FII income to be taxed as capital gains

In a major development on taxation of FII income, the Authority on Advance Ruling has ruled that income will now be taxed as capital gains and not business income.

Two FIIs - Fidelity & Mathew International - had sought clarification from AAR on the issue.

The issue was taxation based on business income or capital gains. Had the income be taxed as business income, the FIIs would have to prove permanent establishment in India.

AAR has also quashed an earlier decision of taxing the income of Fidelity Advisory as business gains.