Foreign Portfolio Investors (FPIs) – Budget (2022) expectations

Background

New Dividend Taxation regime was introduced w.e.f. 1 April 2020 wherein dividends were made taxable in the hands of recipients. The payer of the dividend in this case is required to withhold taxes at source before making payment

FPIs who makes significant investments in Indian listed securities (say equity) are regularly receiving dividends

As the FPIs are eligible for tax treaty benefits, dividends can be taxable at say 5 /10 percent as compared to the base rate of 20 percent under the tax treaties. This is subject to

satisfaction of documentation e.g., Tax Residency certificate, No PE / Beneficial Ownership declaration etc.

Issue

It has been experienced that the Indian corporates are requesting different information / clarifications from FPIs for providing tax treaty benefits for withholding.

The above results into repetition of process of documentation / information.

Also, in some cases due to slight delay in process of compliance results into withholding at higher rate than rate eligible under the tax treaty.

Expectation

In the Budget 2022, standard set of information / documents can be clearly prescribed for withholding by the Indian corporates so that custodians / FPIs will be relieved from repetitive procedure and due benefit of tax treaty can be obtained.