InvestorQ : Is it true that the surcharge on the FPIs will be scrapped by the current government?
Anu Biswas made post

Is it true that the surcharge on the FPIs will be scrapped by the current government?

Neelam Naik answered.
3 years ago

While there is no official announcement on this front, one thing is clear that the government is worried about the rapid FPI outflows since the Union Budget announcement on July 05th as more than $3 billion has gone out. The rethink on this subject was already clear when the Prime Minister’s Office (PMO) called the FM for a high level meeting.

You will recollect that budget had introduced higher surcharge on persons earning more than Rs.2 crore and Rs.5 crore in serially graded slabs. However there was a catch. The catch was that this rule would also apply to associations of persons (AOPs). Since, 40% of the FPIs in India are structured as trusts or AOPs they would automatically come under the higher surcharge. This would increase the effective capital gains tax liability on these FPIs. It had led to surge in selling from FPIs with more than $3 billion exiting Indian equities since the Union Budget.

While the government has not put out a final word, it is not clear whether there will be a scrapping of the surcharge itself or just the FPIs will be exempted from the surcharge. It is possible for the government to invoke provisions of Section 119 of the Income Tax Act to make a special exception for FPIs. That is because, selling by FPIs is not something the Indian rupee or the Indian economy can really afford at this point of time! But, yes you will have to wait for the final answer from the government, hopefully in the next one week.