Standing firm on her proposal, Finance Minister Nirmala Sitharaman on Thursday advised foreign portfolio investors (FPI) to register themselves as a company to protect themselves from the super-rich surcharge. She also dispelled fears that the higher effective tax rate will lead to a flight of investors from India.

Replying to the debate on the Finance Bill in Lok Sabha, Sitharaman said that when FPIs register themselves as a trust, it means that they are a body of individuals, and hence, liable to pay higher surcharge on earning more than ₹2 crore. However, such a surcharge is not applicable on companies.

“They (FPI) may consider converting themselves as a company,” she suggested. After the Minister’s reply to various issues raised by other speakers in the House, the Lok Sabha approved the Finance Bill. Now, the Bill will be sent to the Rajya Sabha, which will debate, but cannot amend any provision. The Bill then will return to the Lok Sabha, and finally, it will be be forwarded to the President for assent. Once, this is done, the Bill will become an Act and various provisions will come into effect as specified.

The Budget has proposed a higher surcharge on persons earning more than ₹2 crore. Since it proposes a higher surcharge covering every individual or Hindu undivided family or association of persons or body of individuals, domestic or foreign, there is a fear that tax on the sale of equity will rise to 21.3 per cent from nearly 18 per cent for short-term capital gains, and to over 14 per cent from nearly 12 per cent for long-term capital gains.

‘Fears unfounded’

It is also estimated that post surcharge, the effective income-tax rate for high net-worth individuals will go as high as 42.5 per cent. and there is an apprehension that this might lead to flight of capital. But the Finance Minister found this fear unfounded.

Sithraman did not relax the tax proposals with regard to TDS (tax deducted at source) on cash withdrawal above ₹1 crore from banks, hike in import duty on gold and hike in customs duty on newsprint as was demanded by the Opposition. Referring to the imposition of two per cent TDS on cash withdrawal beyond ₹1 crore, she said the tax could be adjusted against the liability of the assessees, and hence, there will be no additional burden on them.

She said the tax proposals in the Finance Bill 2019 are aimed at improving the ease of living and reducing the pain of the citizens. She hoped that the proposals will promote Make in India and digital payments.

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