InvestorQ : There are a lot of talks about the budget increasing the tax on foreign investors. Is that what is leading to market correction? What is it about?
vidhya Laxmi made post

There are a lot of talks about the budget increasing the tax on foreign investors. Is that what is leading to market correction? What is it about?

Answer
image
2 years ago
Follow

You are correct. The market correction on Monday when Sensex fell by 800 points was largely driven by the fear of higher tax on foreign portfolio investors (FPIs). This is how it works. Let me break this up into points.

· You must be aware that the Union Budget had raised the surcharge on higher income groups. Formerly, there was a surcharge on tax of 15% on incomes above Rs.1 crore. Now this group has been further subdivided. If incomes are above Rs.2 crore and up to Rs.5 crore then the surcharge will be higher at 25% and if the income was above Rs.5 crore then the surcharge would be 37%. At the peak income level, this takes the effective tax rate to over 42% including cess.

· Now the question is why are FPIs worried? Some of the FPIs in India are operating as trusts and such trusts are taxed on their income as non-corporates. Therefore, the markets fear that this higher surcharge will now be applicable to these FPIs also that are structured as trusts. The FM has promised to clarify but there has been no clarification in this regard so far.

That is the reason the FPI have been worried about the surcharge on tax.

3 Views