Press Release, dated 30-7-2012

What this is

Press Release, dated 30-7-2012 was issued by the Central Board of Direct Taxes on 30 July 2012. Its subject is Taxation of Portfolio Investments referred to GAAR Committee.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Records that the Prime Minister has referred the taxation of portfolio investment to the Expert Committee on the general anti-avoidance rule, which he had constituted under the chairmanship of Dr. Partho Shome to consult widely and finalise the guidelines. The issue referred is what the amendment on taxation of a non-resident's transfer of assets, where the underlying asset is in India, means for portfolio investors and foreign institutional investors, particularly where the investment is made through a registered stock exchange in accordance with the guidelines of the Securities and Exchange Board of India and is purely portfolio investment. Any clarification is to be harmonised with the anti-avoidance guidelines and is to deal with residual concerns falling outside them.

Why it was issued

Clarity was needed on the tax liability of portfolio investors and foreign institutional investors following that amendment, and the question could not sensibly be answered apart from the anti-avoidance guidelines.

Who it reaches

• Foreign institutional investors trading on Indian exchanges
• Portfolio investors holding Indian securities through offshore structures
• Custodians and advisers assessing withholding exposure on such investments

The instrument, as the Board published it

Taxation of Portfolio Investments referred to GAAR Committee
Press Release, dated 30-7-2012
The Prime Minister had constituted an Expert Committee on GAAR under the Chairmanship of Dr. Partho Shome to engage in a widespread consultation process and finalise the GAAR Guidelines.
There is an additional issue relating to the taxation of portfolio investment, particularly in the context of the amendment made to the Income Tax Act relating to the taxation of non-resident transfer of assets where the underlying asset is in India. It is necessary to have clarity on the tax liability of portfolio investors and Foreign Institutional Investors as a result of this amendment particularly when the investment is made through a registered stock exchange in accordance with SEBI guidelines and purely in the form of portfolio investment.
Any clarification needs to be harmonised with the GAAR guidelines and will have to address any residual concerns outside of GAAR.
Therefore, the Prime Minister has decided to refer the issue of the implications of this amendment on FIIs and portfolio investors to the Expert Committee on GAAR.
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What to watch

• Nothing is decided here - the release only records a reference to a committee.
• It gives no view on whether the amendment reaches portfolio investment; the answer was to come later, with the guidelines.
• The relief being discussed is tied to investment through a registered stock exchange under the securities regulator's guidelines and purely in portfolio form, which is narrower than foreign investment generally.

Where you meet it

Only as background where the 2012 position of foreign institutional investors under the indirect transfer amendment is being traced.

← Order [F. NO. 225/163/2012/ITA.II], dated 31-7-2012  ·  Press Release, dated 30-7-2012 →