Tax sops may turn depository receipts more attractive for foreign investors

The tax rate for dividends in the hands of foreign portfolio investors is now 20 per cent, in addition to surcharge and cess. Dividends paid to DR holders, on the other hand, are taxable at 10%

Depository receipts (DRs), American or global, may become more attractive to foreign investors that invest directly in Indian equities, with the Budget widening the tax arbitrage. The tax rate for dividends in the hands of foreign portfolio investors (FPIs) is now 20 per cent, in addition to surcharge and cess. Dividends paid to DR holders, on the other hand, are taxable at 10 per cent.
 

Further, investors holding American Depository Receipts (ADR) and GDRs do not pay capital gains tax if they do not convert the receipts into equity shares. This is because even though the DRs represent shares of