New Delhi–India should not apply the General Anti-Avoidance Rules (GAAR) to foreign portfolio investor (FPI) on redemption and maturity of participatory notes, industry chamber Assocham said on Wednesday.

“In order to instill confidence in the global investors, the government should come out with a clarification that GAAR would not apply to a Foreign Portfolio Investor (FPI) on redemption and maturity of the Participatory Notes,” the Associated Chambers of Commerce and Industry of India said in a memorandum to the Finance Ministry.

“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 said.

Assocham Secretary General D.S. Rawat said that global equity investors have been showing quite a bit of interest in the Indian market.

“We would like this interest to stay and need to do all that is required to sustain their confidence,” he said.

According to Assocham, GAAR provisions should not apply to shares issued after March 31, 2017 on conversion of compulsorily convertible preference shares (CCPS), where the latter were acquired before April 1, 2017.

“This is because no fresh investments are made on conversion of CCPS into equity shares. There is merely a change in the form of investments,” it said.

Finance Minister Arun Jaitley, in his 2016-17 Budget, has announced that GAAR will be implemented from April 2017, after deferring its applicability, by two years, last year. GAAR had earlier become part of the law.

Proposed in the 2012-13 budget to prevent tax evasion, GAAR evoked sharp reactions from foreign as well as domestic investors who feared that it could be misused by taxmen to harass investors.

GAAR provisions will be effective from assessment year 2018-19 onwards or the financial year 2017-18.

The government feels that GAAR should now be implemented as scheduled since foreign institutional investors and other such portfolios have been escaping capital gains in one form or the other, keeping domestic industry at a disadvantage. (IANS)