The General Anti-Avoidance Rules (GAAR) should not apply to a foreign portfolio investor (FPI) on redemption and maturity of participatory notes, industry body Assocham said today.

In a detailed memorandum to the Finance Ministry, the chamber said it is common for investors to gain economic exposure in Indian securities through P-notes.

“We believe that the existence of a P-note arrangement or status of underlying Indian position referencing P-notes or passing of economic benefits to P-note holders should not be the criteria for evaluating commercial substance at the FPI level.

“It should be clarified that GAAR provisions will not apply to an FPI on redemption/maturity of P-Notes,” the memorandum stated.

Assocham Secretary General D S Rawat said at the present juncture, global equity investors have been showing quite a bit of interest in the Indian market.

“We would like this interest to stay and need to do all that is required to sustain their confidence,” Rawat said.

The industry body added that GAAR provisions should not apply to shares issued post March 31, 2017 on conversion of compulsorily convertible preference shares (CCPS), where the CCPS were acquired prior to April 1, 2017.

“This is because no fresh investments are made on conversion of CCPS into equity shares. There is merely a change in the form of investments,” it said.

GAAR was introduced in Budget 2012-13 by the then Finance Minister Pranab Mukherjee with a view to check tax evasion and avoidance. However, its implementation was repeatedly postponed because of the apprehensions expressed by foreign investors.

GAAR, which was originally to be implemented from April 1, 2014, will now come into effect from April 1 next year.

Besides other things, GAAR contains provision allowing the government to prospectively tax overseas deals involving local assets.