The higher tax levy continued even after the August 24 announcement by the Finance Minister to roll back the surcharge on equity and derivative instruments as the lower surcharge had not materialised into law. A number of chartered accountants and tax consultants were, in fact, in a bit of a dilemma on whether to levy a higher surcharge or not.
FPIs selling shares are issued tax certificates by their tax consultants and chartered accountants indicating the quantum of tax that has to be paid. The tax is paid by the FPIs to the income tax department before remittance of sales proceeds.
“Legally, there was a dilemma on whether to levy higher or lower surcharge. Most of the big accounting firms didn’t want their clients to pay higher tax even though the rollback of enhanced surcharge had not materialized into law,” said a tax consultant who deals with FPIs.
The top tax firms were also grappling with changing their systems to enable a different tax treatment for gains on equities and derivatives, and that for debt instruments, which were still subject to enhanced surcharge.