Arun Jaitley – the Finance Minister of India recently announced that foreign portfolio investors (FPIs) shall be exempted from tax on indirect transfers with effect from financial year 2011-12. Jaitley made this announcement while presenting the Union Budget 2017-2018 on Wednesday in New Delhi.
In his speech, Jaitley made it clear that the indirect transfer provision of the Income Tax Act which was introduced in 2012, will not be applicable to foreign investors now. Going forward, the investors don’t have to pay tax in India for assets sold overseas.
The decision of removing FPIs from the realm of such taxation is welcomed by many Foreign Funds. Samir Arora, the Singapore based fund manager of Helios Capital, says that they are very pleased with tax-related clarifications made in the budget.
Jaitley also added that Category I and II FPIs would be exempt from this provision while taxation on indirect transfers will still be applicable on category III foreign portfolio investors such as trusts, corporate bodies and family offices.
Category I foreign portfolio investors include sovereign wealth funds, foreign central banks, and government agencies. Category II foreign portfolio investors include pension funds, mutual funds, investment trusts, insurance/ reinsurance companies etc.