By Manoj Purohit, Partner & Leader, Financial Services Tax, Tax & Regulatory Advisory, BDO India
“This week witnessed a continued negative FPI outflows with rupee recovering marginally in global market. With the festive season around the corner , it is likely that global sentiments will trigger and push the flows in right direction.
Finance Minister’s Remarks Rekindle Debate on Capital Gains Taxation
“The expectations around possible reduction of capital gains tax regime has regained prominence indicating that the government is receptive for discussions on capital gains and securities transaction taxes. The competitive tax framework could strengthen investor sentiment, promote long-term capital formation and enhance India’s attractiveness as an investment destination, while others emphasise the need to preserve fiscal stability and protect revenue collections. Although no formal proposals have been announced, the discussion on the right path reflects the government’s continuing effort to balance market competitiveness with fiscal prudence.”
India Tightens Mauritius Treaty Rules with New Anti-Avoidance Measures
“India has implemented a protocol amending the India-Mauritius Double Taxation Avoidance Agreement, introducing a Principal Purpose Test to curb treaty-shopping and other tax-motivated structures. The amendment allows treaty benefits to be denied where securing a tax advantage is a principal purpose of an arrangement, subject to the treaty’s intended objectives. While Mauritius-based investment structures will face greater scrutiny, the capital gains framework introduced under the 2016 Protocol remains unchanged and investments made before 1 April 2017 continue to enjoy grandfathering protection. The move aligns the treaty with global anti-abuse standards while preserving relief for bona fide investors”
Recent SEBI Initiatives
“SEBI’s key proposal announcements include aligning KYC review timelines with RBI norms, participation of FPIs with NRI, OCI, or Resident Indian participation to allow greater flexibility, including control rights; broadening the limits for anchor investor participation, permitting retail schemes in IFSCs with a resident Indian sponsor or manager to register as FPIs would encourage foreign inflows in capital market. These changes aim to reduce administrative burdens, encourage greater participation, and align India’s regulatory environment with the global best practices
By reinforcing India’s position as one of the most flexible and investor-friendly jurisdictions, the regulator is clearly aiming to reassure and attract the global investor community and regain the much-needed momentum. This also well aligns with the narrative set by the India Government for Make in India approach to become a self-reliant and a fundamentally strong developed economy which is well stimulated to absorb external hits.”