Mar 18, 2020
‘Public’ offshore funds may get relief on proposed tax on indirect transfers
Publicly pooled offshore funds could soon get a respite from the recent budget announcement to tax indirect transfers of category II Foreign Portfolio Investors (FPIs), said two people privy to the development. The move will benefit nearly 2,000 FPIs who put together own 15-20 per cent of FPI assets in the country.
The Budget proposal aimed to impose additional capital gains tax on investors and unit holders of category II FPIs. However, several big ticket funds based out of Mauritius reached out to the government, saying they weren’t eligible for category I licenses since they were based out of non-FATF jurisdictions and the new tax will take their effective capital gains tax rate to 40 per cent.
There were also concerns that the law had retrospective effect since it was brought into force from September 23,2019, even though the announcement was made on February 1,2020.
According to Gouri Puri, partner, Shardul Amarchand, providing such exemption to publicly pooled funds would be encouraging for the industry.
“This should provide comfort and assurance to the investors in FPIs,” said Puri.
Indirect share transfer provisions apply to funds that have deployed more than 50 per cent of their portfolio investments in India. The rules say that transfer of shares or units of such funds even outside India will be subject to capital gains tax domestically.