CBDT Puts Offshore Funds with India Exposure Tax Order on Hold

File image of Arun Jaitley. Representative image (Image: PTI)

New Delhi: The Central Board of Direct Taxes (CBDT) has put on hold an order it issued in December that would have taxed offshore funds with exposure to Indian assets, in a move that will provide relief to foreign portfolio investors, venture capital funds and private equity investors.

Mint reported on Wednesday that the CBDT put on hold its order on taxation of indirect transfers of Indian assets that would have resulted in foreign entities paying tax to the Indian government. On 21 December, the tax department issued a ‘clarification’ on the scope of indirect transfer provisions that would have taxed profits made by offshore funds with underlying assets (including equities) in India.

These clarifications would have subjected portfolio investors with India-focused funds, to greater scrutiny by the income-tax department and led to double taxation in many cases, Mint said.

A Bloomberg Gadfly analysis on estimated that “181 publicly traded funds whose India exposure is more than half of total assets” could be affected. These funds managed $39 billion of assets. Andy Mukherjee said in Bloomberg Gadfly that the quantum of tax would have ranged between 30-40% and would have been over and above securities transaction and capital gains taxes already paid on Indian securities.