Govt to soon issue clarification on applicability of surcharge on FPIs

There are concerns that the increased surcharge on super-rich could also affect foreign funds investing in India

The government will soon issue a clarification on applicability of increased surcharge on foreign portfolio investors (FPIs), a tax official said Monday.

There were concerns that the increased surcharge on super-rich could also affect foreign funds investing in India since a same tax structures apply for individuals, HUFs and Associations of Persons (AOPs).

Experts said some FPIs follow trust structure and hence would be classified as AOPs.

"The matter has been brought to our notice now. We will issue a clarification soon," Central Board of Direct Taxes (CBDT) Chairman P C Mody said at an Assocham event.

Finance Minister Nirmala Sitharaman in 2019-20 Budget tabled in Parliament last week proposed to increase surcharge from 15 per cent to 25 per cent on taxable income between Rs 2-5 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 will go up from 35.88 per cent to 39 per cent, and for those above Rs 5 crore it would go up to 42.7 per cent.