The government has withdrawn the enhanced surcharge levied on the foreign portfolio investment on long and short term capital gains. Surcharge on domestic investors has also been brought down to the pre-budget levels. In the maiden budget by Nirmala Sitharaman, surcharges on super-rich were raised for those having annual taxable income more than Rs 2 crore. The surcharge of 25 per cent was imposed on those having taxable income between Rs 2 crore and 5 crore, and 39 per cent on those with taxable income over Rs 5 crore. However, later the FM also suggested the FPI trusts to convert into companies. Reacting on Nirmala Sitharaman’s suggestion, the FPI investors called it a cumbersome process and an impractical solution.
Though some steps were announced in the new budget, such as, streamlining and rationalising the KYC norms for FPIs and permitting FPI investments in infrastructure debt funds, to be transferred or sold to any domestic investor within a specific lock-in period, the increase in surcharge has hit the foreign portfolio investors. The foreign portfolio investors have continued to pull out equities of over Rs 12,000 crore each month in July and so far in August from the Indian market, data sourced from NSDL.
This is the second reason to cheer for the FPI investors. Before this, SEBI has allowed FPI investors to invest from Gujarat Gift city, aimed to bring FPIs heading to the international financial services centre (IFSC) in Gandhinagar. The measure was taken to give some relief to the investors, who were troubled by the government’s tax proposals in Nirmala Sitharaman’s maiden Budget. Under SEBI’s new rules, FPI investors will face no tax and transaction charges if they register with the IFSC.
