SEBI: Foreign portfolio investors will be treated on par with FIIs on tax issues

In consultation with the Finance Ministry, Securities and Exchange Board of India (SEBI) decided to treat the three categories of Financial Portfolio Investors (FPIs) uniformly for tax purposes. In other words, the new rule aims to bring all foreign investors under a common framework called the SEBI (Foreign Portfolio Investors) Regulations, 2013.

The Foreign Institutional Investors (FIIs), their sub-accounts and Qualified Foreign Investors (QFIs) will soon be merged into a single and new investor class, called FPIs. As per their risk profiles, FPIs are divided into three categories.

These are as follows:-

  • Category I- the lowest risk entities comprises foreign government and government-related foreign investors.
  • Category II – regulated entities such as university funds, university-related endowments and pension funds, etc.
  • Category III – other entities viz. Qualified Foreign Investors (QFIs), etc.

Stock market regulator SEBI received a clear note from the Department of Economic Affairs in the Finance Ministry to consider the FPIs similar to Foreign Institutional Investors (FIIs) on tax purposes. The proposal was made by the K M Chandrashekhar panel that reviewed various classes of foreign investors and suggested to unify foreign investment norms met for the first time.

The clarity on tax treatment of FPIs is aimed at encouraging inflows into the domestic equity and debt markets.

Other than uniform tax zone for FPIs, the SEBI

  • Made grading of Initial Public Offering( IPO) voluntary to boost the dormant primary market.
  • Allowed companies to issue debt through a shelf filing, along with regulations empowered it to monitor investors’ call records and conduct searches at companies suspected of wrongdoing.

Note: Under the former system, tax treatment for FIIs was different from that for sub-accounts and QFIs. Beneath the new FPI norms, all categories of FPIs would be given similar tax treatment as currently available to FIIs.

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