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

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.