Several FPIs, AIFs get tax notice for errors in returns



Quick Summary
The Income Tax Department has issued notices to numerous foreign portfolio investors (FPIs) and alternative investment funds (AIFs) regarding errors found in their tax returns. These discrepancies include issues with capital gains tax calculations, incorrect declarations, income suppression, and mistaken exemption claims, with an estimated ₹13,000 crore in tax discrepancies identified. The notices, largely pertaining to the financial year 2022, highlight the department's increased use of digital data integration to detect errors and potential evasion.

The Income Tax Department has sent notices to dozens of foreign portfolio investors (FPIs) and alternative investment funds (AIFs), flagging discrepancies in their tax returns.

These tax red flags include errors in capital gains tax computations, erroneous declarations, suppression of income and wrong exemption claims, people with direct knowledge of the matter told ET. The notices were sent in October and up to November 15 and largely relate to tax returns for FY22.

A senior Income Tax (I-T) Department official estimated the tax discrepancies aggregated to about ₹13,000 crore, adding that digital data integration is helping spot errors and evasion. "We are in the process of sending more notices," the official said, adding that while some notices have questioned capital gains tax computations, others relate to lapses in filing.

FPIs and AIFs Receive Tax Notices for Return Errors

Capital Gains Tax Calculations

FPIs and AIFs that have filed capital gains tax at the lower 15% surcharge have been getting these notices, said people aware of the matter. Tax experts said some of the notices could be errors, as computerised processing may have applied the wrong surcharge or not considered the treaty benefits claimed by the assessees.

Changes in Surcharge

Tax department sources admitted there may be some errors. "The notices have details. This is a standard procedure and they will get adequate time to respond with facts," said the income tax official cited earlier.

The surcharge has seen several changes in the last year, which may have caused confusion.

In the 2022 budget, a standard 15% surcharge was imposed on long-term capital gains on the transfer of any type of assets. Earlier, it ranged from 15% on listed equity shares and units, among others, to 37% for other assets.

Over the past few years, all regulatory agencies, including the I-T Department, have stepped up scrutiny of foreign funds over tax evasion and round-tripping concerns.

FPIs usually route their investments through favourable tax jurisdictions and a significant portion of these flows are from non-resident Indians and persons of Indian origin.

"The tax department is focusing on new areas like gaming, asset management and asset reconstruction companies for the last year," another tax official said

FAQ :

Dozens of foreign portfolio investors (FPIs) and alternative investment funds (AIFs) have received tax notices.

The notices flag discrepancies such as errors in capital gains tax computations, erroneous declarations, suppression of income, and wrong exemption claims.

The aggregated tax discrepancies are estimated to be around ₹13,000 crore.

The notices largely relate to tax returns filed for the financial year 2022.

Yes, tax experts suggest some notices might be due to errors, potentially from computerised processing applying the wrong surcharge or not recognising treaty benefits.

Yes, regulatory agencies, including the Income Tax Department, have stepped up scrutiny of foreign funds concerning tax evasion and round-tripping concerns.




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Finance news reporter covering taxation, GST, income tax, business compliance, and economy updates. I simplify complex financial topics into easy-to-understand articles for professionals, taxpayers, and business owners on leading finance and tax platforms.

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