It is reported that the finance ministry may consult law ministry over foreign portfolio investors (FPIs) super-rich surcharge. The ministry is exploring several options on the best way for providing relief from the surcharge which was imposed on the super-rich category on the July 5th Budget.
The government is said to have explored not only the most effective way but also the most legally feasible way. The Finance Bill, after it got the assent of the president, the surcharge has taken its legal standing.
At present, the options that are available for immediate relief are an ordinance to amend the Finance Act urgently or through a circular followed by an amendment later, which is a lengthy procedure. Earlier also, the government had issued circulars that provided relief to the taxpayers immediately.
Section 119 of The Income Tax Act, 1961 empowers the Central Board of Direct Taxes to issue such circulars. The government has stretched the Section 119 to impose an embargo on tax rates, or surcharges need to be examined.
Amending the Finance Act through the Ordinance is likelier than the announcement and then subsequent amendment. Some experts suggest that the most feasible legal option in front of the government is to consider an amendment to exempt all FPIs and alternate investment funds (AIFs) registered with the Securities and Exchange Board of India (Sebi) from further charge surcharge.
Finance minister Nirmala Sitharaman reportedly had a meeting with the stakeholders, including the FPIs to talk on the issues they may face. FPIs are said to have pitched for taking back the increased surcharge and for removing long term capital gains tax on equities.
In the June budget, the government had imposed a surcharge on the taxable incomes between 2 crores to 5 crores on the rate of 25% from 15%. From 37% tax on those earning Rs 5 crore and more to 38% and 42.74% respectively. It impacts individuals, Hindu Undivided Families (HUFs), trusts and a group of individuals.
FPIs, sovereign wealth funds and AIFs registered as trusts or AoPs are covered under this. Approximately 40% of the FPIs are said to have been affected by the increased surcharge on the tax. Although, the finance minister, in a recent interview, denied that the surcharge was not aimed at FPIs.