Coming close on the heels of the American investment firm Jane Street‘s run-in with the income tax (I-T) department, FPIs and custodian banks, which handle the funds and securities of these offshore investors, are trying to determine the obligations and liabilities such representatives could be exposed to.
The subject has been discussed between the Central Board of Direct Taxes (CBDT), the Securities & Exchange Board of India (SEBI), MNC banks acting as custodians and senior officials of Big Four firms, four persons aware of the matter told ET.
Neither bankers nor accountants nor management consultants are ready to step in as a ‘representative assessee‘ due to concerns over future tax liabilities if an FPI trading on Indian exchanges or an overseas private equity fund with foreign direct investment faces a tax demand.
The person nominated as representative would have to be named by a foreign investor in the form for the allotment of a permanent account number (PAN). Also, the details would be shared in the common application form FPIs file with SEBI for registration and licence renewal.
The draft PAN form released by CBDT in early February mentions ‘representative assessee (RA) or authorised representative (AR)’. However, FPIs, fund advisers and bankers have gathered the impression that the proposal to nominate a representative stems from the tax department’s intention to pursue unpaid claims with the person whose name and address appear on the forms.
The rule will come into effect from April 1, 2026, when the new I-T Act comes into force.
AgenciesStakeholders fear that a ‘representative assessee’ can be exposed to liability in case an FPI defaults in paying tax
“What we have now is a draft PAN application form. The concern is that the final form, expected by March 31, could make it mandatory for FPIs to name a ‘RA’. If there is a choice between a RA and an AR, then it would probably be fine as under Section 288 of the I-T Act, any practising chartered accountant can be appointed as an AR to represent the company before tax authorities, receive notices and respond. But if CBDT insists on a RA, then it would be a challenge because the individual named as RA can be exposed to liability in case an FPI defaults in paying tax – a position no one would want to be in,” said Bhavesh Gandhi, co-founder of Incorp Advisory Services Pvt Ltd, which advises FPIs on registration and taxation.
A senior consultant, preferring anonymity, said that since taxes on income and capital gains from securities trading are deducted before an FPI takes money out of the country, CBDT should not make it mandatory for funds to name a RA – a point custodians have also put across to SEBI. More so, with FPIs selling heavily in recent months. A few banks have suggested that CBDT should give FPIs the flexibility to name a non-resident or one of their senior employees as RA instead of insisting that the RA should be a local person having an Indian address. In fact, in interpreting the PAN form, a bank has told its FPI clients that the representative can be a non-resident.
“From a revenue protection perspective, tax authorities would prefer an identifiable person in India, within their jurisdiction, against whom proceedings can be initiated, particularly in cases where future tax liabilities arise. In the absence of this, recovery of dues would largely rely on seeking assistance from countries under applicable tax treaties. This can be time-consuming and procedurally uncertain,” said Ashish Karundia, founder of the CA firm Ashish Karundia & Co.
SEBI and CBDT spokespersons did not respond on the subject.