NEW DELHI/MUMBAI (Reuters) – The Indian government’s budget proposal earlier this month to increase taxes on those with annual incomes of more than 20 million rupees ($292,269) has rattled many foreign portfolio investors(FPIs).
The realization that the new tax likely applies to the trusts through which many foreign investors put money into Indian financial markets sent stocks plunging last week. Now, their advisors say the investors are threatening to pull funds from India unless rules are amended so that they won’t take a tax hit.
Facts - Tax - Rules
Here are some facts about the new tax rules.
WHAT ARE THE NEW RULES?
Budget - Finance - Minister - Nirmala - Sitharaman
In her budget, Indian Finance Minister Nirmala Sitharaman proposed a tax increase of 3% for individuals with an annual income of between 20 and 50 million rupees, and 7% for those earning more than 50 million rupees.
The additional taxes apply to individuals, and groups of individuals who are an Association of Persons (AoP) or a body of individuals. It takes the tax rate of someone earning 20 million rupees up to 39 percent, and for those earning more than 50 million rupees the rate climbs to at least 42.7 percent.
Surcharge - Tax - Rate - FPIs - Trusts
The surcharge increases the effective tax rate for most FPIs, set up as Trusts or AOPs, by almost 7%, said Rajesh Gandhi, partner, Deloitte India. “This is a steep increase in the tax rate and is perceived negatively by FPIs.”
Finance ministry officials said the government was unlikely to withdraw the new rules for foreign investors as it would send the wrong signal to domestic investors, who would still be paying the higher rates.
Possibility - Relief - FPIs - Parliament - Approval
There is still a possibility of some relief to the FPIs, when the parliament gives final approval to the tax proposals later this month.
WHO WILL BE AFFECTED?
Portfolio - Investors - India - Tax - Domiciles
There are about 9,400 foreign portfolio investors registered in India, largely from tax domiciles in the United States,...
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