Ruling out any relaxation for foreign portfolio investors (FPI), Finance Minister Nirmala Sitharaman on Thursday said that overseas investors functioning as trusts in India will have to pay the tax surcharge proposed in the Union Budget.
Speaking in Parliament, Sitharaman ruled out any adverse impact of the surcharge on FPI and reportedly said the fears of flight of capital are unfounded.
"FPIs should consider the option of structuring themselves as companies rather than trusts to avoid paying the increased surcharge announced in Budget 2019," news agency ANI quoted Sitharaman as saying in a reply to the debate on the Finance Bill in Lok Sabha.
In her budget speech on July 5, the FM had proposed a hike in surcharge for the super-rich (non-corporate) from 15 per cent to 25 per cent for incomes between Rs 2 crore and Rs 5 crore, and from 15 per cent to 37 per cent for higher incomes.
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Foreign investors seem to have gone on a selling spree in the Indian stock market post Budget amid fear of a higher tax outgo. Since the Union Budget, FPIs have flushed out Rs 5,673 crore from domestic equities, being net-sellers on 11 out of the 13 trading sessions, according to a Business Standard report. The muted corporate earnings numbers and slowdown in Indian economy also pushed foreign investors away from Indian markets.According to experts, FPIs - foreign entities investing in Indian stocks, bonds, and other such instruments - can choose to either come as a non-corporate entity or as a corporate. Around 2,000 of them, or 40 per cent of the total pie, automatically come under the higher tax rate as they have been investing as a non-corporate entity such as a trust or Association of Persons (AoPs), which are classified as an individual for the purpose of taxation as per the Income Tax law. This new development is expected to yield an estimated Rs 400 crore, contributing to the overall revenue gain of Rs 12,000-13,000 crore courtesy the new surcharges, the Business Standard reported.
In her 20-minute speech, Sitharaman said the Budget proposes to amend the Reserve Bank of India (RBI) Act which will provide additional power to the central bank to regulate housing finance companies. She said that the NDA government believed in minimum government and maximum governance.
Edited by Chitranjan Kumar
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