The Income Tax Department has taken action against Foreign Portfolio Investors (FPIs) based on intelligence inputs received by the central government. An investigation has been initiated into suspicious FPI activities, with detailed inquiries about funds flowing into India from these investors. Notices have been sent to several FPIs, seeking information about their fund collection processes and other related matters.
The focus of the investigation is on identifying genuine investors and addressing concerns related to round-tripping by FPIs. The tax department has expanded its inquiry by requesting names, addresses, and details of trading terminals used by the top 20 investors. Suspicion arises from the possibility of round-tripping through countries with low or no taxes, such as the Cayman Islands, the Bahamas, Bermuda, and Singapore.
FPIs have been instructed to provide investment details and documents related to their outreach to potential investors. Additionally, they are required to segregate assets under management based on Indian and non-Indian investments and disclose the extent of each investment. Current regulations stipulate that resident Indians can invest in FPIs that have less than 50% exposure in India, ensuring that the majority of the fund’s corpus is not held by non-resident Indians (NRIs).