By Vikram Mehta | Updated March 2026
What Is Beneficial Ownership?
Beneficial ownership in India is not a single legal concept — it operates across three distinct regulatory frameworks, each with its own definition, thresholds, and compliance obligations. For a foreign investor setting up operations in India, all three contexts demand attention simultaneously.
The first context is anti-money laundering (AML) under the Prevention of Money Laundering Act, 2002 (PMLA) and its Maintenance of Records Rules, 2005. Here, beneficial ownership means identifying the natural person who ultimately owns or controls a client of a reporting entity (banks, financial institutions, intermediaries). The second context is corporate law under Section 90 of the Companies Act, 2013, which requires every company to identify and report its Significant Beneficial Owners (SBOs) — individuals who hold at least 10% of shares, voting rights, or profit entitlements. The third context is tax treaties, where beneficial ownership of income (dividends, interest, royalties) determines eligibility for reduced withholding tax rates under India's DTAAs.
These three frameworks overlap but do not align. A person can be a beneficial owner under PMLA but not under Section 90. A company can claim beneficial ownership of income under a tax treaty but fail the SBO declaration test. Understanding which framework applies — and when all three apply simultaneously — is essential for any foreign investor with a multi-layered holding structure investing in India.
Legal Basis
- Section 90 of the Companies Act, 2013 — Requires every company to identify, maintain a register of, and report Significant Beneficial Owners to the Registrar of Companies. Introduced by the Companies (Amendment) Act, 2017; operational framework established by the Companies (Significant Beneficial Owners) Rules, 2018 (as amended in 2019 and 2024).
- PMLA, Section 2(1)(fa) and Rule 9 of the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 — Defines "beneficial owner" as the natural person who ultimately owns or controls a client of a reporting entity or on whose behalf a transaction is conducted. Threshold reduced from 25% to 10% by the March 2023 Amendment Rules.
- SEBI (Foreign Portfolio Investors) Regulations, 2019 — Requires FPIs to identify and disclose beneficial owners. Enhanced granular disclosure requirements introduced in August 2023 for FPIs with equity AUM exceeding INR 25,000 crore (threshold raised to INR 50,000 crore in April 2025).
- Income Tax Act, 1961 and DTAAs — Treaty articles on dividends, interest, and royalties require the recipient to be the "beneficial owner" of the income to claim reduced withholding rates. India's domestic law requires Tax Residency Certificates and Form 10F as prerequisites.
- FATF Recommendation 24 — The Financial Action Task Force standard requiring countries to ensure transparency of beneficial ownership of legal persons. India's SBO framework under Section 90 and PMLA rules are aligned with FATF standards.
Context 1: Beneficial Ownership Under PMLA (Anti-Money Laundering)
Under the PMLA framework, the concept of beneficial ownership targets the identification of the natural person behind every client relationship maintained by a "reporting entity" — banks, financial institutions, insurance companies, real estate agents, dealers in precious metals, and intermediaries registered with SEBI or stock exchanges.
Who Is a Beneficial Owner Under PMLA?
A beneficial owner is defined as the natural person who, whether acting alone or together, or through one or more juridical persons, has a controlling ownership interest or who exercises control through other means over a client of a reporting entity.
Thresholds (Post-March 2023 Amendment)
The March 2023 amendment to the PMLA Maintenance of Records Rules significantly tightened the thresholds:
| Entity Type | Previous Threshold (Pre-2023) | Current Threshold (Post-March 2023) | What Triggers Identification |
|---|---|---|---|
| Company | Ownership or entitlement to more than 25% of shares, capital, or profits | Ownership or entitlement to more than 10% of shares, capital, or profits | Opening account, establishing relationship, conducting transaction above INR 50,000 |
| Partnership firm | Ownership of more than 15% of capital or profits | Ownership of more than 15% of capital or profits | Same as above |
| Unincorporated association or body of individuals | Ownership of more than 15% of property, capital, or profits | Ownership of more than 15% of property, capital, or profits | Same as above |
| Trust | Author of trust, trustee, beneficiary with 15%+ interest | Author of trust, trustee, beneficiary with 15%+ interest, any person exercising ultimate control | Same as above |
When no natural person is identifiable using the ownership or control test, the senior managing official of the client entity is deemed the beneficial owner.
