Bonus issues may land FPIs in tax tangle

New tax treaties, GAAR don't provide for grandfathering of shares acquired through this route

Foreign portfolio investors (FPIs) are staring at tax disputes as India’s amended tax treaties with erstwhile tax havens such as Mauritius and Singapore have not ‘grandfathered’ shares acquired through the bonus route. Even the general anti-avoidance rules (GAAR) provide no relief in this regard. This has hit FPIs hard as many companies have issued bonus shares in the recent past.

In other words, shares acquired by way of bonus on equity holdings acquired prior to April 1, 2017— when the revised tax treaties came into effect — have not been extended the tax exemptions given to the core holdings under