CII pitches for tax benefits to FIIs

K. R. Srivats Updated - November 17, 2017 at 01:14 PM.

The Confederation of Indian Industry (CII) wants foreign institutional investors (FIIs) to be treated on par with participatory note (P-Note) holders with regard to income tax on gains made by them.

Just as the Finance Ministry had clarified that P-Note holders would not be subjected to tax, the same treatment should be extended to FIIs, the industry chamber said in a representation to the Shome Committee, which is looking afresh into when and how general anti-avoidance rules (GAAR) should be implemented.

Simply put, CII wants the gains made by FIIs or its investors not to be subjected to income tax, either on account of the newly introduced provisions on indirect transfers or even with regard to gains made from direct transfers.

Shome panel

The Shome Committee is also looking at the retrospective amendments made in this year’s Budget to bring indirect transfer of shares abroad in the tax net.

This committee had invited suggestions on the draft GAAR guidelines released by the Finance Ministry in end June. Indications are that the draft guidelines would be revised for further comments in the coming days before the committee finalises its report in end September. Pitching for a fair and transparent taxation regime for foreign portfolio investors, CII has pointed out that a significant portion of liquidity in the Indian capital market was contributed by FIIs. Their participation in debt as well as equity is essential for Indian capital market, the chamber said.

Besides a fair and transparent tax regime, the system should also be consistent with international treaties and other incentives provided to attract FIIs in India, it said.

The Finance Act 2012 imposes tax on transfer of shares or interest in an offshore company or entity if the share or interest derives (directly or indirectly) its value substantially from assets located in India. The change has been done on a retrospective basis.

Portfolio investors are concerned that the new tax provision could subject the sale of their investments to multiple taxation.

The provisions seeking to tax offshore transfers could be applied to tax the gains on redemption of fund units where the fund is invested directly and/or indirectly in Indian securities.

This may give rise to ordinary, non-resident citizens with savings in non-resident funds having a direct liability to Indian tax, and a responsibility for filing Indian tax returns, the CII said.

> srivats.kr@thehindu.co.in

Published on August 30, 2012 16:13