The finance ministry has notified a liberalised depository receipts scheme that includes new asset classes such as debentures and mutual funds, as well as unlisted firms to raise funds abroad but was missing a crucial element of tax clarity.
“This scheme may be called the Depository Receipts Scheme, 2014 and will come into effect from December 15, 2014,” said the notification.
Depository receipts (DRs) are financial securities that consist of shares of a listed company but are denominated in foreign currency such as the US dollar and are issued to foreign investors.
Under the new scheme, domestic companies as well as other persons, will be allowed to issue DRs in all kinds of permissible securities including shares, debentures, derivatives, units of a mutual fund, collective investment schemes and government securities.
Further, they can be issued by unsponsored DRs on the back of listed permissible securities on the condition that they “give the holder the right to issue voting instructions and are listed on an international exchange”.
In India, firms can issue both American Depository Receipts as well as Global Depository Receipts to foreign investors but their underlying value of these can only accessed through equity. Unsponsored receipts were also not permitted.
The move comes following an announcement by finance minister Arun Jaitley in the Union Budget.
Earlier, a report by former Sebi member MS Sahoo on revamping the American Depository Receipts and Global Depository Receipt schemes had also suggested the same.
However, much needed tax clarity is still missing from the scheme as the Income Tax Act, 1961 does not recognise the new asset classes. “Some of the asset classes are not recognised for tax purposes,” said a senior finance ministry official.
An enabling provision was not made in the Finance Bill, 2014 and officials indicated that it would be allowed only next fiscal onwards.