Moving to assure foreign investors over a budget proposal that rattled the market mood, the finance ministry said on Friday that it was not targetting investment vehicles based in tax havens such as Mauritius - with which India has a friendly tax pact - by questioning the validity of their tax residency certificates (TRCs).
The government signalled it was ready to amend the Finance Bill to reassure investors. Finance minister P Chidambaram hinted that the language of the Bill can be changed to mollify worries.
The benchmark Sensex recovered ground from a three-month low that it fell to on Thursday after confusion over the proposal in the finance bill that said a TRC "shall be necessary but not a sufficient condition" to take advantage of double taxation avoidance agreements (DTAAs).
The finance ministry told worried investors that their concerns on TRCs for claiming treaty benefits will be 'suitably' addressed during discussions on the Finance Bill in Parliament.
"Since a concern has been expressed about the language of sub-section (5) of Section 90 (of I-T Act), this concern will be addressed suitably when the Finance Bill is taken up for consideration," the Ministry said in a statement, signalling that the government will remove any adverse ambiguity on the issue.
Chidambaram soothed frayed nerves of investors stating that the language of the finance bill was "clumsily worded."
"It has not become law yet. It's a Bill. When I read that clause again, I said it is clumsily worded," Chidambaram said in an interview with ET Now television channel on Friday.
The Finance Bill 2013, which Chidambaram tabled in Parliament as part of the budget proposals for 2013-14, proposed to amend the law in order to provide that "submission of a tax residency certificate is a necessary but not a sufficient condition" for claiming benefits under double taxation avoidance agreements.
The proposal spooked markets as investors feared a clampdown by tax authorities on deals structured through investments from tax havens.
"With respect to investments from Mauritius, the circular 789 (existing DTAA) continues to be in force, pending ongoing discussions between India and Mauritius," the finance ministry statement said.