Taxman ‘surprised’ by SEBI’s tax treatment plan for FPIs

Shishir Sinha Updated - December 07, 2021 at 01:08 AM.

Clarity needed on tax treatment of QFIs, say officials

The Tax Department is stumped by SEBI’s tax treatment plan for foreign portfolio investors (FPIs).

According to a senior Revenue Department official, a notification on the tax treatment is yet to be finalised. FPI is a new investor category that will merge Foreign Institutional Investors (FIIs), Sub Accounts, and Qualified Foreign Investors (QFIs).

While there is no issue over the tax treatment of FIIs and Sub-Accounts, there are some

vis-à-vis QFIs, the official told
Business Line . Clarity on tax issues will help SEBI bring out the final circular operationalising the FPI regime.

On Tuesday. SEBI cited a communication from the Department of Economic Affairs to the Central Board of Direct Taxes, conveying that all three categories of FPIs will be given the same tax treatment as FIIs.

But there is a question mark over who will take responsibility for QFIs’ tax compliance.

QFIs are supposed to pay short-term capital gains tax on listed securities and short- and long-term capital gains tax on unlisted securities. Form 15 CB is to be submitted before remitting the money. Technically, it is the responsibility of Depository Participants to ensure tax compliance by QFIs. But, considering the size of the individual QFI accounts, Depository Participants do not find providing this service viable, another Finance Ministry official said.

This has left the issue open-ended, the official said adding that the jurisdiction of “responsibility for QFI has to be fixed.”

Also, another issue requiring attention is if QFIs have to follow the TDS (Tax Deducted at Source) or the Advance Tax Payment system.

All these issues have to be addressed in the notification.

The problem does not arise in the case of FIIs as, normally, Custodians take the responsibility of tax compliance by their FII clients.

Notification enough However, officials said that the issue need not wait till the next Budget or the Finance Bill as the proposals do not require any amendment to the Income Tax Act or the Income Tax Rules. A notification will suffice. On October 5, SEBI announced FPI as a new category of foreign investors. The decision was taken on the basis of the recommendations of the K.M. Chandrasekhar Committee, which suggested that the Government could consider bringing in more clarity and certainty while prescribing tax provisions for FPIs.

The QFI scheme was launched last year but the response has been muted so far.

>shishir.s@thehindu.co.in

Published on December 25, 2013 17:14