Grandfathering benefits in the context of Foreign Institutional Investors (FIIs) refer to the provisions made to safeguard and maintain the stability of investments made by FIIs in the Indian market.
Foreign Institutional Investors (FIIs) refer to various entities such as pension funds, investment banks, hedge funds, and mutual funds that invest in the financial markets of a country outside their official home.
The Grandfathering benefits are particularly relevant in the context of changes in taxation rules or policies that could impact FIIs' investments.
Some key aspects of grandfathering benefits in FII include:
Continuity and stability: Grandfathering rules ensure that any changes or additional rules will not affect the present, providing continuity and stability for FIIs that have already invested in specific schemes based on past benefits and returns.
No impact on existing investments: The grandfathering concept implies that all the gains on mutual funds or equity investments until a specific date, such as January 31, will be exempt from taxation. This means that the gains made on these investments before the specified date will not be affected by changes in tax rules.
Applicability to new investments: The grandfathering benefits are available for securities purchased before a specific date, such as February 1, 2018. This means that investments made after this date will not be eligible for the grandfathering benefits.
Impact on long-term capital gains: The grandfathering provisions can have both positive and negative effects on long-term capital gains, depending on the specific circumstances and resource allocation. It is essential to consult a tax expert or financial counselor to understand the impact of grandfathering provisions on long-term capital gains.
Example from the India-Mauritius Tax Treaty: The grandfathering clause under the India-Mauritius Tax Treaty means that an old provision in law continues to apply to certain existing situations corresponding to new provisions. This ensures that FIIs invested in the Indian market before the treaty's implementation can continue to benefit from the provisions outlined in the treaty.
In summary, grandfathering benefits in FII provide continuity and stability for FIIs invested in the Indian market, ensuring that their investments are not negatively impacted by changes in taxation rules or policies. These benefits can have both positive and negative effects on long-term capital gains, depending on the specific circumstances and resource allocation.
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