The Central Board of Direct taxes (CBDT) has introduced a new rule this year, which is botheringleading foreign investors including sovereign funds and pension funds investing in the country.
CBDT has mandated for all non-individual tax filers to mention the PAN number of authorised signatories along with their signature in the income tax returns, however this requirement is impacting the foreign portfolio investors (FPIs) structured as non-corporate trusts and association of persons (AOPs) the most, as per tax experts.
Trustees and partners of overseas funds, who are foreign nationals, are reluctant to obtain a PAN card since it would make them an Indian taxpayer, they said. There are also data privacy concerns since these foreign nationals would have to provide their personal documents as a part of the Know Your Customer (KYC) requirements.
“Once you have a PAN card, you have to file IT returns every year irrespective of whether or not you have any reportable income in India,” said a senior tax consultant, who advises foreign funds.
Several foreign funds are seeking an exemption from the PAN requirement. They have also asked CBDT for an extension in the deadline for filing the returns. The deadline to file income tax returns for FY21 is 31st December, 2021.
Further, in non-corporates such as trusts, an authorised signatory can only be the trustee of the fund. In case of partnership firms, partners of the fund house can be the signatories.
There are currently over 10,000 registered FPIs in India out of which around 40% are registered as trust. Some of the prominent sovereign funds and pension funds are trusts too. Tax experts said the trustees of these funds are top ranking government officials or even elected representatives in their home countries.
The compliance challenges don’t end with the trustee obtaining a PAN card. “If there are any discrepancies, tax department will have powers to go after the PAN card holders brining personal liability into picture,” said asenior tax consultant.
However, In the case of foreign funds structured as corporates, they can appoint domestic representatives such as lawyers as authorised signatories. This allows the domestic representative to sign the tax returns and put in his PAN number.
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