The Reserve Bank of India (RBI) has come up with draft rule with modification in the existing regulation related to foreign investment to discourage round tripping.
According to the draft rule, any investment made outside India is an entity, which in turn invests in India will be treated as round tripping if the purpose is to escape tax.
This is as the same definition and rationale used by the tax department under General Anti Avoidance Rule (GAAR) which companies have been complaining is quite broad in its scope.
Earlier, the RBI and Enforcement Directorate (ED) had started probing several individuals who had invested in foreign entities which may have later invested in Indian start up, companies or assets. Even in some cases RBI had questioned multinationals after they acquire global asset of another multinational that may have an outsourcing unit or presence in India.
However, many business entities had earlier opposed over RBI’s stand on round tripping as it was creating problems for several Indian individuals over their investment in overseas funds and Indian companies looking to acquire foreign companies.