Govt exempts P-Notes maturity from GAAR: ASSOCHAM

The Dollar Business Bureau

The government have to come out with an explanation that GAAR (General Anti-Avoidance Rules) would not be applicable to a Foreign Portfolio Investor (FPI) on maturity and redemption of the Participatory Notes (P-Notes), in order to gain confidence of the foreign investors and motivate them to keep their interest in the stock market of India, ASSOCHAM said in a memorandum submitted to the Ministry of Finance.

In the memorandum, the trade body detailed that it is usual for investors to gain economic exposure in the country’s securities via P-Notes. On the maturity and redemption of these instruments, the underlying Indian securities citing the P-Notes may or may not be traded by the FPI.

“While the concerned rules governing the applications of GAAR provide protection to the investors of P-Notes, it is still unclear whether provisions of GAAR should be applicable to the FPI because of a P-Note arrangement,” it added.

“We believe that the existence of a P-note arrangement or status of underlying Indian position referencing P-notes or passing of economic benefits to P-note holders should not be the criteria for evaluating commercial substance at the FPI level. It should be clarified that GAAR provisions will not apply to an FPI on redemption/maturity of P-Notes,” the ASSOCHAM memorandum stated.

D S Rawat, Secretary General, ASSOCHAM, said that at this current juncture, the foreign equity investors have been displaying considerable interest in the country’s market. We hope that this interest would be going to stay and take all the required steps needed to keep their confidence.

In addition, the memorandum prodded the government to provide clarification that the provisions of the GAAR would not be applied to any of the securities allotted by way of bonus or any ensuing bonus issuances till the time the original securities are purchased before April 1, 2017.