The Telegraph
Friday , July 11 , 2014
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Easier tax treatment for FPIs

Foreign connect

Mumbai, July 10: They are the key force behind taking benchmark indices to record highs and foreign portfolio investors (FPIs) were a happier lot today after Union finance minister Arun Jaitley presented his maiden Budget.

To encourage higher investments from these entities who have ploughed in excess of $10 billion so far this calendar year, the finance minister announced that income arising to these investors from dealing in shares will be treated as capital gains.

This would essentially lead to lower level of taxation on these investors, thereby encouraging them to invest more in the domestic markets. “Its good for our capital markets and fund flows will increase,’’ Kishor P. Oswal, chairman & managing director, CNI Research told The Telegraph.

Experts here added that there are various cases with regard to whether their income from transaction in shares or securities can be called as capital gains or business income.

Jaitley said that many of the fund managers of these entities also choose to remain overseas due to the fears of higher taxation of the fund’s income.

“One of their (FPI) concerns is uncertainty in taxation on account of characterisation of their income. Moreover, the fund managers of these foreign investors remain outside India under the apprehension that their presence in India may have adverse tax consequences. To put an end to this uncertainty and encourage fund managers to shift to India, I propose to provide that income arising to FPIs from transaction in securities will be treated as capital gains’’, Jaitley said.

FPIs are a newly created category of foreign investors and they include all existing structures like foreign institutional investors, their sub-accounts and qualified foreign investors. The new regime came into effect from June 1.