Tax clarity months away for India

Uncertainty over new tax proposals in India will reportedly remain for one or two more months, as the government offers a slight consolation for those already invested in the country.

India’s new tax proposals will not retroactively tax existing investor portfolios, said two government officials who were quoted in local media. This news may come as some comfort to foreign private equity firms worried about the impact of new budget proposals.

The long-awaited clarification of tax regulations in the proposed legislation known as the General Anti-Avoidance Rule, however, could still take up to two months to be announced, said reports. This finance bill is expected in India’s parliament next week, but reforms will not be public until June or July.

Critics of the reforms complained that proposals were too vague and left room for subjective interpretation, including that they could be applied retroactively. This is not the case, according to government officials.

Among the new amendments to the tax proposals is a reduction of the 20 percent capital gains tax rate, a move expected to lure foreign investors to set up on-shore funds in the country.

This latest amendment is said to be an incentive for foreign GPs to invest. The uncertainties surrounding the tax regulations have slowed or in some cases halted private equity investment in India, reports said. 

Various industry sources have warned that until these tax measures are ironed out, foreign investors will remain wary of the region. Investment in India was down 50 percent in Q1 2012 year-on-year, according to Venture Intelligence data.