2020-05-06 08:27:27

Foreign Investors Could Register as Companies To Get Tax Relief

Nirmala Sitharaman has increased taxes on anyone earning an annual income of above Rs 2 crore that shall also cover trusts.
The new rate would consist of 25% surcharge on income between Rs 2 crore and Rs 5 crore, and 37% on income surpassing Rs 5 crore a year.

Finance minister proposal on an additional surcharge on individuals and trusts earning above Rs 2 crore and Rs 5 crore

Finance minister Nirmala Sitharaman stated in Budget 2019 that foreign portfolio investors (FPIs) can register as c ompanies in order to avoid a new tax surcharge imposed on individual taxpayers along with trusts in the budget for the financial year that began on 1^st April.

FM Sitharaman has increased taxes on anyone who are earning annual incomes of above Rs 2 crore that shall also cover trusts. The new rate would contain 25% surcharge on income between Rs 2 crore and Rs 5 crore, as well as 37% on income exceeding Rs 5 crore a year.

Prime Minister Narendra Modi further has boosted in 2019 election victory, to set a target of growing India into a $5 trillion economy by 2024/2025 from $2.7 trillion.

No Relief for Foreign Portfolio Investors unless they turn corporates

Foreign Portfolio Investors (FPI) that function as trusts in India is required to pay the tax surcharge proposed, as stated by Finance Minister Nirmala Sitharaman. She also mentioned that FPIs might consider the option of structuring as companies as well as FPIs functioning as trusts might consider being registered as companies.

For those earning Rs. 5 crore or above annually, the surcharge has been increased from 15% to 37%. With this, the effective tax rate would also rise up to 39% for those in the Rs. 2-5 crore income slab and 42.74% for those in Rs. 5 crore and above group.

If FPIs earns above Rs. 5 crores in a year then it would come under the highest income tax bracket. They usually route their investments through trusts as well as the body of individuals in the country's capital markets. The additional taxes are applicable towards individuals and groups of individuals who are an Association of Persons (AoP) or a body of individuals.

The Budget 2019 has proposed a higher surcharge on individuals earning above Rs 2 crore. As it has proposed a higher surcharge covering every person or Hindu undivided family or association of persons or body of individuals, domestic or foreign, there is a concern that tax on the sale of equity would rise to 21.3% from nearly 18% for short-term capital gains, and to over 14% from nearly 12% for long-term capital gains.

Foreign investors have requested the government to reconsider its decision towards increasing the taxes on the super-rich, which includes a higher levy on certain groups of portfolio investors, contending that the move is going to hit the competitiveness of Indian capital markets.

Fears Unfounded

It is likewise expected that post surcharge, the effective rate of income tax for high net-worth individuals would go as high as 42.5%, and also there is a fear that this shall lead towards the flight of capital. But this fears has been stated as unfounded by the Finance Minister.

FM Sithraman didn’t relax the tax proposals relating to TDS (tax deducted at source) on cash withdrawal above Rs 1 crore from banks, increase in import duty on gold as well as the increase in customs duty on newsprint as was claimed by the Opposition. Referring towards the imposition of 2% TDS on cash withdrawal beyond Rs1 crore, FM Sithraman stated that the tax can be adjusted against the liability of the assessees, and henceforth, there shall be no additional burden on them.

She has also stated that the tax proposals in the Finance Bill 2019 are intended at improving the living standards and decreasing the pain of the peoples. She anticipated that the proposals would likewise promote Make in India in addition to digital payments.

Nirmala Sitharaman as Finance Minister

Prime Minister Narendra Modi and his party Bharatiya Janata Party (BJP) have claimed a landslide victory in the 17th Lok Sabha 2019 elections and has won a majority of 352 seats of the 543 seats in parliament. Narendra Modi was sworn in as the Prime Minister for the 2nd term, and the allocation of ministry to the sworn-in members of the Council of Ministers showed a juggle in the ministries in the new government.

Nirmala Sitharaman, who served as the full-time Defence Minister of India in the Narendra Modi government from September 2017 to May 2019, has been appointed as the new finance minister in this 2 nd term of the Modi Government. The Union Finance Minister Nirmala Sitharaman held her first GST Council meeting on 21st June 2019. Nirmala Sitharaman has been appointed as the new finance minister in this 2nd term of the Modi Government and stepped into the shoes of the former Union Finance Minister Arun Jaitley who opted out of the ministerial position in the new government on health grounds.