The Income Tax Department has served notices to several foreign portfolio investors (FPI) following central intelligence agencies alerts.
The taxmen launched probes into suspicious FPI transactions and investigating trading terminals were used to place orders to collect information about funds coming to India from FPIs seeking details of the top 20 investors' names and addresses suspected of round-tripping on foreign portfolio investors.
Several countries with little or no taxes or significantly reduced taxes are suspected to be involved in round-tripping including tax havens of Cayman Islands, the Bahamas, Bermuda and Singapore among others.
IT dept instructs FPIs to disclose the extent of each investment
The tax department has instructed FPIs to segregate assets under management (AUM) based on Indian and non-Indian investments and disclose the extent of each investment.
As per rules Resident Indians can only invest in FPIs whose exposure to India is less than 50% while total subscription by non-resident Indians (NRI) cannot exceed 50% of a fund corpus.
The tax authorities have asked several offshore funds to disclose how they go about raising money, share of Indian investments and details of top investors in fund pools.
Tax treaties between India and other countries
The intel alerts to the Income Tax department has raised red flags on FPIs dodging tax by taking advantage of beneficial tax treaties between India and other countries or determining a fund's place of effective control (POEM). The scheduled evaluation of India after more than a decade later this month by the global anti money laundering body Financial Action Task Force has intel agencies on high alert for suspicious financial transactions.
Indian regulators and tax and enforcement authorities have been taking a closer look to spot Indian faces behind FPIs as well as overseas private equity and venture capital funds following the US short-seller Hindenburg's allegations against the Adani Group earlier in January and the scheduled state elections and general elections.
