Foreign investors in India may get some relief from tax surcharge after Prime Minister's intervention

Foreign investors in India may get some relief from tax surcharge after Prime Minister's intervention
Finance Minister Nirmala Sitharaman arrives at Parliament Library Building for the two-day training programme called 'Abhyas Varga', organised for all BJP MPs from Lok Sabha & Rajya Sabha, in New Delhi.Photo/Atul Yadav)(
  • As foreign investors in Indian share market pull out money thick and fast, the Narendra Modi government is in damage control mode.
  • Prime Minister's office has reportedly asked Finance Minister Nirmala Sitharaman to exempt the additional levy on profits made by foreign investors between April 1 and July 5.
  • This may reduce the burden on investors by a third, according to the report.
  • The surcharge had led to a sharp fall in stocks wiping out billions in market capitalisation.
The latest budget for the financial year ending March 2020 imposed an additional tax on the country's super rich and foreign portfolio investors (FPIs) got caught in the crossfire. The subsequent anger and market sell-off has wiped off billions of rupees in share market wealth in just about a month as foreign investors rushed for the exit.

Most foreign portfolio investors in India operate as non-corporate entities such as trusts and associations, which are taxed like individuals and therefore the additional tax would fall on them.

However, now the Prime Minister's office has reportedly stepped in. The Finance Ministry under Nirmala Sitharaman has been asked to quickly review the tax proposal on FPIs and come out with a solution that reduces the impact of new taxation on these institutional investors, according to a report by IANS, a news agency.

On the table is a proposal to exempt all income generated by FPIs till the presentation of the Union Budget on July 5 from the surcharge. To be specific, all profits made between April 1 and July 5 this year may not face the additional tax if the proposal is accepted. This will reduce the impact of the new taxation by almost a third, the report estimated.


Sources said that the ministry may announce the changes this week after the monetary policy review by Reserve Bank of India (RBI) on August 7. On its part, the RBI is expected by experts to reduce the policy rates by 25 basis points to improve liquidity in the market and kickstart the investment cycle by the private sector.

However, if the government misses the opportunity to get the proposal approved before the ongoing Parliament session ends, it will either have to wait for the next session in November or pass an ordinance.

Narendra Modi has a new problem – big corporates and moneybags are angry