Govt to soon issue clarification on applicability of surcharge on FPIs: Finmin

New Delhi: CBDT Chairman P C Mody on Monday said the government will soon issue a clarification on the increase in tax rate on foreign portfolio investors to allay their concerns.

On whether the clarification will be issued soon or after discussion on Budget in Parliament, Finance Minister Nirmala Sitharaman said it is not required at the moment.

"I don't think clarification at the moment is all that's required. Let's see as it goes. You think it is required?" she said.

The finance minister added, "Don't want to sound like a stickler for rules, but this is an answer that I'd rather give in Parliament."

There were concerns that the increased surcharge on super-rich could also affect foreign funds investing in India since a same tax structures apply for individuals, Hindu Undivided Family and Associations of Persons (AoPs).

Experts said some Foreign Portfolio Investors (FPIs) follow trust structure and, hence, would be classified as AoPs.

"The matter has been brought to our notice now. We will issue a clarification soon," Mody said at an Assocham event.

Markets continued to tumbled for the second straight session on Monday with the Sensex plummeting 793 points.

According to traders, the Union Budget's proposals to raise public shareholding threshold and higher tax incidence for FPIs and high networth individuals continued to spook investors.

In the Budget 2019-20, tabled in Parliament last week, Sitharaman proposed to increase surcharge from 15 per cent to 25 per cent on taxable income between Rs 2 crore and Rs 5 crore, and from 15 per cent to 37 per cent for income above Rs 5 crore.

The effective income tax rate for individuals with a taxable income of Rs 2-5 crore will go up from 35.88 per cent to 39 per cent, and for those above Rs 5 crore, it would go up to 42.7 per cent.