Putting an end to the confusion over the tax regime governing foreign portfolio investors (FPIs), the Government has said they will be treated on a par with foreign institutional investors (FIIs).
FPIs are a category of investors created by merging existing Foreign Institutional Investors (FIIs), sub-accounts and qualified foreign investors (QFIs).
On Monday, the Government, came out with a notification for the new combined category. FPIs will get the same tax treatment as FIIs under the Income Tax Act, a senior Finance Ministry official told
The official said the responsibility of ensuring tax payment by QFIs has also been fixed. Here, too, the mechanism will be the same as for FIIs.
“The Authorised Dealer will repatriate money for QFIs only when a chartered accountant has certified that all tax dues have been paid,” he explained.
QFIs have to pay only short-term capital gain tax on listed securities. On unlisted securities, they have to pay both short- and long-term capital gain tax.
It will be the responsibility of the Depository Participants to ensure tax payment. Considering the size of individual QFI accounts, Depository Participants did not find it viable to provide tax compliance service.
There were also differences between the Department of Economic Affairs (DEA) and the Department of Revenue.
The latter was of the opinion that the tax regime for FPIs needs an amendment to the Income Tax Act, but the DEA felt this could be done through a simple notification. Finance Minister P. Chidambaram supported the DEA’s view and tax authorities finally fell in line.
New regime Commenting on the development, Vasudha Sundararaman, MD and CEO of SBI-SG Global Securities, said: “The tax treatment of FPIs in a manner similar to FIIs has been an eagerly awaited. The new regime is aimed at encouraging easier investment flow into India.”
She hoped that it would boost investments through new investor categories, including individuals. It is the last mile in the new FPI regime notified by SEBI. “We hope to see a lot of interest generated from hitherto untapped overseas investors,” she added.
More clarity On October 5, 2013, SEBI had announced FPIs as a new category of foreign investors. The decision was taken on the basis of the recommendations of the K.M. Chandrasekhar Committee, which suggested that the Government could consider bringing more clarity and certainty while prescribing tax provisions for FPIs.
'The QFI scheme was launched last year but is yet to pick up.