The Securities and Exchange Board of India has clarified that banks and brokers will not be liable for taxes owed by offshore funds in India, according to reports from CNBC TV18, The Hindu BusinessLine, and Reuters. This clarification was communicated via email to banks and brokers on Wednesday, following consultations with the tax department. The move addresses concerns raised by fund representatives who were asked to furnish details while seeking Indian tax identification for their clients. As per The Hindu BusinessLine, the clarification specifically addresses concerns that had delayed fresh foreign portfolio investor (FPI) registrations and PAN issuance since last month. Two sources with direct knowledge of the matter confirmed that SEBI clarified to banks and brokers via email that they would not be subjected to tax liability on behalf of their clients, with both sources declining to be identified as they are not authorized to speak to the media.
The clarification is expected to speed pending foreign investor applications and ease investor concerns, as reported by CNBC TV18. India currently has more than 12,150 licensed foreign investors who have sought easier entry and exit rules from SEBI in the past. The move comes at a time when foreign investors have remained net sellers of Indian equities, dumping $23 billion so far in 2026. According to Rajesh Gandhi, partner at Deloitte Touche Tohmatsu India, these clarifications should give a boost to closure of pending foreign investor applications and alleviate all concerns which arose from the new requirement. As per Reuters, the clarification is expected to lift a hurdle that had delayed fund launches, with a public clarification note on the issue expected to be issued soon by depositories or Income Tax Department.
Last month, India's federal tax authorities had asked representatives of offshore funds, including foreign banks acting as custodians, to furnish their details while seeking Indian tax identification for their clients, as reported by CNBC TV18. This had raised concerns over whether the funds' representatives could be held liable for tax demands on offshore funds, slowing fresh applications from offshore funds looking to enter India. The issue arose after changes were introduced to the common application form (CAF) framework and PAN application process for FPIs from April 1, as reported by The Hindu BusinessLine. Under the revised framework, representatives of offshore funds, including custodians and intermediaries acting on behalf of FPIs, were required to furnish additional details while applying for PAN allotment for clients. The new clarification removes this liability concern for intermediaries.
PAN issuance for new FPIs had been impacted over the past month, with at least 20 newly registered FPIs currently awaiting PAN allotment despite completing registration formalities, according to sources cited by The Hindu BusinessLine. This bottleneck was primarily caused by liability concerns among banks, brokers and other intermediaries over whether they could face potential tax liability for offshore funds they represented. As a result, FPIs found it difficult to identify domestic representative assessees willing to take up the role, slowing onboarding and delaying fresh fund launches. The clarification is expected to help resolve this backlog and facilitate smoother operations for foreign investors seeking to establish operations in India.
Investors have been spooked by aggressive tax practices in the past, with the most recent instance being the top court ruling against Tiger Global in a landmark tax demand case, according to CNBC TV18. The clarification comes at a time when foreign investors have remained net sellers of Indian equities, with the $23 billion outflow highlighting the challenges faced by foreign investment in the Indian market. A public clarification note on the issue is expected to be issued soon by depositories, with sources indicating that this will be very helpful for foreign investors to find appropriate domestic representatives to complete the new RA or AR entry in the CAF form, as reported by The Hindu BusinessLine.
