InvestorQ : Do FIIs pay taxes in India and what are the rates of taxes applicable to FIIs?
Mahima Roy made post

Do FIIs pay taxes in India and what are the rates of taxes applicable to FIIs?

Answer
user profile image
Aditi Sharma answered.
1 year ago


A lot of people are under the belief that FIIs don’t pay any tax in India. That is not correct. FIIs typically register their funds in countries with whom India has a Double Taxation Avoidance Agreement (DTAA). This ensures that they don’t end up paying tax twice i.e. at their country of origin and also at the country where they invest. But taxes have to be paid. The only difference is that if the taxes are already paid at one point, then they get exemption from paying twice on that same income. The table captures the major tax rates applicable to foreign portfolio investors (FPIs). Note that FPIs and FIIs are used interchangeably. Formerly they were called FIIs but post the new regulations in 2014, they are referred to as FPIs.

Income

Company Defined Under section 2(17)

Non-Company

Where aggregate of income exceeds on crore rupees (surcharge @ 2% applicable)

Where aggregate of income does not exceed one crore rupees (no surcharge applicable)

(no-surcharge applicable)

Dividends

- Exempt under section 10(34) of the Income Tax Act 1961 - provided Dividend Distribution Tax (DDT) under section 115O of the Income Tax Act 1961, is paid by the Indian Company declaring the dividend.

Income from Units

- Exempt under section 10(35) of the Income Tax Act, 1961 -

Income (other than above) in respect of securities

21.012%

20.60%

20.60%

Capital Gains - where Securities Transaction Tax (STT) is chargeable

Short Term (where holding period is upto 12 months)2

15.759%

15.45%

15.45%

Long Term (where holding period is beyond 12 months)2

- Exempt under section 10(38) of the Income Tax Act, 1961 -

Capital Gains - where Securities Transaction Tax (STT) is not chargeable

Short Term (where holding period is upto 12 months)2

31.518%

30.90%

30.90%

Long Term (no benefit of indexation) (where holding period is beyond 12 months) 2

10.506%

10.30%

10.30%

Income from transfer of such securities if chargeable under the head business income

Business Income (where no DTAA 3 / where DTAA 3 - to the extent of PE)

42.024%

41.20%

30.90%

Business Income (where no DTAA 3 exists - in case of no PE)

NIL

NIL

NIL