Whalesbook
The resolution follows SEBI's recent email communication to custodians, banks, and brokers, assuring them they will not be held liable for the tax dues of offshore funds they represent. This critical clarification aims to unblock the flow of foreign capital into India, which had been significantly hampered by confusion surrounding new regulatory requirements.
Regulatory Clarification Eases Onboarding
The impasse arose after changes were implemented to the Common Application Form (CAF) and PAN application process for Foreign Portfolio Investors (FPIs) effective April 1. Under the revised framework, intermediaries were required to provide additional details, sparking concerns about potential tax liabilities for the offshore funds they represented. This ambiguity made it difficult for FPIs to secure appropriate domestic representatives, leading to a slowdown in their onboarding and delaying the launch of new funds. Sources indicated that at least 20 newly registered FPIs were awaiting Permanent Account Number (PAN) issuance despite completing other formalities.
Path to Renewed Inflows
SEBI's intervention, following consultations with the Income Tax Department, has provided much-needed clarity. The regulator's email on Wednesday clarified that banks and brokers acting on behalf of offshore entities would not be exposed to tax liabilities concerning their clients. Market participants anticipate that this move will swiftly resolve the current bottleneck in FPI onboarding and PAN issuance. The renewed ease of registration is expected to encourage the resumption of foreign portfolio investment into Indian markets.