The Prime Minister's Office (PMO) has reportedly asked the Finance Ministry to quickly review the tax proposal on FPIs and come out with a solution that reduces the impact of new taxation on the these institutional investors. A proposal to grandfather all income generated by FPIs till the presentation of the Union Budget on July 5 is being considered that will reduce the impact of the new taxation by almost 33%. The ministry may announce the changes this week after the monetary policy review by RBI on August 7.
The massive selloff in the stock market has eroded Rs 15,00,000 crore worth of investor wealth in last 30 days. While broader market has been in pain for the entire first half of Calendar 2019, a selling spree by foreign investors post the July 5 Budget and earnings disappointment have ensured that large caps no longer remain safe bets. BSE’s total market capitalisation has fallen 10 per cent to Rs 138 lakh crore from Rs 153.58 lakh crore on July 5.
India’s stock market capitalisation fell below the $2 trillion mark for the first time in six months, triggered by the selloff in July that led to 8.8% erosion in investor wealth during the month. The country’s total value of all listed stocks dropped to $1.97 trillion on Friday. India first entered the $2 trillion market cap club of eight countries in May 2017. The country’s stock market, which overtook Germany’s to become the seventh largest in the world in December last year, slipped to ninth amid FPIs selling equities worth Rs 15,000 crore since the July 5 budget.
Continuing their selling spree, foreign investors have withdrawn a net amount of Rs 2,881 crore from the Indian capital markets in the first two sessions of August on account of weak domestic as well as global sentiments. Prior to this, FPIs withdrew a net Rs 2,985.88 crore from the Indian capital markets (both equity and debt) during July 1-31.
Foreign portfolio investors (FPIs) looking for concessions to convert themselves into companies from a trust structure in order to avoid paying a higher surcharge may have to wait until the next budget. The government will have to amend a host of provisions in the income tax to make such conversions tax-neutral. The government had raised the surcharge to 25% from 15% for people with taxable incomes between Rs 2-5 crore, and to 37% for those earning over Rs 5 crore. This covers FPIs that are structured as trusts and associations of persons (AoPs). Those structured as corporates are exempt.