The proposal to treat foreign portfolio investors’ profits from their transactions on the stock market as capital gains, rather than regular income, will address the uncertainties related to categorization of their income and may encourage their fund managers to shift to India.
“FPIs have invested more than Rs 8 lakh crore (about $130 billion) in India. One of their concerns is uncertainty in taxation on account of characterisation of their income,” finance minister Arun Jaitley said while presenting the Union Budget for 2014-15.
“Moreover, the fund managers of these foreign investors remain outside India under the apprehension that their presence in India may have adverse tax consequences… With a view to put an end to this uncertainty and to encourage these fund managers to shift to India, I propose to provide that income arising to foreign portfolio investors from transaction in securities will be treated as capital gains,” he said.
Earlier categories of foreign investors, such as foreign institutional investors, their sub-accounts and qualified foreign investors have been clubbed together under the newly created category of FPIs with effect from June 1.
The government will have to amend the guidelines covering FPIs to allow their income to be treated as capital gains. This will be done with effect from April 1, 2015.