Finance minister Nirmala Sitharaman on Thursday said that foreign portfolio investors (FPIs) can register as companies to avoid the new tax surcharge structure, reported news agency Reuters. The new tax surcharge was imposed on individual tax payers as well as trusts in the Union Budget 2019. Foreign investors had urged government to reconsider its decision to increase taxes on the super-rich, including a higher levy on certain groups of portfolio investors, arguing the move will hit the competitiveness of Indian capital markets.
Most FPIs earn more than Rs 5 crore in a year and hence would come under the highest income tax bracket. They generally route their investments through trusts and body of individuals in the country's capital markets.
Asset Managers Roundtable of India (AMRI), a lobby group of FPIs, said the higher tax could affect many large foreign mutual funds and pension funds, and hit country's reputation as a stable tax jurisdiction.
After the Budget proposals of higher surcharges for super rich Foreign Portfolio Investors sold shares in equity markets worth Rs 1,983.82 crore, data compiled NSDL showed.
Meanwhile, with the changes proposed in Budget, those with an annual income between Rs 2 crore and Rs 5 crore would be levied a surcharge of 25 per cent from 15 per cent previously. For those earning Rs 5 crore or more annually, the surcharge was increased from 15 per cent to 37 per cent. With this, the effective tax rate will go up to 39 per cent for those in the Rs 2-5 crore income slab and 42.74 per cent for those in Rs 5 crore and above group.
(With inputs from Reuters)