100 Foreign Funds Get Tax Demands

Total bill may hit $10 billion; the number of affected investors can increase as assessments are still in progress

Published: 06th April 2015 06:00 AM  |   Last Updated: 06th April 2015 05:49 AM   |  A+A-

NEW DELHI:  The Department to Income-Tax (I-T) slapped notices on nearly 100 FIIs and could cough up an estimated $5-6 billion for ‘untaxed gains’ made in the Indian markets over the past years.

I-T officials believe, the number of affected investors can increase substantially as assessments are still in progress and notices could be served in more cases, taking the overall tax demand to over $10 billion.

UNTAX ED GAINS.PNGWhile the I-T department is issuing Assessment Orders for over 100 foreign investors for a controversial Minimum Alternate Tax (MAT) of 20 per cent, FIIs, on the other hand, are believed to have decided to challenge these tax demands, citing MAT cannot be levied on them as they do not earn any business income in India and their income is defined as capital gains under the Income Tax Act.

There are an estimated 8,000 FPIs registered in the country and they have emerged as a mainstay of the Indian markets over the years with an overall outstanding net investment of $226 billion or over Rs 11 lakh crore. This includes over Rs 8 lakh crore in stocks and Rs 3 lakh crore in debt markets.

In FY15, FPIs made a net investment of Rs 2.7 lakh crore into the Indian markets.

Interestingly, this is the first time since 1993, when FIIs were allowed to invest in the Indian markets, that such investors have been asked to pay MAT.

Foreign investors have begun lobbying intensely with the policy makers and regulators, spooked by these retrospective notices and assessment orders, emphasising that the move goes against the government’s stated position of providing a ‘non-adversarial and stable tax regime.’ These FIIs, many of whom have now converted themselves into Foreign Portfolio Investors (FPIs), include entities from the US and Europe as also those operating through Singapore, Hong Kong and Mauritius.

The issue has been taken up with Arun Jaitley, Union Minister of Finance, Jayant Sinha, Minister of State for Finance, Sebi and Central Board of Direct Taxes. FIIs are now planning to approach Prime Minister Narendra Modi to intervene.

When contacted, a top official said the government was looking into the matter to allay any genuine concern such investors might have, but added that no assurance can be given as of now to nullify the notices.


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