The IT department has asked many foreign portfolio investors (FPIs) to impose higher taxes on themselves. capital gains After being denied the benefits of the set-off and the tax treaty, said people aware of the development. The notices were issued by the Centralized Processing Center (CPC) of the IT Department under section 143(1) of the Income Tax Act.

Information under section 143(1) informs taxpayers about the preliminary assessment made by the tax department and indicates discrepancies in tax filing, and demands for additional taxes, if any.

Sources said there are mainly three reasons cited in the demand for additional taxes. Not allowed to close FPI either long term capital gains Against short-term capital loss, or the tax department has not taken into account the tax treaties, or, in some cases, it has classified short-term capital loss incurred by FPIs as gains, he claimed.

Many tax experts suspect that it could just be a technical glitch in the system, but even then, FPIs now have to either approach the commissioner. Income tax (appeal) or to prosecute a case.

Rajesh H Gandhi, Partner, Deloitte India said, “The law allows long-term capital gains to be set-off against short-term capital losses. “If such set-off is denied, it could result in significant tax demand for FPIs, which would require them to prosecute the matter. Hopefully this is a technical glitch and it will be fixed soon. will be done.”

In other cases, the tax department has not taken into account the tax treaties while demanding tax from FPIs. All FPIs that are covered by India’s bilateral tax treaties and not protected through tax treaties attract much lower taxes – from 10% to 15%.

In several other cases, the tax department has classified short-term capital losses incurred by FPIs as gains, said sources. Therefore, instead of deducting such amount, they have been asked to pay taxes.

Sameer Gupta at EY India said, “The taxpayers’ concerns regarding centralized processing center have wrongly treated short-term capital loss as short-term capital gain and taxed the same.” “There are other issues as well, around profits that were subject to tax at 50% of the domestic tax rate,” he said.

“The remedial measures adopted by the taxpayers for the above include filing of rectification application and taking recourse through an appellate process in parallel,” Gupta said. ET could not independently verify whether the tax notice was the result of a technical glitch or change in attitude or any other issue related to FPIs. An email query sent to CBDT and FM did not elicit any response as of press time on Thursday.