4. Consistent Treatment

Are accounting and tax positions aligned?

Free Zone Businesses: Another Common Misunderstanding

A Free Zone licence is valuable.

But:

Free Zone does not automatically mean zero Corporate Tax.

Small Business Relief and Free Zone tax benefits are different provisions.

Businesses must separately analyse:

• Qualifying status
• Income classification
• Substance requirements
• Documentation

The best tax benefit is not the biggest benefit.

It is the benefit that survives review.

The India UAE Connection: The Question Many Entrepreneurs Miss

Indian entrepreneurs setting up UAE entities often focus only on UAE tax.

But the bigger picture includes:

• FEMA compliance
• Tax residency
• Place of Effective Management
• Transfer pricing
• Cross-border transactions
• Repatriation issues

A UAE structure should create business value, not merely a tax outcome.

2026 UAE Small Business Relief Checklist

Before claiming the benefit:

☑ Verify entity eligibility
☑ Confirm revenue computation
☑ Review previous tax periods
☑ Analyse related party transactions
☑ Check exclusions
☑ Complete Corporate Tax compliance
☑ Maintain supporting records
☑ Review future growth impact

Final Professional Insight

The UAE tax environment is not becoming less attractive. It is becoming more professional.

The era of: “UAE means zero tax”  is being replaced by: “UAE rewards correctly structured businesses.”

Small Business Relief is a valuable opportunity. But the smartest businesses will not ask:

“Can we claim zero tax?”  They will ask: “Have we built a position strong enough to defend zero tax?”

In modern taxation, the biggest advantage is not the lowest tax rate. It is the strongest tax position.