Draft tax code may hit portfolio inflows
The proposal in the draft tax code unveiled last week that seeks to do away with the special tax regime for foreign institutional BSE investors and tax them 30% on capital gains, the same rate for non-resident Indians, could affect portfolio flows into the country, feel tax experts.
Now, FIIs based in tax havens such as Mauritius and Cypress, which invest in India, do not have to pay any capital gains tax, as they are covered by the double taxation treaties. FIIs, which do not come through these tax havens, are exempt from long-term capital gains, but have to pay 15% tax on short-term capital gains.
Officials at institutional brokerages say a substantial portion of foreign money flowing into Indian equities comes through the Mauritius route, because of the significant savings on tax. Source: ET