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India Rekindles FII Fear with Retrospective Tax Demand

Despite the massive uproar over Vodafone’s retrospective tax demand case, the current government has rekindled fears with 100 Foreign Institutional Investors sent a tax demand amounting to $5 to 6 billion for what it termed “untaxed gains”.

New Delhi: (L - R) Pakistan High Commissioner Abdul Basit,  former finance minister P Chidambaram , Union Minister for Finance, Corporate Affairs and Defence Arun Jaitley during a book release programme in New Delhi on Nov 7, 2014. (Photo: IANS)

New Delhi: (L – R) Pakistan High Commissioner Abdul Basit, former finance minister P Chidambaram , Union Minister for Finance, Corporate Affairs and Defence Arun Jaitley during a book release programme in New Delhi on Nov 7, 2014. (Photo: IANS)

The repetitive retrospective tax demand has sent the FIIs into hectic parleys crying foul over the new notice despite promises made by finance minister Arun Jaitley of providing a “non-adversarial and stable tax regime”.

The notices were sent by the Income Tax department for a minimum alternate tax (MAT) of 20 per cent, reviving the re-assessment orders. Shocked by the demand notice, FIIs have decided to challenge it in the court saying that MAT cannot be levied on FIIs or FPIs (Foreign Portfolio Investors) as they do not earn any ‘business income’ in India but only ‘capital gains’ under the I-T Act.

These FIIs, many of them turned into FPIs, belonging to the US and Europe, besides some Asian entities from Singapore, Hong Kong and Mauritius. With 8,000 FPIs registered so far, their investment in markets amounts to $226 billion.

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