In a move which could improve the fund flow and
provide some stability to the choppy Indian bourses, the finance
ministry has relaxed norms for foreign nationals and foreign
institutional investors to obtain Permanent Account Numbers (PAN) that
could also double up as KYC (know your customer) compliance for any
investment they make in Indian stocks.
Till now, FIIs or foreign nationals had to obtain a PAN and separately
meet KYC requirements prescribed by the market regulator before
investing in stocks. The tax obligation on any transaction is twice the
due amount if they fail to mention PAN.
In the revised rules that come into effect from October 1, a foreign
national will have to only produce either h/his citizenship number or
taxpayer identification number to obtain a PAN. The government is making
amendments in Rule 114 and Form 49A of the Income Tax Rules and has
proposed to introduce a new Form 49AA. While Form 49A will be used for
Indian citizens, the other is for foreign nationals and FIIs.
Earlier rules stipulated that citizenship or taxpayer identification
number would not be accepted as proof of identity in case of foreign
nationals seeking PAN card. The applicant is required to take prescribed
documents to an officer of Indian Embassy or High Commission where he
is a resident to get them attested.
The revised guidelines ensure that a foreign national or an FII need not
make rounds of Indian Embassies or High Commissions anymore. They can
get copies of their documents attested by recognized authorities in
their respective countries. Several countries and trade and industry
organizations had represented the finance ministry seeking changes in
the rules, in particular documents to be accepted as proof of identity
and address and their attestation.
The department of economic affairs and the central board of direct taxes
(CBDT) also worked on harmonizing the requirements of PAN and meeting
KYC obligation. "Since most of the basic information for both are
common, it was decided to harmonize them into one so that compliance
burden for a foreign investor is substantially reduced," said a senior
finance ministry official. The directorate of Income Tax has devised a
single integrated form that incorporates the requirements of both PAN
and KYC.