How Walmart’s Buy of Flipkart in $16 Billion Will Change the Startup Map of India!


The department currently is going through the Section 9(1) of the Income Tax law, which deals with indirect transfer provisions, to see if the benefits under the bilateral tax treaties with countries like Singapore and Mauritius, could be available for foreign investors selling stakes to Walmart.

Singapore-registered Flipkart Pvt. Ltd. holds majority stake in Flipkart India. As per the definitive agreement between the companies last week, Walmart will acquire about 77 per cent stake in the Singapore entity for USD 16 billion.

The agreement will effectively result in transfer of ultimate ownership in Flipkart India to Walmart. 

  1. To ascertain the exact tax liability, the revenue department will write to Flipkart seeking the share purchase agreement that the company had entered into with Walmart.
  2. The department will seek the share purchase agreement once the formalities for the sale are completed. The agreement will help in tracking the flow of funds and the ultimate beneficiary,” the official told PTI.
  3. As regards applicability of General Anti Avoidance Rules (GAAR), the official said it would apply in cases where the investments were made to avoid taxes.
  1. In the Walmart-Flipkart deal, the revenue department will go through the share purchase agreement to ascertain the purpose of investment and the emanating gains.


  1. On whether the benefits of bilateral tax treaties will be available in this deal, the official said the department will go through the details of different double taxation avoidance agreements (DTAAs) to ascertain whether taxes could be levied at concession rate and investment made prior to a particular date can be grandfathered.


  1. “There is likely to be capital gains withholding tax implications when the shares of Flipkart Singapore are sold by Softbank or other foreign investors. The tax rate will depend upon the facts of the case,” V Lakshmikumaran, Managing Partner of law firm Lakshmikumaran & Sridharan said.


  1. The tax department had last week written to Bentonville-Arkansas based Walmart saying that the US company can seek guidance about the tax liability under Section 195 (2) of the I-T Act.


  1. Under Section 195 of the Act, anyone making payment to non-residents is required to deduct tax (commonly known as withholding tax).


  1. As per Section 9 (1) of I-T Act dealing with indirect transfer provisions, the value of shares of a foreign company is deemed to be substantially derived from India, if the value of the Indian assets is greater than 50 per cent of its worldwide assets — a criteria that is apparently met in Flipkart’s case.
  2. In Section 9 (1), Walmart-Flipkart deal, the assets of Flipkart Singapore is applied which is substantially based in India and hence the capital gain tax would be paid by the seller liable, suggests the Titus and Co-Managing partners Diljeet Titus.


  1. As regards, Binny Bansal and Sachin Bansal, the founder of the firm who made the capital gains tax, would have to pay 20% tax with indexation benefit which is applicable by Indian residents on sale of unlisted shares.





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