Obligations on Reporting Entities
Banks, NBFCs, securities intermediaries, and other reporting entities under the PMLA must: verify the identity of the beneficial owner using reliable, independent source documents; maintain records of beneficial owner identification for at least 5 years from the date of cessation of the relationship; file Suspicious Transaction Reports (STRs) with the Financial Intelligence Unit (FIU-IND) when beneficial ownership cannot be established or appears suspicious; and conduct enhanced due diligence for politically exposed persons (PEPs) and high-risk clients. Failure to comply can result in a penalty of up to INR 10 lakh for each failure under Section 13 of the PMLA, and continued default can attract a further penalty of up to INR 1 lakh per day.
Context 2: Significant Beneficial Owners Under Companies Act (Section 90)
The Significant Beneficial Owner (SBO) framework under Section 90 of the Companies Act, 2013 requires every company to identify the natural persons who hold significant beneficial interest — directly or indirectly — and report them to the Registrar of Companies.
Who Is an SBO?
An individual is a Significant Beneficial Owner if they (acting alone, together, or through one or more persons or trusts) hold at least 10% of: shares of the company, or voting rights in the company, or the right to receive or participate in distributable dividends or any other distribution, or exercise significant influence or control over the company by any other means.
The look-through principle applies: if shares are held through a chain of entities (e.g., an individual owns a Singapore company, which owns a Mauritius holding company, which owns the Indian company), the individual at the top is the SBO.
Forms and Filing Timelines
| Form | Purpose | Filed By | Filed With | Deadline |
|---|---|---|---|---|
| BEN-1 | Declaration by individual SBO | Individual | The company | Within 90 days of Rules commencement or 30 days of becoming SBO |
| BEN-2 | Filing of SBO details with ROC | Company | Registrar of Companies | Within 30 days of receiving BEN-1 |
| BEN-3 | Register of SBOs maintained at registered office | Company | Maintained internally, available for inspection | Continuous — updated within 30 days of any change |
| BEN-4 | Notice to non-individual members to identify SBO | Company | Members suspected of holding for an SBO | Issued as needed; response required within 30 days |
Penalties for Non-Compliance (Section 90)
Non-compliance with SBO provisions carries significant penalties:
- Individual SBO failing to declare (Section 90(10)): Penalty of INR 50,000 and an additional INR 1,000 per day of continuing default, up to a maximum of INR 2 lakh
- Company failing to maintain register or file information (Section 90(11)): Penalty of INR 1 lakh and an additional INR 500 per day, up to a maximum of INR 5 lakh
- Officers in default (Section 90(12)): Penalty of INR 25,000 and an additional INR 200 per day, up to a maximum of INR 1 lakh
- Willfully furnishing false information: Prosecution under Section 447 (punishment for fraud) — imprisonment of up to 10 years and fine of up to three times the fraud amount
Additionally, the company can apply to the National Company Law Tribunal (NCLT) to restrict the rights attached to shares held by a person who fails to comply with an SBO notice — including voting rights and the right to receive dividends.
July 2024 Amendment to Form BEN-2
The Companies (Significant Beneficial Owners) Amendment Rules, 2024 (notified July 15, 2024, via G.S.R. 404(E)) substituted Form BEN-2 with an enhanced version. Key changes include: separate disclosure categories for initial declaration, change in particulars, and cessation; digital signature requirements with detailed attachments; and integration with the MCA V3 portal supporting Excel/web-form format uploads.
Context 3: Beneficial Ownership in Tax Treaties
In the context of India's DTAAs, "beneficial ownership" determines whether a non-resident recipient of Indian-source income (dividends, interest, royalties, fees for technical services) qualifies for reduced withholding tax rates under the treaty — or must suffer withholding at higher domestic law rates.
