Market players are eagerly awaiting Finance minister Nirmala Sitharaman’s concluding remarks today during the discussion on the Union Budget 2019-20 she presented on Friday. The FM had raised the surcharge on the super rich in her Budget, effectively hitting foreign portfolio investors as well with the higher tax.
Some 40% of the FPIs automatically come under the higher tax rate as they have been investing as a non-corporate entity such as trust or association of persons (AOPs), which in the Income Tax law are classified as an individual for the purpose of taxation.
"A picture is being painted that Government has targeted FPIs by increasing surcharge over FPIs only. It is totally false. The surcharge has been increased for all super-rich individuals and non-corporate entities regardless of whether they are domestic investors or foreigner, FPI, FII. The surcharge has not been increased for companies – again regardless whether it is domestic or foreign," a top government source said.
Sitharaman had in the Budget proposed to increase the surcharge, charged on top of the applicable income tax rate, from 15% to 25% for those with taxable incomes of between ₹2 crore and ₹5 crore, and to 37% for those earning more than ₹5 crore. This takes the effective tax rate for those two groups to 39% and 42.74% respectively.
The BSE Sensex was down 166 points at 38,569 points at 3PM today, having touched a low of 38,474.66 earlier in the session.
Nirmala and the tax officials’ reactions, seeming to convey nonchalance, have left the investors disappointed.
“I don’t think a clarification is required at the moment. We will take it as it comes," Sitharaman said on Monday at the end of a press meet in Delhi after the customary post-Budget central board meeting of the Reserve Bank of India.
The Sensex had shed nearly 400 points on Friday after heavy selling from investors, spooked by the higher surcharge. The 31-share index has lost nearly 1,300 points since Thursday’s close, a day before the Budget was presented.