The Indian government, in its union budget had announced a proposal to bring in a new taxation regime of General Anti-Avoidance Rule (GAAR), apart from bringing in certain amendments to give retrospective taxing for offshore transactions.
HNIs generally use Participatory Notes (PN) investments routed through tax havens like Mauritius since it saves them time and cost without going through direct registration and they operate through registered FIIs.
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Market regulator SEBI has said the total value of PNs in Indian markets currently stood at about US$25 billion at the end of April 2012, whereas unofficial sources estimate about US$40 billion to have been pulled out till date.
Further, though Indian government has stated that GAAR has been differed by a year, investors feel that when implemented the FII would pass on the tax liability to their clients.
SEBI has asked foreign institutional investors (FIIs) to report monthly details of PN transactions within 10 days; whereas earlier, FIIs had a time limit of six months to report these transactions.
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