Why Beneficial Ownership Matters for WHT Rates
India's domestic withholding tax rates for non-residents are:
- Dividends: 20% (Section 196D)
- Interest (general): 20%
- Interest (foreign currency loans by banks): 5% under specified conditions
- Royalties and FTS: 20%
Treaty rates are often significantly lower — but only available if the recipient is the "beneficial owner" of the income:
| Treaty Partner | Dividend Rate (general) | Dividend Rate (10%+ ownership) | Interest Rate | Royalty/FTS Rate |
|---|---|---|---|---|
| United States | 25% | 15% | 15% (10% for bank loans) | 15% |
| United Kingdom | 15% | 10% | 15% | 15% |
| Singapore | 15% | 10% | 15% | 10% |
| Netherlands | 10% | 10% | 10% | 10% |
| Germany | 10% | 10% | 10% | 10% |
| Japan | 10% | 10% | 10% | 10% |
| Mauritius | 15% | 5% | 7.5% | 15% |
| Domestic law (no treaty) | 20% | 20% | 20% | 20% |
The Beneficial Ownership Test
A recipient is the beneficial owner of income if it has the right to use and enjoy the income without being obligated to pass it on to another person. The test rejects conduit or agent arrangements where an intermediary company receives income from India but is contractually or practically bound to pass it through to the ultimate owner in a third country.
Indian tax authorities apply the beneficial ownership test aggressively, particularly in cases involving:
- Back-to-back loan arrangements (interest routed through a treaty-country entity that re-lends to the actual funder)
- Dividend payments to holding companies that routinely pass through dividends to their parent in a non-treaty country
- Royalty payments to treaty-country entities that sub-license IP received from a third-country parent
To claim treaty benefits, the non-resident must furnish: a valid Tax Residency Certificate (TRC) from its home country, Form 10F with prescribed details, a self-declaration of beneficial ownership (no obligation to pass through income), and Form 15CA/15CB certification by a Chartered Accountant for the remittance.
SEBI FPI Beneficial Ownership Disclosure
The Securities and Exchange Board of India (SEBI) has implemented a separate beneficial ownership disclosure framework for Foreign Portfolio Investors (FPIs) operating in Indian capital markets.
Standard Disclosure
All FPIs must identify and disclose their beneficial owners as part of the KYC process, using PMLA thresholds (10% for companies).
Enhanced Granular Disclosure
SEBI introduced enhanced granular disclosure requirements in August 2023 (effective November 1, 2023) for high-value FPIs. Originally, FPIs (individually or as part of an investor group) holding equity AUM exceeding INR 25,000 crore were required to provide full look-through disclosure of all entities holding any ownership, economic interest, or control rights. In April 2025, SEBI doubled this threshold to INR 50,000 crore, reducing the number of FPIs subject to granular disclosure.
These granular disclosures are designed to prevent circumvention of minimum public shareholding requirements and to identify potential violations of Press Note 3 restrictions on investments from countries sharing a land border with India.
How This Affects Foreign Investors in India
A foreign investor with a multi-layered holding structure investing in India faces beneficial ownership obligations from all three frameworks simultaneously:
- When opening a bank account in India (for a branch office, liaison office, or subsidiary), the authorized dealer bank will require identification of beneficial owners under PMLA rules. The 10% threshold means that any individual with 10% or more ownership must be disclosed.
- When incorporating or investing in an Indian company, the Indian company must identify and report all SBOs under Section 90. If a Singapore company wholly owns the Indian subsidiary, the individuals who own 10% or more of the Singapore parent are SBOs of the Indian company.
- When receiving dividends, interest, or royalties from India, the recipient must demonstrate beneficial ownership of the income to claim DTAA rates. A holding company that passes through all income to its parent may fail this test.
Common Mistakes
- Treating beneficial ownership as a single concept across all three frameworks. The PMLA definition (ultimate owner of a client), the SBO definition (holder of 10% shares/votes/profits in a company), and the treaty definition (owner of income who is not obligated to pass it through) are distinct. A person can be a beneficial owner under one framework but not the others.
- Assuming that corporate shareholders satisfy SBO reporting by disclosing only the immediate parent. Section 90 requires identification of the natural person at the end of the ownership chain. If an Indian company is owned by a Singapore company, which is owned by a Cayman fund, the SBO is the natural person with 10% or more interest in the Cayman fund — not the Singapore company.
