To boost the economy, the government’s rollback of enhanced surcharge on select investors was announced last week.
In this regard, CBDT has clarified in a statement that it has not created a differential regime between FPIs and domestic investors.
On August 23, Finance Minister Nirmala Sitharaman announced the withdrawal of enhanced surcharge on short-term and long-term capital gains earned by foreign portfolio investors (FPIs) and domestic investors.
However, as per the announcement, the perception that the withdrawal of enhanced surcharge has created the differential regime in certain sections of media is completely misplaced.
Clarification has been given that even before Budget 2019, income arising from derivatives for the domestic investors including AIF category-III as well as for foreign investors who are not FPIs, has been treated as business income and not as capital gains, and taxed at applicable normal income tax rates.
Hence, the announcement by the Finance Minister last week has not created a differential regime between FPIs and domestic investors.
Income Tax Act, 1961 (the Act) contains special provisions section 115AD read with section 2(14) of the Act] for taxation of income from derivatives in case of FPIs.
Income of FPIs arising from derivatives was treated as capital gains and liable for special rate of tax as per section 115AD of the Act.
Press release: https://pib.gov.in/PressReleasePage.aspx?PRID=1583205