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CBDT refutes reports on differential regime between domestic investors and FPIs

The government has decided to withdraw the enhanced surcharge levied by Finance (No. 2) Act, 2019 on long/ short term capital gains arising from transfer of equity shares/units referred in section 111A and 112 A respectively.

CBDT refutes reports on differential regime between domestic investors and FPIs

New Delhi: The Central Board of Direct Taxes (CBDT) on Wednesday refuted media reports on  differential regime between domestic investors including AIF category III and Foreign Portfolio Investors (FPIs) post the announcements made by Finance Minister Nirmala Sitharaman last Friday.

Briefing the media on Friday, FM Sitharaman had said that in order to encourage investment in the capital market, the government has decided to withdraw the enhanced surcharge levied by Finance (No. 2) Act, 2019 on long/ short term capital gains arising from transfer of equity shares/units referred in section 111A and 112 A respectively.

Rejecting media claims of a differential regime between domestic investors and FPIs, the CBDT said, that false impression is being created in certain sections of media including social media.

“Differential regime between domestic investors (including AIF category III) and FPIs existed even prior to the 2019 budget and was therefore not the creation of the Finance ( No 2) Act, 2019 or the announcement made by the Finance Ministry on last Friday,” CBDT added.

CBDT further stated that in case of Foreign Institutional Investors (FPIs), Income Tax Act, 1961 (the Act) contains special provisions [section 115AD read with section 2(14) of the Act] for taxation of income from derivatives.

Under this regime, income of FPIs arising from derivatives was always treated as capital gains and liable for special rate of tax as per section 115AD of the Act. However income arising from derivatives for the domestic investors including Alternative Investment Funds (AIFs) category-III as well as for foreign investors who are not FPIs, has always been treated as business income and not as capital gains, and taxed at applicable normal income tax rates.

The differential regime therefore always existed for FPIs through Section 115 AD. Therefore to say that this year’s budget or FM ‘s announcement on the last Friday created a differential regime between FPI and domestic investor is incorrect.