Reports suggest that the income tax department has asked multiple foreign portfolio investors (FPIs) to cough up more taxes on account of their capital gains. One of the reasons cited is that FPIs are being denied set-off against their short-term capital losses and tax treaty benefits.

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To gain more clarity on the said reports, CNBC-TV18 spoke to Dinesh Kanabar, CEO, Dhruva Advisors, and Sameer Gupta, tax market leader, Ernst & Young (EY).

Kanabar said, “While there has been such notices, I don’t think they are as rampant as one would believe it is. We have seen a few notices but not many more, that is number one. Number two, the reason seems to be at some point of time a pure technical glitch at the centralised processing centre (CPC), as you know with the introduction of the new portal, the CPC is still settling down. There are issues as to whether it picks up a short-term loss and sets it off against long-term or short-term gain, which is absolutely permitted in law.”

“We have seen instances where that set off is denied and one would struggle to find out as to whether there is a pure technical glitch, which I suspect it is or there is a conscious approach of the tax office,” he said.

With regard to denial of the treaty benefit, Kanabar said, “The instances which we are seeing are intimations where you cannot deny treaty benefit. That requires an application and with Mauritius now, actually moving out of the grey list, sort of putting all the processes in place to deny treaty benefits may not be appropriate at all.”

He added, “Now is it a matter of concern? Yes. Is it a matter of alarm? The answer is no, because I think a lot of it is attributable to technical glitches.”

Meanwhile, Gupta said, “This is more prima facie, these are still intimations as we know, intimations are summary assessments, so to speak. But we are hearing reports that, while this may not be rampant, there have been these issues.”

He added, “I think the point to note is that a summary assessment or Section 143 of the Income Tax Act is basically one where the online processing works on an auto algorithm, which is really looking for errors made by assesses in their return filing, so they are supposed to pick up the errors and intimate the assesses. I do hope that these glitches which are in online processing are taken care of, because anything that is auto, which is going to the community at large, right, should not be creating further confusion. So, I do hope that this gets rectified.”

Watch the accompanying video for the full interview.

(Edited by : Dipikka Ghosh)