In a bid to have greater clarity on tax liability issues pertaining to portfolio investors and foreign institutional investors (FIIs), Prime Minister Manmohan Singh, on Monday, referred the matter to the Parthasarathi Committee on GAAR (General Anti Avoidance Rules) set up at his instance earlier this month.

Giving reasons for expanding the terms of reference of the GAAR panel, A PMO statement said: “It is necessary to have clarity on the tax liability of portfolio investors and foreign institutional investors (FIIs) as a result of this amendment (relating to GAAR), particularly, when the investment is made through a registered stock exchange in accordance with SEBI guidelines and purely in the form of portfolio investment.”

The statement noted that any clarification needs to be harmonised with the GAAR guidelines and will have to address any residual concerns outside of GAAR. In this regard, it pointed out that there is an additional issue relating to taxation of portfolio investment, particularly in the context of the amendment made to the Income Tax Act relating to the taxation of non-resident transfer of assets where the underlying asset is in India.

“Therefore, the Prime Minister has decided to refer the issue of the implications of this amendment on FIIs and portfolio investors to the Expert Committee on GAAR,” it said.

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