Proposed Legislative Changes and Impact on Foreign Investment Funds Investing in India

The Direct Taxes Code, 2010 proposes to replace the current Income Tax Act, 1961 and is envisaged to be effective from 1 April 2012. While the Direct Taxes Code provides clarity for foreign institutional investors with regard to certain transactions, some provisions – such as the introduction of general anti-abuse rules and change in the residency test for companies – are a cause of concern.