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No Enhanced Surcharge on FPIs for Capital Gains in Equities, Derivatives, Says Govt

In the 2019-20 Budget, the government had increased surcharge from 15 per cent to 25 per cent on taxable income between Rs 2 crore and Rs 5 crore, and from 15 per cent to 37 per cent for income above Rs 5 crore.

Updated:August 24, 2019, 4:51 PM IST
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No Enhanced Surcharge on FPIs for Capital Gains in Equities, Derivatives, Says Govt
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New Delhi: The government on Saturday clarified that enhanced surcharge has been withdrawn for foreign portfolio investors on capital gains in both the equity and derivatives segments.

The Centre on Friday had announced a slew of measures to boost the economy, including rollback of enhanced super-rich tax on foreign and domestic equity investors imposed in the Budget.

The derivatives (futures and options) are not treated as capital asset and the income arising from the transfer of the derivatives is treated as business income and liable for normal rate of tax for domestic investors, an official statement said on Saturday, clarifying the stand of tax authorities on gains made from derivatives trading.

However, in the case of foreign portfolio investors (FPIs), derivatives are treated as capital assets and the gains arising from the transfer of the same is treated as capital gains and subjected to a special rate of tax as per the provisions of the Income Tax Act.

"Therefore, it is also decided that the tax payable on gains arising from the transfer of derivatives (Future & options) by FPI which are liable to special rate of tax under section 115AD of the (Income Tax) Act shall also be exempted from the levy of the enhanced surcharge," it said.

However, the tax payable at normal rate on business income arising from the transfer of derivatives to a person other than FPI shall be liable for the enhanced surcharge, it added.

In the 2019-20 Budget, the government had increased surcharge from 15 per cent to 25 per cent on taxable income between Rs 2 crore and Rs 5 crore, and from 15 per cent to 37 per cent for income above Rs 5 crore.

Following the increase in surcharge, the effective income tax rate for individuals with taxable income of Rs 2-5 crore has gone up to 39 per cent from 35.88 per cent and for those above Rs 5 crore to 42.7 per cent.

The government on Friday had announced a raft of measures to revive growth momentum, including exemption of startups from 'angel tax', a package to address distress in the auto sector and upfront infusion of Rs 70,000 crore to public sector banks.

Meanwhile, Vedanta Resources Ltd Executive Chairman Anil Agarwal said these comprehensive measures will ensure adequate liquidity, sufficient demand creation and cheaper loans.

"...the goverment has taken care of sectors ranging from MSMEs to auto and from NBFCs to banks, thereby ensuring adequate liquidity, sufficient demand creation and cheaper loans," he said.

He added that the confidence of foreign investors will be boosted with the removal of enhanced surcharge.

"We are confident that more steps will be taken in coming days to boost economic growth so that GDP can attain its true potential of 8-9 per cent," he said.

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