A government clarification on indirect transfer of shares seems to have dampened the spirits of foreign portfolio investors as they could end up paying up to 40% tax on their investments in the country’s equity markets.
As per the clarification issued on last Wednesday, if the shares of an Indian company held by a fund constitute more than 50% of its total assets, and the value of the holding exceeds.`10 crore, indirect transfer of these shares abroad would be taxed in India.
Since then, many foreign portfolio investors (FPIs) and their custodians have been trying to gauge the exact impact of the government’s clarification on their returns even as government officials chose to shrug it off as unnecessary fears. Industry experts are of the view that investors will have to start paying the tax in a year or two when revenue officials make the demand.
“Investors in FPIs can face 10%-20% tax on long-term capital gains and higher tax of 30%-40% on short-term capital gains as per the current law,” said Rajesh H Gandhi, partner at Deloitte Haskins & Sells.