FPIs to pay 10% tax on long-term capital gains on equities

Foreign Portfolio Investors (FPIs) will have to pay 10 per cent tax on long-term capital gains made in the share market on the lines of domestic investors, according to the Budget 2018-19 document.
As per the proposal, now long-term capital gains exceeding Rs 1 lakh will be subject to 10 per cent tax.
The Budget announced by Finance Minister Arun Jaitley sent stock market in a tizzy with BSE Sensex plunging over 400 points in the noon trade. Markets, however, recovered later in the day.
Observing that a vibrant equity market is essential for economic growth, Jaitley said he has proposed only a "modest change" in the present regime.

"As in the case of domestic investors, the FIIs will also be liable to tax on such long-term capital gains only in respect of amount of such gains exceeding Rs 1 lakh," the document noted.
This amendment will take effect from April 1, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.

Tightening of the long-term capital gains provision under the Income Tax Act is an extension of the government's fight against black money, experts said.
Currently, 15 per cent tax is levied on capital gains made on sale of shares within a year of purchase. However, long-term capital gains tax is nil for shares sold after a year of purchase.

STT (Security Transaction Tax) is applicable on shares, bonds, debentures, derivatives, units issued by any collective investment scheme, equity-based government rights or interests in securities and equity mutual funds. STT is levied both on domestic as well as foreign investors.
Justifying reintroduction of long-term capital gains tax, Jaitley said the return on investment in equity is already "quite attractive even without tax exemption" and therefore there is a strong case for bringing long-term capital gains from listed equities in the tax net.
He further said with reforms undertaken by the government the equity markets have become buoyant and the total amount of exempted capital gains from listed shares and units worked out to be Rs 3.67 lakh crore as per the returns filed for Assessment Year 2017-18.