P-Note Holders Not Liable to Pay Tax in India: Finance Minister

The Finance Minister on 30th March said that Participatory-note (P-note) holders are not liable to pay tax. He clarified the uncertainty regarding the overseas investments, saying that persons investing in stock markets through Foreign Institutional Investors (FIIs) will not have to pay tax in India.

There was a lack of clarity on taxation of P-notes which contributed to the recent volatility in the domestic share market. New tax norms, the General Anti-Avoidance Rules (GAAR) will come into effect from 1st April 2012. With this, the IT-department will have power to contradict individuals and entities for the benefits of any tax avoidance treaty that may presently exist.

Generally, p-notes are fundamental instruments that help foreign investors save tax by routing the investments through tax havens like Mauritius. If the Income Tax department were to actually go beyond P-notes, there would be tax implication on the financial instruments which are mainly sold by the investment banks like Goldman Sachs, Citi, Barclays, HSBC and Morgan Stanley among others.

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