The revenue department headed under The General Anti Avoidance Rules (GAAR), has the power to look into provisions entering only to save tax, can halt such migration. On the other hand, Institutional investors might be reluctant to have a token presence in treaty jurisdictions for tax purposes if they could later be focus to review under GAAR, if and when the government decides to implement it.

“While it may impact the taxability of derivative transactions of certain treaty-based investors negatively, it also opens up the possibility of fund managers setting up a base in India and managing funds from India. Due to this change, there could be increased economic activity resulting in an overall positive impact on flows,” said Suresh V Swamy, executive director, tax & regulatory services, PricewaterhouseCoopers.

It is wide known fact that the revenue collected by Foreign portfolio investors in Indian equities is huge, but the concern of taxation will confront a new scenario to Indian Economy. Foreign portfolio investors have bought a net 68,596 crore of Indian equities so far in 2014.

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