FPI Tax Rollback: No Differential Regime Between Foreign And Domestic Investors, Says CBDT
Income arising from derivatives for domestic and foreign investors has always been treated as business income & not capital gains.
The government’s decision to exempt foreign portfolio investors from the so-called super-rich tax has not created a differential regime between the FPIs and domestic investors, Central Board of Direct Taxes said in a statement on Wednesday.
This differential regime existed prior to the Union Budget 2019 in which the super-rich tax was announced, the CBDT said in the statement, adding that it was therefore not the creation of the Finance (No. 2) Act, 2019, or the announcement made by the finance ministry last week.
On Friday, Finance Minister Nirmala Sitharaman announced withdrawal of a enhanced tax surcharge on short-term and long-term capital gains earned by foreign investors and domestic investors.
According to the CBDT, income arising from derivatives for the domestic and foreign investors has always been treated as business income and not capital gains, and taxed at applicable normal income tax rates. Hence, the announce by the finance minister last week has not created a differential regime between FPIs and domestic investors, it said.
In case of FPIs, Income Tax Act, 1961, contains special provisions [Section 115AD read with Section 2(14)] for taxation of income from derivatives, said CBDT in the statement.
Under this regime, income of FPIs arising from derivatives was treated as capital gains and liable for special rate of tax as per section 115AD of the Act, it said.