Union Budget 2021-22: What’s Brewing for Foreign Investors in India?
With the budget for the year 2021-22 being rolled out, foreign investors who are interested in investing in India have started analysing the proposals that Indian government has proposed in the budget so that they could make potential investment decisions in a timely manner. This year’s budget has not missed the target and has ensured a big room for the foreign investors. To substantiate, firstly, a proposal has been made to make suitable amendments in the relevant legislation so as to enable the debt financing of Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) by Foreign Portfolio Investors (FPIs). Moreover, a relief has been provided to FPIs by making a proposal that enables deduction of tax on dividend income at lower treaty rate so that FPIs are not over-burdened with the tax liability. Similarly, it has been proposed that the permissible limit of FDIs in Insurance companies will be increased to 74% from 49% thereby allowing foreign ownership and control with safeguards in the Insurance sector.
Further, in order to reduce compliance in foreign investment in infrastructure sector where 100% tax exception is available, to foreign Sovereign Wealth Funds and Pension Funds, on their income from investment in Indian infrastructure, proposal has been made to unwind some of the complexities that were being faced related to direct investments, private funding, commercial transaction, etc. Even, reforms have been proposed to enhance foreign investments in educational sector. Proposal has been made to place a regulatory mechanism that could allow dual degrees, twinning arrangements and other such mechanisms which can help in collaborating academically with foreign higher educational institutions. Seemingly, this budget has also dealt with the problem faced by NRIs regarding their income accrued on foreign retirement benefit account due to mismatch in taxation. Therefore, to deal with this problem, a proposal has been made to tune in such rules which could help in aligning the taxation of income arising on foreign retirement benefits accounts so that the hardships faced by the NRIs can be removed in a phased-manner.
Hence, this year’s budget has tried to widen the scope of foreign investments in India by proposing reforms in several sectors ranging from Insurance to Education, Infrastructure to Portfolio management, etc. The government has also tried to reduce the complexities for foreign investment in India. One can anticipate that, with the Indian government proposing ample attractive opportunities for the foreign investors to invest in India, there will be a percentage increase of FDI inflow in the present financial year.