Government waives the levy for all categories of investors; surcharge not applicable on FPIs on sale of securities in the derivatives segment

  • Almost a month after announcing the first set of incentives for foreign portfolio investors (FPIs) by waiving the surcharge introduced in the Union Budget – but which failed to stem the outflows in any manner – the govt has announced fresh incentives while also extending the benefit to all categories of investors.
  • The Finance Minister said that the tax surcharge would be waived for all categories of investors, including individuals and those operating under structures like Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI) and Artificial Juridical Person (AJP).
  • A statement from the government clarified that the surcharge would not be applicable on the capital gains arising on sale of equity shares in a company or a unit of an equity-oriented fund or a unit of a business trust liable for securities transaction tax.
  • Further, the govt. has also clarified that the surcharge would not be applicable on FPIs on sale of securities in the derivatives segment as well.
Simply put, any gains arising from the sale of securities in the cash or derivatives segment or units of equity mutual funds on which securities transaction tax (STT) has been levied will not be subjected to the surcharge, that had further fuelled the flight of foreign money from the Indian capital markets.
  • Interestingly, after the govt announced the initial rollback of the surcharge on August 23, FPIs have till date sold shares worth almost ₹6,300 crore.
  • Market participants, however, are optimistic that the latest set of measures would have a longer term impact on the markets in terms of a positive impact on earnings and fund flows.
  • This will help improve the sentiments and have a positive impact on earnings thereby leading to an overall re-rating of the markets.
No buy-back tax
  • Meanwhile, after announcing a buy-back tax in the Union Budget, the has now decided to exempt firms that announced a buy-back before the proposal was announced.
  • In order to provide relief to listed companies which have already made a public announcement of buy-back before July 2019, it is provided that tax on buy back of shares in case of such companies shall not be charged.