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Nov 09, 2017 05:03 PM IST | Source: Moneycontrol.com

Clarity from govt may be needed on exemptions for FPIs' bonus shares

It is anticipated that clarifications may come in sooner than later, especially since the country is projecting itself as a friendly destination for foreign investors especially in the matters of taxation.

The government may need to provide clarifications on the tax exemptions for bonus shares acquired by foreign portfolio investors (FPIs). A Business Standard report said that FPIs are staring at tax disputes since India’s tax treaties with former tax havens like Singapore and Mauritius have not ‘grandfathered’ shares acquired through bonuses.

This means that bonus shared acquired before April 1, 2017 have been given the tax exemption that is applicable for core holdings.

Tax officials that Moneycontrol spoke to said that the government will have to issue a clarification on whether this is specifically exempt or will be taxed.

“Having no mention of bonus shares for FPIs means that this is subject to interpretations by tax authorities. Hence, the government will have to detail out if they are exempt or not, especially since FPIs are getting bonuses in the virtue of their existing investments,” said a senior tax official.

While the law does not specifically state that bonus shares will be taxed, since they have not been mentioned under the grandfathering clause under the general anti-avoidance rules (GAAR), not paying tax may amount to violations. Similarly, exemptions under Double Tax Avoidance Agreement (DTAA) have not mentioned bonuses.

The Business Standard report said that several stakeholders have written to the Indian government seeking relief.

A securities tax expert with a large accounting firm said that the clarifications may come in sooner than later, especially since the country is projecting itself as a friendly destination for foreign investors especially in the matters of taxation.

tags #Economy #Tax

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