"Custodians do not want to take the responsibility of coordinating between the FPIs, tax consultants, tax authorities and depositories. Also, a lot of documents from April 1 will have to be filed and reviewed electronically and the right systems are yet to be put in place to facilitate this," added another person familiar with the matter.
The new CAF was recently issued by Sebi
and notified by the Central Board of Direct Taxes (CBDT). It is supposed to do away with the dual application requirement — one to Sebi
and the other to the Central Board of Direct Taxes (CBDT) for PAN. This requirement prolongs the registration time for FPIs
to 2-3 months. The old forms can be used till March 31.
Currently, tax advisors apply for PAN on behalf of FPIs
and in concurrence with the custodians completing the Sebi formalities. Post-April 1, it appears that the tax advisor will have no role to play in the PAN application process and will not be aware if the same is generated or sent to the FPIs.
"This could result in delays. The solution is to allow the tax advisor to access and complete the PAN related information in the form at the same time as the FPI/DDP (designated depository participant)," said Viraj Kulkarni, founder, Pivot Management Consulting.
The PAN numbers are generated on the basis of pre-defined structures that include options such as corporates, trusts and association of persons. Once generated under a particular structure, the PAN cannot be modified. A fresh PAN will have to be applied for the appropriate structure, and data of past structure cannot be used in tax filings, said, experts.
"The DDPs and the FPIs stand to benefit on account of the new form. However, considering that a separate application form is not required, they would have to take necessary safeguards to ensure details around tax status are correctly captured," said Sunil Badala, partner, KPMG India, adding that the PAN issuing agencies were working towards developing the required utility to transition to the new process.
Going forward, the FPIs will have to generate a user ID which will need internal compliance approvals at the FPI’s end and potentially lead to delays and/or errors.
"This can frustrate the FPIs as the Indian application forms ask for too much information compared to other countries," said Kulkarni.
The modified form has some remnants of the FPI regulations of 2014. Experts believe that this should be completely eliminated and only those relating to FPI regulations of 2019 (currently in annexure) should be allowed.
Despite possible operational issues, CAF is expected to hasten the application process for FPIs. “CAF obviates the need for FPIs to have their constitutive documents attested by Apostille or by Indian High Commission. This will act as a single-window clearance for obtaining both the FPI licence as well as the PAN,” said Tejas Desai, partner, EY India.