Govt looks to exempt foreign portfolio investors from higher taxes: Report

  • The government might issue a notification or an executive order to exempt FPIs from the increase in surcharge on super rich taxpayers
  • Finance minister Nirmala Sitharaman had recently said the government is open to hearing out the grievances of FPIs

NEW DELHI : The government is likely to exempt foreign portfolio investors (FPIs) from an increase in taxes that was part of the budget, news agency Reuters reported, citing sources. The government will either issue a notification or an executive order, which could be later submitted to parliament for approval, to exempt the foreign portfolio investors, mainly registered as trusts, from the increase in surcharge on super rich taxpayers, the report said.

The government had earlier this week said it would soon hold discussions with representatives of foreign portfolio investors, amid continuing overseas fund outflow from the markets following the decision to impose surcharge on certain class of such investors.

Foreign investors took $1.8 billion out of Indian equities in July alone. The Sensex is down over 6% since the budget was tabled on July 5.

Separately, some news reports said the government was also considering reducing tax on long-term capital gains introduced three years ago, as a step to further boost markets.

In the 2019-20 Budget, the government decided to increase surcharge from 15% to 25% on taxable income between 2 crore and 5 crore, and from 15% to 37% for income above 5 crore. It would also be applicable for FPIs operating as trusts or as association of persons.

The Sensex surged over 600 points while Nifty regained the 11,000 mark today. "Market gets a breather towards the close and reclaimed 11000 level due to the expectation that the government is likely to be lenient on higher surcharge on FPIs which influenced bears to cover their short positions," said Vinod Nair, head of research at Geojit Financial Services.

Some market participants are expecting more actions from the government to boost the economy. "Some confidence boosting measures and steroids for the economy is expected as finance ministry seems to be engaging in extensive discussions with industry participants. However, its too early to speculate on policy decisions," said Devang Mehta, head of equity advisory at Centrum Wealth Management.

(With Agency Inputs)