New Delhi, June 8 (PTI): Finance ministry officials are likely to meet foreign institutional investors (FIIs) on Tuesday to encourage them to invest more in the country and set up permanent establishments here.
“The meeting will discuss the problems faced by the FIIs and remove bottlenecks to ensure that they set up permanent establishments in the country,” an official said.
In recent weeks, FIIs have made huge investments in the Indian market amid expectations that the new government will take measures to bolster the economy.
According to experts, the FIIs are concerned about taxation in case they set up a permanent establishment.
“A clarification that income from purchase and sale of shares by the FIIs (now FPIs) will be taxed as capital gains should help attract increased foreign investment into India,” Anish Thacker, partner (tax & regulatory services) at Ernst & Young, said.
At present, there is ambiguity on whether the FIIs that set up permanent establishment here will be liable for tax on its entire business income. In such a scenario, the entire business income will attract about 40 per cent tax.
At present, the FIIs are only subject to long-term capital gains tax of 15 per cent.
Overseas investors have poured in a staggering Rs 19,772 crore ($3.35 billion) into the Indian debt market in May, the highest monthly inflow in about two-and-a-half years, emboldened by hopes of an economic recovery after the Narendra-Modi led BJP stormed to power.
The FIIs had pulled out a net amount of around Rs 9,200 crore in April.
According to market experts, the FIIs have pumped in huge investments in the Indian debt market on hopes that the new government will take steps to revive the economy and a favourable interest rate scenario.
According to Sebi data, the FIIs were gross buyers of debt securities worth Rs 40,478 crore in May, while they sold bonds worth Rs 20,706 crore during the same time. This translates into a net inflow of Rs 19,772 crore ($3.35 billion) for the month.