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Last Updated : Jul 18, 2019 05:50 PM IST | Source: Moneycontrol.com

FM dashes hopes of tweak in FPI surcharge, says trusts should register as companies

Budget 2019 had proposed levy of an additional surcharge on individuals and trusts earning more than Rs 2 crore and Rs 5 crore, respectively.


Foreign portfolio investors (FPis) should consider the option of structuring themselves as companies rather than trusts to avoid paying the increased surcharge announced in Budget 2019, Finance Minister Nirmala Sitharaman said, in a discussion on the Finance Bill in the Parliament on July 18.

During her Budget speech, the FM had proposed levy of an additional surcharge on 'individuals' earning more than Rs 2 crore and Rs 5 crore, respectively.

However, unlike the Budget speech, the proposal in the Finance Bill 2019 is wider and covers all taxpayers other than companies and partnership firms. Thus, once implemented, this move may adversely impact FPIs which are set up as non-corporate vehicles.

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Typically, FPIs are set up as trusts or limited partnerships in their home jurisdictions. The definition of a partnership firm under Indian tax law refers to the Indian Partnership Act, which does not recognise foreign partnerships or limited partnerships.

While the rationale behind such an increase in surcharge may have been to levy a higher surcharge only on HNIs, the sting of the unintended consequence has led to nervousness among FPIs, and may have partially triggered the subsequent correction in the stock market.

However, after the initial furore, the Central Board of Direct Taxes (CBDT) chairman offered a simple “panacea” to such FPIs: restructure themselves as corporate entities.

FPIs registered as trusts will have to pay the new tax surcharge, Sitharaman said today, dashing hopes the government may tweak relevant portions of the Finance Bill to ring-fence FPIs from the effects of the “super-rich” tax.

First Published on Jul 18, 2019 05:49 pm
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