In U-Turn, FM Nirmala Sitharaman Rolls Back FPI Tax Announced in Budget

In a press briefing aimed at soothing economic worries, the minister also announced measures aimed at easing the liquidity situation.

New Delhi: With foreign portfolio investors (FPIs) pulling out over Rs 20,000 crore from India’s equity markets in the last two months, finance minister Nirmala Sitharaman announced a roll-back of an increase in surcharge on the income tax outgo of foreign investors.

This FPI tax, which raised the effective rate of short-term capital gains tax and long-term capital gains tax, was first announced in Sitharaman’s budget speech in July 2019.

This spooked big investors: while FPIs made a net investment of Rs 31,709 crore from April-June 2019, they pulled out Rs 22,200 crore after the higher surcharge was announced in the Union budget.

“In order to encourage investment in the capital market, it has been decided to withdraw the enhanced surcharge levied by Finance (no. 2) Act, 2019 on long and short term capital gains arising from transfer of equity shares/units referred in Section 111A and 112A respectively,” Sitharaman told reporters at a briefing aimed at soothing frayed nerves around India’s economic growth story.

Also read: Foreign Portfolio Investors Withdraw Rs 7,712 Crore From Stocks in July So Far

After initial outcry, the finance ministry first ruled out the possibility of a roll-back back in July. However, it appears the Narendra Modi government has changed its mind after being hit with a wave of criticism.

Sitharaman also announced an effective end to the much-criticised ‘angel tax’, an anti tax-evasion provision in the Income Tax Act which levies an additional tax on a start-up that raises capital above its fair-market value.

“Section 56 (2)(viib) of the Income Tax Act shall not apply to startups registered with the commerce ministry,” the finance minister said.

Other recent steps by the Centre, including the decision to make CSR violations a criminal offence will also be rolled-back, Sitharaman added.

Throughout the briefing, the finance minister also announced steps aimed at improving the liquidity situation amongst India’s MSME ecosystem, noting that all pending GST refunds would be paid within 30 days and in the future, any refund matter would be resolved within 60 days.

“Why would anyone want the economy to slide?,” Sitharaman noted, and added that India Inc should expect another round of announcements, perhaps as soon as next week.