Govt withdraws super-rich surcharge on foreign, domestic equity investors

Buckling under pressure from overseas investors, the government on Friday rolled back the enhanced surcharge imposed on foreign portfolio and domestic investors in Budget 2019-20 as it announced a slew of measures to boost sagging economic growth.

"In order to encourage investment in the capital market, it has been decided to withdraw the enhanced surcharge levied by Finance (No.2) Act, 2019 on long/short term capital gains arising from the transfer of equity shares/units," Finance Minister Nirmala Sitharaman told reporters here.

The move will dent government revenues by Rs 1,400 crore.

Sitharaman had in her maiden Budget hiked the surcharge on income tax paid by super-rich individuals.

The surcharge, levied on top of the applicable income tax rate, was hiked from 15 per cent to 25 per cent for those with taxable income of Rs 2-5 crore, and to 37 per cent for those earning more than Rs 5 crore. This increased the effective tax rate for these two groups by 3.12 per cent and 7 per cent to 39 per cent and 42.74 per cent, respectively.

Some 40 per cent of foreign portfolio investors (FPIs) automatically came 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.

"The enhanced surcharge on FPI goes, in simple words," Sitharaman said. "In other words, the pre-Budget position is restored."
"Tax rates for FPIs will come down by 4 per cent to 7 per cent," he said. "This announcement also benefits domestic investors like individuals and AIFs because it seems that the relaxation has been announced for all capital gains earned on listed investments."