- Failing to update BEN-1/BEN-2 filings when ownership changes. SBO declarations must be updated within 30 days of any change. Investment rounds, secondary sales, and fund restructurings can alter beneficial ownership — and the company must file a fresh BEN-2 with the ROC within 30 days of receiving the updated BEN-1.
- Confusing the SEBI FPI disclosure threshold with PMLA beneficial ownership. The SEBI granular disclosure threshold (INR 50,000 crore AUM) applies to full look-through reporting. The PMLA 10% threshold applies to all FPIs regardless of AUM. An FPI below the SEBI threshold still must identify beneficial owners under PMLA at the 10% level.
- Claiming treaty beneficial ownership for a conduit entity that mechanically passes through income. Indian tax authorities actively challenge treaty claims where the recipient has no genuine right to use and enjoy the income. A Netherlands holding company that receives dividends from India and is contractually bound to pay them upward to a Bermuda parent is not the beneficial owner — and the treaty rate will be denied.
Practical Example
Meridian Capital Pte Ltd, a Singapore-based investment holding company, holds 100% of Meridian India Pvt Ltd, an Indian subsidiary. Meridian Capital is owned by three individuals: James Chen (45%), Sarah Park (35%), and David Liu (20%). The Indian subsidiary pays a dividend of INR 5 crore to Meridian Capital.
SBO Compliance (Section 90): All three individuals exceed the 10% threshold. Meridian India must: (a) issue BEN-4 notices to Meridian Capital requesting SBO details, (b) receive BEN-1 declarations from James, Sarah, and David, (c) maintain BEN-3 register with all three individuals' details, and (d) file BEN-2 with the ROC within 30 days. Total penalties for non-compliance: up to INR 5 lakh for the company and up to INR 2 lakh for each individual SBO who fails to declare.
PMLA Compliance: When Meridian India opens its bank account with an Indian authorized dealer bank, the bank must identify all three individuals as beneficial owners (each exceeds 10%). Meridian Capital must provide identification documents and source-of-funds documentation for all three.
Treaty Beneficial Ownership (Dividend WHT): Meridian India must withhold tax on the INR 5 crore dividend. Under the India-Singapore DTAA, the dividend rate is 10% (for shareholding exceeding 25% of capital) versus 15% otherwise. To claim the 10% rate, Meridian Capital must demonstrate it is the beneficial owner of the dividend — i.e., it is not merely a conduit passing the dividend to another entity. If Meridian Capital retains and reinvests the dividend income, the beneficial ownership test is satisfied. WHT at 10% = INR 50 lakh. If Meridian Capital is a conduit (passing dividends to a Cayman parent), treaty benefits are denied: WHT at domestic rate of 20% = INR 1 crore — a difference of INR 50 lakh on a single dividend payment.
SEBI Compliance (if applicable): If Meridian Capital also holds Indian listed securities as an FPI, it must disclose beneficial owners to its designated depository participant under PMLA thresholds. If its Indian equity AUM exceeds INR 50,000 crore, full granular look-through disclosure is required.
Key Takeaways
- Beneficial ownership in India operates across three distinct frameworks: PMLA (AML — identify the ultimate natural person behind a client), Companies Act Section 90 (SBO — report individuals with 10% or more interest in a company), and tax treaties (qualify for reduced WHT rates by proving you are the genuine owner of the income)
- The PMLA threshold was reduced from 25% to 10% in March 2023, catching a much wider net of individual owners
- SBO non-compliance penalties are material: up to INR 5 lakh for companies and INR 2 lakh for individuals, with potential fraud prosecution under Section 447 for willful misrepresentation
- Tax treaty beneficial ownership is critical for WHT rates: the difference between treaty rates (5%-15%) and domestic rates (20%) can be substantial on cross-border payments
- SEBI requires enhanced granular FPI disclosure for investor groups with Indian equity AUM above INR 50,000 crore (threshold raised from INR 25,000 crore in April 2025)
- Multi-layered holding structures trigger all three frameworks simultaneously — compliance requires coordinated analysis across PMLA, corporate law, and tax treaty requirements
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