The measures announced by Sitharaman are positive for high net worth individuals (HNIs), super HNIs and FPIs, and experts believe this may help them return to the market.
Finance Minister Nirmala Sitharaman on Friday rolled back the enhanced surcharge on capital gains from sales of equity shares and units of equity-oriented mutual funds as long as the securities transaction tax was liable. With this move, high net worth individuals could find equities attractive again as the latest move by the FM will help reduce cost. Relief has also been granted to foreign portfolio investors (FPIs) as the surcharge will also not apply to capital gains arising out of the sale of any security, including derivatives.
The measures announced by Sitharaman are positive for high net worth individuals (HNIs), super HNIs and FPIs, and experts believe this may help them return to the market. With this announcement, the government has exempted domestic investors, including individuals and HUF among others, from surcharge arising out of capital gains from selling equity share or a equity-oriented fund.
Amit Singhania, partner at Shardul Amarchand Mangaldas, said, “So, for the applicability of the surcharge, we need to now exclude capital gains arising from the listed securities or units of mutual funds from total income and then apply surcharge on balance total income.”
Since the Budget, FPIs have sold stocks worth around $4.5 billion. In a bid to stabilise the flow of funds into the capital market, the enhanced surcharge introduced by the Finance (No.2) Act, 2019 shall not apply on capital gains arising out of sale of equity share in a company or a unit of an equity-oriented fund or a unit of a business trust liable for the securities transaction tax.
Singhania said, “FPIs will not pay any surcharge on capital markets transaction in India. If they are withdrawing from Indian markets solely for tax reasons, these steps should address their concerns. But, for Indian investors, surcharge remains in case capital gains arise from derivatives.”
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After the Budget announcement, long-term capital gains tax for investors earning between Rs 2 crore and Rs 5 crore had gone up to 13% and short-term capital gains tax was at 19.5%. For those in the income bracket above Rs 5 crore, long-term capital gains tax had gone up to 14.25% and short-term had gone up to 21.37%. This has now been reduced to 11.96% for long-term and 17.94% for short-term for both the categories of HNIs.
Abhimanyu Sofat, head of IIFL Securities, believes the move is positive for HNIs and super HNIs. Market participants believe that had the exemption of surcharge on derivatives been given to Indian investors, it would have further boosted the sentiment of the markets.
“I believe they could have given the same benefits to domestic investors like individuals and AIFs trading in derivatives, which could have further improved the sentiment and boosted the F&O market,” said Rajesh H Gandhi, partner at Deloitte India. He said Friday’s announcement will bring in some relief to FPIs and higher surcharge will not be applicable even on capital gains on bonds and government securities. This will give relief to FPIs investing in bonds and G-Secs.