India Stays Tax Demands on Foreign Funds Pending Report

Updated on

India stayed demands for back taxes on capital gains by foreign portfolio investors pending a report on the levy, the government’s latest step to defuse a row that dented sentiment toward the stock and bond markets.

Tax officers have been asked to put on hold demands for the Minimum Alternative Tax from foreign investors and to refrain from coercive action, Anita Kapur, chairwoman of the Central Board of Direct Taxes, said in New Delhi Monday.

A row flared last month with foreign portfolio investors over demands for $95 million on past capital gains. The government has set up a panel to look into the application of the levy on foreign funds, which say they shouldn’t be liable for the tax.

“It is a very fair approach by the finance ministry,” said Pranay Bhatia, a partner at consultancy BDO India in Mumbai who noted a similar move after a controversial retrospective tax bill was proposed in 2012. “This time too tax demands have been put on hold. This is a genuine move.”

Indian Finance Minister Arun Jaitley told parliament May 7 that the government was setting up a panel under former justice A.P. Shah to examine tax disputes, including the recent levy on profits made by foreign investors over the past few years.

“There are a few blocks moving finally,” Sameer Gupta, tax leader for financial services at EY India in Mumbai, said in an e-mailed statement. The latest guidance will put on hold any fresh reassessment notices and proceedings until at least the end of the current fiscal year in March 2016, he said. “In that sense, it is a welcome step.”

Foreign funds including Aberdeen Asset Management have filed challenges to the tax demands. Aberdeen, which filed an appeal in Bombay High Court, had received a $50,000 tax bill. “We don’t think that demand should apply to us,” Hugh Young, the company’s Asia managing director said on May 4. The company is concerned more such claims may be made in the future, he had said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE