Government Withdraws Enhanced Surcharge On Foreign Investors: 10 Things To Know

Nirmala Sitharaman withdraws higher taxes on foreign portfolio investors Rollback of big ticket budget announcements aimed at revival of economy Restrictions removed on government departments from replacing vehicles

Sandeep Singh and Abhishek Vasudev

23 Aug 2019, 10:31 PM IST

Finance Minister Nirmala Sitharaman said banks have agreed to launch more repo rate-linked loans

The government has decided to withdraw the surcharge on Foreign Portfolio Investors (FPIs). The higher tax applied to individuals and FPIs earning more than Rs 2 crore annually, which led to a sharp fall in equity markets.
Foreign Portfolio Investors have pulled out Rs 12,105.30 crore from Indian capital markets so far this month. That is on top of the net Rs 12,418.73 crore they withdrew last month.
The government will also withdraw the enhanced surcharge on short- and long-term capital gains arising from transfer of equity shares. Analysts say the removal of higher taxes on foreign investors and capital gains taxes are likely to boost the markets.
The move to frontload capital injections for state-run banks will help spur fresh loans, the Finance Minister said, adding that banks will also pass on all rate cuts to borrowers.
The Finance Minister also said that Corporate Social Responsibility (CSR) violations will not be treated as a criminal offence. The government had earlier tightened the norms for companies, forcing them to explain where they have spent money allocated for corporate social responsibility.
In a bid to aid the demand for vehicles and revive the auto sector, the government lifted a ban on its departments that restricted them from replacing old vehicles. "Charity begins at home," the minister said.
Ms Sitharaman said banks have agreed to link the revisions in key interest rates to their marginal cost-based lending rates (MCLR), and launch more repo rate-linked loans. The RBI has so far cut the repo rate - the key interest rate at which it lends short-term funds to commercial banks - by 110 basis points, very few of which has been passed on by the lenders to their customers.
To give a major impetus to startups, the government abolished the "angel tax" provisions for businesses registered with the Department for Promotion of Industry and Internal Trade and their investors.
The government hoped the new measures will improve the sentiment leading to higher private investment and assuage concerns of portfolio investors, to revive economic growth.
The country's GDP or gross domestic product grew 5.8 per cent in the January-March period. For the financial year ended March 31, the economy grew at a nearly five-year low pace of 6.8 per cent. Many economists estimate GDP growth to fall further in the first quarter of the current financial year thanks to low consumption and weak investments.