QFIs may soon be exempted from withholding tax on cap gains

The Finance Ministry is planning to exempt qualified foreign investors (QFIs) from withholding tax on short-term capital gains. CNBC-TV18's Aakansha Sethi says foreign portfolio investors (FPI) that classification is likely to be notified this week itself. The significant change in this classification apart from the fact that there is now going to be a new classification as a FPI which will subsume both FIIs and QFIs, the significant change is going to be the tax treatment for QFIs.

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Currently FIIs enjoy an exemption from withholding tax on short term capital gains. So, the tax that they pay is not as TDS but it is as an advance tax. The same treatment is going to be extended to QFIs which will now not have to pay TDS, but can pay the advance tax.

Department of Revenue is concerned about safe guarding the tax interest and for this the department of economic affairs is in the process of finalizing safeguards which are likely to say that it will be the depositories responsibility to ensure that the QFI is submitting a certificate from their chartered accountant saying that before they remit funds out of India they have paid tax. This will be like the case of FIIs where custodians have this responsibility. So, QFI is a scheme that hasn’t really taken off. So, individual investors have not invested in India to the extent that the government had expected.