Bangalore: Securities and Exchange Board of India (SEBI) has announced recently that the government has decided to provide same tax treatment for all foreign investors similar to as provided to Foreign Institutional Investors (FIIs) as reported by Bureau from Financial Express.

There are three categories in the list of foreign investors that include Foreign Institutional Investors (FIIs), Sub accounts of FII and Qualified foreign investors (QFIs). As far as the equity stake for foreign investors does not exceed beyond 10 percent they will be categorized into a new and separate class, according to the new rule approved by India.

There are several reasons behind this decision of providing same tax treatment of foreign investors. One reason among them is yields hardening of government bonds due to money being pulled out from Indian debt market by the FIIs. Secondly due to different tax treatments Foreign Portfolio Investors (FPI) regulations implementation was delayed early this year and also due to differentiated tax treatments as there was lot of confusion in various taxation methods.

“Clarity on tax treatment will boost foreign investments into the country. There used to be a lot of confusion over difference in taxation methods. The new FPI regime might end the confusion and make it a lot simpler for overseas investors,” said Pavan Kumar Vijay, MD & founder, Corporate Professionals, reports Business Standard.

Most often it has been observed that in case of short-term capital gains FIIs and their sub accounts get attractive tax regimes when compared to QFIs. But with the introduction of new rule, all the foreign investors will get same tax treatment due to which both FIIs and QFIs are not taxed on long term capital gains. “Another area where FIIs have a more favourable tax treatment over QFIs at present is that FIIs are not required to deduct tax at source on capital gains made on every transaction. They only need to pay advance tax on estimated income, which enables set off of capital loss, if any, on a transaction against capital gains on another,” said Vipul Jhaveri , partner, financial services taxation, Deloitte as reported by Bureau.

In case of short term capitals FIIs and their sub accounts are taxed around 30 percent but QFIs are taxed around 40 percent for the same. In long term capital gains FIIs are taxed up to 10 percent and QFIs are taxed up to 20 percent.

Thus, according to FPI regulations, the Department of Economic Affairs has announced the decision of similar tax treatment for all the foreign investors to CBDT (Central Board of Direct Taxes) and SEBI. The notification of new changes in tax treatment for QFIs is remained to be declared by CBDT.

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