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Question: Many friends in the Gulf and in India have burnt their fingers by making investments based on advice received very often from banks who sell financial products.  Investors are made to sign on the dotted line by banks which they rely upon when investors make a loss.  Is there any mechanism to protect the interest of investors?

ANSWER: Banks and insurers have followed a buyer-beware approach and relied on signed fact sheets to defend themselves in disputes in cases involving complex investment or insurance products.  To protect the interest of investors, the Reserve Bank of India has drafted directions whereby the term ‘mis-selling’ has been defined to mean the sale of a product or service that is inappropriate for a customer’s profile – income level, risk appetite or age. These directions state that customer consent does not legalise an unsuitable transaction. The regulator has held banks accountable for the appropriateness of products they distribute as banks and insurers are not just commission earning intermediaries. 

The draft rules prohibit compulsory bundling, making it clear that loan approvals cannot be linked to the purchase of insurance or other financial products.  The rules have tightened oversight of third party agents, requiring banks to display updated lists of all direct selling agents on their websites and ensuring that agents operating from branches of banks are clearly distinguishable from bank employees. The Reserve Bank has also defined the expression ‘dark patterns’ in financial sales. These refer to deceptive user experience designs on digital platforms that mislead or trick customers into actions they did not intend to take. Such dark patterns are deemed to be unfair trade practices, misleading advertisements and violation of consumer rights. Under the new framework, regulated entities must formulate a customer compensation policy, whereby they will have to make full refund of the invested amount in case the mis-selling is proved.

Question: Indian companies have been facing challenges in raising funds from the overseas market.  This is unfortunate because funds are available at much cheaper rates outside India.  Is this likely to change for the better?

ANSWER: Last month, the guidelines for Indian corporates to borrow have been relaxed. External commercial borrowings by Indian companies are likely to rise as a result of the per borrower limit being increased from $750 million to $1 billion, subject to 300% of their net worth. This will create additional headroom for Indian companies which had previously reached their limit.  Further, the pricing cap at 450 basis points over the secured overnight financing rate (SOFR) has been eliminated. With this removal, pricing will now be market-driven which would allow lenders and borrowers to negotiate spreads based on credit profile, structure and tenure.  The new guidelines will increase access to global funds and expand the sources of funding available to Indian corporates. 

It is therefore expected that India Inc could raise atleast $100 billion in the coming financial year. A large portion of incremental volume is expected from transactions that were earlier routed through foreign portfolio investor, non-convertible debenture (FPI-NCD) structure. Further, financing by foreign owned companies for downstream investments in Indian ventures can now be undertaken through the ECB route. The end-use guidelines have also been liberalised and ECB proceeds can now be used for acquisitions, refinancing of domestic loans and broader corporate purposes which are well beyond traditional capital expenditure which had been permitted so far.

HP Ranina is a practising lawyer, specialising in corporate and tax laws of India.

Question: With the price of gold going up, I have been advised that I should invest in gold or silver exchange traded funds.  I want to know the tax implications both as an investor and as a day trader.

ANSWER: As an investor you would be eligible for a lower rate of capital gains tax on sale of gold or silver ETFs if they have been held by you for one year or more, the rate being 12.5% on the long term capital gains.  If you sell the ETFs within the one year period, the short term capital gains will be taxed at the rate of 20%.  The holding period of one year is extended to two years for determining long term capital gains in case of gold or silver fund-of-funds.  In case you make short term capital gains by selling them within two years, the profits will be taxed at the normal rate applicable to your taxable income which will include other sources.

Profits from intraday trading in gold or silver ETFs are treated as speculative business income. Therefore, such profits will be added to your other taxable income in India.  Losses from such intraday transactions can only be set off against speculative business profits and not against income from other sources.  However, if ETF trading is done based on delivery, the profits would not be treated as speculative income.  In fact, they would be treated as capital gains and lower rates will apply as mentioned above. Any losses on such delivery based trading can be set off in the same financial year against other taxable income.

The writer is a practising lawyer, specialising in corporate and fiscal laws of India.