Monday, November 5, 2007

Tax treatment for FIIs

What happens when sub-accounts convert to FII status

Conversion of a sub-account to FII (foreign institutional investor) could potentially trigger tax consequences, which may well be significant, cautions Mr Vipul R. Jhaveri, Partner, Deloitte Haskins & Sells, Mumbai.
“Unless FIIs get to evaluate the same, they may expose themselves to a tax burden that they may neither have anticipated nor bargained for,” he adds, during an e-mail interaction with Business Line.
As per the market regulator’s draft proposal on participatory notes (PNs), FII sub-accounts will not be allowed to issue PNs; and an 18-month-period has been stipulated for winding up derivatives positions taken through the PN route.
“From the income-tax perspective, it would be very important to see the conversion process that SEBI (Securities and Exchange Board of India) prescribes and, in particular, whether it will involve a ‘transfer’ of securities under the Income-Tax Act, 1961 (the Act),” explains Mr Jhaveri.

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