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Qualified depository participants (QDP) are unable to get qualified foreign investors (QFI) on Indian bourses due to tax issues.
“It is not clear in the Income-Tax Act whether a QDP is liable to deduct taxes on behalf of QFIs,” said Mr Atul Gupta, Managing Director, Orbis Financials, a QDP registered with the Securities and Exchange Board of India (SEBI).
Tax experts said that the Central Board of Direct Taxes (CBDT) has to notify whether it is mandatory for a QFI to file income-tax returns in India.
This, they said, would happen only when the current Finance Bill (Budget) becomes an act.
The CBDT would then notify, through the official gazette, QDPs' responsibility on QFI payments.
Those in the street expect things to become clearer within a couple of months.
The Union Budget had indicated that the CBDT would be authorised to decide which Indian entities would be responsible for deducting taxes on behalf of non-residents.
QDPs are also waiting for the SEBI's regulation on QFI participation in the corporate bond market.
QFIs coming into India will have to pay 30-35 basis points a transaction to QDPs. In addition, they would have to pay brokerage fee for buying and selling stocks and charges for getting a chartered accountant's certificate for tax deduction, said experts.
Hong Kong, Singapore, Sydney, Tokyo, Zurich, London and New York are centres which comply with the SEBI's definition of a QFI.
These centres are compliant with Financial Action Task Force standards on money laundering and terrorist financing.
The SEBI is expected to come out with a list of frequently asked questions on QFIs.
FIIs charge their sub-accounts brokerage, gateway fees and SEBI-registration charges. It remains to be seen whether QFIs use the FII route or the direct route.
> raghavendrarao.k@thehindu.co.in
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