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FIIs may be brought under I-T umbrella

FIIs may be brought under I-T umbrella
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First Published: Sat, Jun 16 2007. 01 51 AM IST
Updated: Sat, Jun 16 2007. 01 51 AM IST
New Delhi: The finance ministry has issued new instructions, whereby some foreign institutional investors (FIIs) may be brought under the income-tax net.
The circular issued late Friday by the Central Board for Direct Taxes (CBDT), while encapsulating judicial rulings on the subject, lays downs principles that are to be used in classifying investments as revenue receipts or capital gains.
Many FIIs, which invest in India, are registered in Mauritius, and are hence, exempt from capital gains on account of Indo-Mauritius tax treaty.
The clarifications put out by CBDT makes it easier to classify FII investments as stock-in-trade and make the income accruing from such transactions subject to income tax.
“In the circular, it appears they (government) are targeting a group of taxpayers, where currently taxes are not payable because of double taxation avoidance or due to application of principles as they are understood,” said Rahul Garg, executive director, PricewaterhouseCoopers.
CBDT officials dealing with the subject could not be reached for comment.
A CBDT spokesperson said the circular is meant to serve as guidance note and is not directed at any group of assessees. The circular instructs assessing officers that the “total effect of all the principles should be considered to determine whether, in a given case, the shares are held by the assessee as investment or stock-in-trade.”
A tax specialist, who did not want to be named, felt assessing officers would dispute efforts by FIIs to classify their gains as capital gains and thereby avoid paying taxes in India.
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First Published: Sat, Jun 16 2007. 01 51 AM IST