In the Budget 2019, Finance Minister Nirmala Sitharaman had proposed a higher surcharge on those earning over Rs 2 crore. Since the tax implications cover individuals or HUF or association of persons or body of individuals (domestic or foreign), the tax impact on profit from sale of equity rose to 21.3 percent from 18 percent for short-term capital gains, and to over 14 percent from 12 percent for long-term capital gains.
It was said that the higher surcharge would impact FPI who fall in the individuals, associations of persons or trust and not those in the corporate structure.
The Economic Times report said that FPIs through their law firms had conveyed to the Finance Ministry that it would be impractical for them to convert trusts into companies. It is now expected that the PMO may tweak the rules if not rollback the surcharge.
The reports said that suggestions include one-time tax-free transfer of shares to special purpose vehicles and self-declaration by FPIs and a higher tax to be only levied on individual beneficiaries.
Following the announcement of the higher surcharge, the month of July saw a massive withdrawal of overseas investment from the Indian stock markets. Sensex and Nifty saw their worst July performance in 17 years.
NSDL data showed that FPIs sold Rs 11,740 crore worth of equities in the Indian stock exchanges in the previous month.