The proposal “seems to have inadvertently” dragged foreign portfolio investors into the tax net and must be clarified by the government, said KR Sekar, a partner at Deloitte Touche Tohmatsu India LLP.
Finance Minister Nirmala Sitharaman
in her budget speech Friday proposed to increase the surcharge from 15 per cent to 25 per cent for those with taxable incomes of between Rs 20 million and Rs 50 million, and to 37 per cent for those earning more than Rs 50 million. This takes the effective tax rate
for those two groups to 39 per cent and 42.74 per cent, respectively.
Global and non-resident investors participate in India via non-corporate trusts and the so-called association of persons or AOPs. Problem is, the structures are treated on par with individuals for tax purposes. That has stoked concerns about the levy being applicable to foreigners at a time when the nation has emerged as Asia’s biggest destination for equity money in 2019.
“An investment vehicle -- such as a category III alternative investment or an FPI -- taxed at a fund level is likely to get affected as the income may easily exceed Rs 50 million,” said Vaibhav Sanghavi, co-chief executive officer at Avendus Capital PBC Markets
Alternate Strategies LLP in Mumbai. Alternative investments, such as hedge funds, which use complex trading strategies, are classified as category III by the markets
The head of the nation’s direct-tax department Monday said the government would clarify on the applicability of the higher levy on global investors. But a few hours later, Sitharaman ruled out an immediate clarification.
The government on Tuesday said it is not specifically targeting overseas investors, who have an option to convert their trust structure into a corporate entity to avail of a lower tax rate
available to such category, the Mint newspaper reported, citing a senior government official it didn’t name.
The levy has been raised for the wealthy on all their sources of incomes, and is applicable to individuals and entities who choose to be counted as an individual by investing in domestic assets through structures like the AOPs or trusts, the report said.