In a major relief to overseas investors, the Union Finance Minister Arun Jaitley proposed exemption to Category I & II Foreign Portfolio Investor (FPI) from indirect transfer provision. Indirect transfer provision shall not apply in case of redemption of shares or interests outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India.
Foreign portfolio investment (FPI) consists of securities and other financial assets passively held by foreign investors.
“In 2012, the Income-Tax Act was amended to provide for taxation of those transactions of transfer of shares or interest in a foreign entity deriving its value substantially from Indian assets,” Jaitley said.
“Apprehensions have been raised about some difficulties which arise because of this provision in case of transfer of stake of investors of India-based funds located abroad, but investing in India-based companies,” he added.
In order to remove this difficulty, Jaitley has proposed to exempt FPI category I and II from the indirect transfer provision.
“I also propose to issue a clarification that indirect transfer provision shall not apply in the case of redemption of shares or interests outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India,” he said.
Category I FPIs include sovereign wealth funds and central banks and category II includes mutual funds and banks.However, hedge funds, individuals and other high-risk foreign investors will not get this relief.
Read the full text of the Budget Speech and The Finance Bill, 2017 below.
