FPIs quizzed on 'loans' for trading
foreign portfolio investors (FPIs) have been asked by the Indian tax office on whether they have borrowed money to trade on stock exchanges.
It’s unclear why the information was sought, but the Income Tax (I-T) department has directed these offshore funds to disclose the identities of the lenders, the latter’s source of money, and the nature of agreement between the two parties.
The move to fish out such information could well be to trace any possible and indirect links between overseas portfolio managers with Indian companies and promoters, feel some of the tax and finance professionals.
“Interest paid by a non-resident lender to a non-resident borrower can also be taxed in India if the debt is used for a ‘business’ in India. But, this doesn’t happen in the case of FPIs,” said Rajesh Gandhi, partner, Deloitte India.
'No clarity on tax implications'
“Perhaps, the other aspect which tax authorities could be trying to examine is whether there is any round-tripping of Indian money into FPIs directly or indirectly through the debt route,” said Gandhi.
In fact, while directing FPIs to share details of the capital contributors in the funds, tax officials have enquired about the “source of fund of the entity which contributed the capital or provided loan” and whether any loans were taken by the capital contributors.
“Usually we have not seen questions around lending transactions in the context of FPIs because it’s difficult to understand what could be the tax implications of the same. Since an FPI only earns capital
