Home / BUSINESS / FPIs’ super rich tax relief applies to income from derivatives too – Livemint

FPIs’ super rich tax relief applies to income from derivatives too – Livemint

The finance ministry has said the relief announced on Friday for foreign portfolio investors (FPIs) from the super rich tax applies not only to capital gains from sale of equity shares, but also to earnings from sale of derivatives.

This additional relief for FPIs is part of government’s efforts to boost investor sentiment.

Late on Friday, the finance ministry said in the case of FPIs, the treatment of derivatives is different compared to how they are treated in the case of other investors.

These securities are not usually treated as capital asset and the income arising from the transfer of the derivatives is treated as business income for normal rate of tax, but there is a concession available in the case of FPIs.

As far as FPIs are concerned, derivatives are capital assets and the gains arising from the transfer of the same is treated as capital gains and is subjected to a special rate of tax.

“Therefore, it is decided that the tax payable on gains arising from the transfer of derivatives (futures & options) by FPI which are liable to special rate of tax shall also be exempted from the levy of the enhanced surcharge,” the finance ministry said in the statement.

The increase in surcharge shall be withdrawn on tax payable at special rate by both domestic as well as foreign investors on long-term and short-term capital gains arising from the transfer of equity share in a company or unit of an equity oriented fund or business trust which are liable for securities transaction tax and also on tax payable at special rate under section 115AD (of the Income Ta Act) by the FPI on the capital gains arising from the transfer of derivatives, the statement explained in order to avoid any ambiguity in interpretation of the extent of the relief.

However, the roll back of the increase in surcharge is only limited to domestic and foreign investors that were affected by the super rich tax as an unintended consequence of the revenue raising measure. Those who earn more than 2 crore income from business or profession will have to pay the higher surcharge. The same applies to business income from sale of derivatives to a person other than an FPI too.

The Finance Act (2) of 2019 raised the surcharge from 15% to 25% where the income is between 2-5 crore and from 15% to 37% for those earning more. In effect, a person earning in the range of 2-5 crore will pay 39% tax (called the highest marginal tax rate for that person) on the income exceeding 2 crore, and a person earning more than 5 crore will pay 42.74% on the income exceeding 5 crore.

While announcing the decision on Friday, finance minister Nirmala Sitharaman said in the case of domestic and foreign investors, the provisions related to surcharge was being restored to where they were before the budget announcement. In the case of high networth individuals, the surcharge increase will be reviewed in 2022.

FPIs’ super rich tax relief applies to income from derivatives too – Livemint

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