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03 Feb 2017

Retrospective tax relief on FPI indirect tranfers

Retro amendment on FPIs: Budget 2017

With retrospective effect from financial year 2011-12, two categories of foreign portfolio investors (FPIs) are exempted from tax on indirect transfers.

The decision has been cheered by investors since, last year, Central Board of Direct Taxes (CBDT) had directed inclusion of FPI in the tax ambit.

It is expected that this move will offer additional respite and make Indian stocks more buoyant.

In context

Retro amendment on FPIs: Budget 2017

CBDT circular had given jitters to foreign investors

"The CBDT circular had given jitters to foreign portfolio investors. Clarification that investors in offshore funds registered as FPI will not be subject to indirect transfer provisions will allay their concerns," says Shefali Goradia, partner, BMR Advisors.

Various categories of FPI


Various categories of FPI

The proposals include exemption from provisions of indirect transfer tax for FPI category I and category II.

Category I includes foreign banks, sovereign wealth funds and government agencies.

Category II investments are, for example, mutual funds and pension.

Category III involves hedge funds and high-risk foreign investments that will not enjoy the tax relief.

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"Government's intent was to prevent tax evasion"

While winding up fund for previous year, maintenance of minimum fund size not required.

The government has changed conditions of special taxation regime for offshore funds in an attempt to stop tax evasion.

The amendment, as announced during the Budget yesterday, will take place from April 1, 2016.

Clarification a good signal: IIFL Chairman

India Infoline chairman Nirmal Jain said the clarification on indirect transfers was a good signal to FPIs since otherwise, India-specific funds would have had problems.

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