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FPIs need to file tax returns in ITR-6
August, 01st 2015

Foreign Portfolio Investors (FPIs) also have to file their tax returns using ITR-6. These entities are now required to state their SEBI registration number.

In India, long term capital gains arising on sale of Indian securities via a stock market against which securities transaction tax (STT) has been paid, are exempt from capital gains tax. In contrast short term capital gains are taxable in India. However, under a few tax treaties, such as the tax treaty with Mauritius, even short term capital gains are tax exempt in India.

ITR-6, now calls for detailed disclosure of short term capital gains by non-resident taxpayers, (which would include FPIs) who have availed of treaty benefits. These taxpayers are required to separately report the amount of short term capital gains not chargeable to tax in India . Details are required to be provided of the country of residence, the 'Article' (relevant provision) under the tax treaty under which the exemption has been claimed and a disclosure on whether the tax residency certificate has been obtained by the tax payer. To illustrate: A Mauritius resident FPI would have to obtain the tax residency certificate given by the Mauritius revenue authority to claim the benefits of the India-Mauritius tax treaty.

Further, if a non-resident has income chargeable to tax in India, as per the provisions of the tax treaty, various particulars are to be filled in the tax return. These include, not just the name of the country of residence of the non-resident and the relevant provisions of the tax treaty but also details of the tax treaty rate and the corresponding rate under the Indian tax laws. The non-resident tax payer has the option to choose either the Indian tax provisions or the tax treaty provisions, which ever are more favourable. In some cases, tax treaty rates are much lower. For instance, for the FY 2014-15 the withholding tax rate in India on royalties earned by a foreign entity was 25%, however the Singapore and Netherlands tax treaties provided for a lower withholding tax rate of 10%. Additional disclosure in the tax return is aimed at ensuring that the treaty benefits have been correctly claimed and there is no tax leakage.

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