Finance Ministry mulls tweaks to FPI surcharge up to Budget

The Hindu, T.C.A. Sharad Raghavan, August 09, 2019

In a bid to ease the concerns of foreign portfolio investors (FPIs) over the increased surcharge announced in the Budget, the Finance Ministry is considering “grandfathering” the income earned by them up to the Budget (July), a Ministry official said.

Under the proposal, FPIs that are so far structured as trusts will not have to pay the increased surcharge. But if they don’t change their structure, they will have to pay the surcharge from the set date. “There is a proposal being considered where the government is considering grandfathering the income earned by FPIs that are trusts up to the date of the Budget,” the official told The Hindu. “But no decision has been taken as yet on this.”

Markets reacted favourably to the news that the surcharge would be tweaked, with the Sensex and the Nifty posting their biggest single-day gains since May.

Finance Minister Nirmala Sitharaman, in her Budget speech on July 5, had announced an increase in the surcharge levied on individuals earning more than ₹2 crore a year. This increased surcharge would be applicable on FPIs that are structured as trusts, since those are treated similarly to individuals for income tax purposes.

Spooked by the move, FPIs pulled out about ₹7,712 crore from equities during July 1-19. As of August 2, FPIs have since July 1 reportedly been net sellers of more than ₹20,500 crore worth of stocks on the Bombay Stock Exchange, National Stock Exchange and Metropolitan Stock Exchange in the capital market segment.

Responding favourably to the proposal, the benchmark Sensex ended the day up 637 points at 37,327, and the Nifty was up almost 177 points to close higher than the crucial 11,000 mark.

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