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No targeting of FPIs; higher tax on all super-rich incl Indian residents: FinMin

Wednesday, July 10, 2019

Amid a backlash from foreign portfolio investors over the new tax, the government yesterday said it is not targeting FPIs by raising tax on super-rich individuals, and foreign investors have an option to convert into a corporate entity to avail of lower rates available to such category.

Finance Minister Nirmala Sitharaman in her maiden budget hiked the surcharge on income tax paid by super-rich individuals.

However, some 40% of the FPIs automatically come under the higher tax rate as they have been investing as a non-corporate entity such as trust or association of persons (AOPs), which in the Income Tax law are classified as an individual for the purpose of taxation.

"A picture is being painted that Government has targeted FPIs by increasing surcharge over FPIs only. It is totally false. The surcharge has been increased for all super-rich individuals and non-corporate entities regardless of whether they are domestic investors or foreigner, FPI, FII. The surcharge has not been increased for companies – again regardless whether it is domestic or foreign," a top government source said.

Sitharaman had in the Budget proposed to increase the surcharge, charged on top of the applicable income tax rate, from 15% to 25% for those with taxable incomes of between Rs 2 crore and Rs 5 crore, and to 37% for those earning more than Rs 5 crore. This takes the effective tax rate for those two groups to 39% and 42.74% respectively.

The source said the surcharge has been increased on all income, be it from salary, saving, interest, mutual funds, stock market or trade in the futures and options (F&O) markets, LTCG, STCG, or other means and is applicable to all individuals and those who choose to be counted as an individual be it through funds, Association of Persons (AOPs) or Trusts.

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