India clarifies FPI surcharge as experts flag limited benefits

India clarifies FPI surcharge as experts flag limited benefits
The decision to roll back the surcharge came weeks after FPIs turned net sellers of stocks after levy of surcharge in the Union budget.

New Delhi - Clarification waters down t expected benefits of government announcement, can make return-filing very complicated



By IANS

Published: Sat 24 Aug 2019, 5:22 PM

Last updated: Sat 24 Aug 2019, 7:26 PM

Soon after Indian Finance Minister Nirmala Sitharaman made an announcement to roll back higher surcharges on foreign and domestic portfolio investors, the income tax department on Saturday clarified that the tax payable at normal rate on business income from the transfer of derivatives to a person other than foreign portfolio investments (FPIs) will be liable for the enhanced surcharge.
"The derivatives [future and options] are not treated as capital asset and the income arising from the transfer of the derivatives is treated as business income and liable for normal rate of tax," an official statement said.
Tax experts said that the clarification has watered down the expected benefits of the government announcement and can make return-filing very complicated. One of them said that the structure is very "ridiculously worked out" as it makes things very complex.
"So, what it means is that capital gains on listed entities will be exempted from higher surcharge for everybody. But when it comes to derivatives, all incomes of FPIs will be at a lower rate of lower surcharge, but all other entities will be subject to a higher surcharge," he said.
As a result of the clarification, the expert said, even the alternative investment funds (AIFs) would also be paying a higher surcharge. Further, the government has protected the market on listed entities and protected FPIs but everybody else is at ransom.
Riaz Thingna, director at Grant Thornton Advisory, said that the impact of the Press release can be summarised to state that long-term capital gains on all listed securities will not be subjected to higher surcharge for all assesses.
"Business income on derivative trading would not be subjected to higher surcharge for FPIs only. Entities like AIFs however will not enjoy the relief. The tax impact differential between listed and unlisted securities has also widened. In short, the impact of the Press release is likely to provide only partial relief while creating complications in tax compliance for a large section of assesses," Thingna said. 
The finance minister on Friday announced the withdrawal of the enhanced surcharge levied by Finance (No.2) Act, 2019 on tax payable at special rate on income arising from the transfer of equity share/unit referred to in section 111A and section 112A of the Income-tax Act, 1961 from FY20.
In its official statement on Saturday, the tax department said that the enhanced surcharge shall be withdrawn on tax payable at special rate by both domestic as well as foreign investors on long-term and short-term capital gains from the transfer of equity share in a company or unit of an equity-oriented fund/business trust which are liable for securities transaction tax and also on tax payable at special rate under section 115AD by the FPI on the capital gains arising from the transfer of derivatives.
"However, the tax payable at normal rate on the business income arising from the transfer of derivatives to a person other than FPI shall be liable for the enhanced surcharge," the statement said.
The decision to roll back the surcharge came weeks after FPIs turned net sellers of stocks after levy of surcharge in the Union budget.
In her maiden budget Finance Minister Nirmala Sitharaman, raised surcharges on those having annual taxable income more than Rs20 million. A surcharge of 25 per cent was levied on those having taxable income between Rs20 million and Rs50 million and 39 per cent on those with taxable income over Rs50 million.
Food sector to hit $482B
Meanwhile, India's food and retail industry is expected to grow to $482 billion by 2020, said a statement released by Kagome Foods India.
"According to industry estimates, the contribution of the food processing industry to India's GDP through manufacturing has been more than 8 per cent in FY17. The Indian food and retail industry is expected to grow to $482 billion by 2020," it said.
"The role of technology in scaling up operations in the sector will be tremendous. The government is also aiding the development of food processing infrastructure," Kagome managing director Rohit Bhatla added.


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