Government clarifies on FPI, experts say benefits limited

Soon after Finance Minister Nirmala Sitharaman announced to roll back higher surcharge on foreign and domestic portfolio investors, the Income Tax department on Saturday clarified that the tax payable at normal rate on the business income from the transfer of derivatives to a person other than Foreign Portfolio Investments will be liable for the enhanced surcharge. "The derivatives are not treated as capital asset and the income arising from the transfer of the derivatives is treated as business income and liable for normal rate of tax," an official statement said. In its official statement on Saturday, the tax department said that the enhanced surcharge shall be withdrawn on tax payable at special rate by both domestic as well as foreign investors on long-term and short-term capital gains from the transfer of equity share in a company or unit of an equity-oriented fund/business trust which are liable for securities transaction tax and also on tax payable at special rate under section 115AD by the FPI on the capital gains arising from the transfer of derivatives. "However, the tax payable at normal rate on the business income arising from the transfer of derivatives to a person other than FPI shall be liable for the enhanced surcharge," the statement said.