Almost a month after announcing the first set of incentives for foreign portfolio investors (FPIs) by waiving the surcharge introduced in the Union Budget – but which failed to stem the outflows in any manner – the government has announced fresh incentives while also extending the benefit to all categories of investors.
On Friday, Finance Minister Nirmala Sitharaman said that the tax surcharge would be waived for all categories of investors, including individuals and those operating under structures like Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI) and Artificial Juridical Person (AJP).
A statement from the government clarified that the surcharge would not be applicable on the “capital gains arising on sale of equity shares in a company or a unit of an equity-oriented fund or a unit of a business trust liable for securities transaction tax.”
Further, the government has also clarified that the surcharge would not be applicable on FPIs on sale of securities in the derivatives segment as well.
Simply put, any gains arising from the sale of securities in the cash or derivatives segment or units of equity mutual funds on which securities transaction tax (STT) has been levied will not be subjected to the surcharge, that had further fuelled the flight of foreign money from the Indian capital markets.
Interestingly, after the government announced the initial rollback of the surcharge on August 23, FPIs have till date sold shares worth almost ₹6,300 crore.
Market participants, however, are optimistic that the latest set of measures would have a longer term impact on the markets in terms of a positive impact on earnings and fund flows.
“This will help improve the sentiments and have a positive impact on earnings thereby leading to an overall re-rating of the markets,” according to Mihir Kothari, head, institutional sales, Motilal Oswal Financial Services.
No buy-back tax
Meanwhile, after announcing a buy-back tax in the Union Budget, the government has now decided to exempt firms that announced a buy-back before the proposal was announced on July 5.
“In order to provide relief to listed companies which have already made a public announcement of buy-back before July 5, 2019, it is provided that tax on buy back of shares in case of such companies shall not be charged,” stated the government in the release.
The exemption would benefit companies like Sasken Technologies, Greaves Cotton, Welspun Corp, Indowind Energy, Star Cement and Eris Lifesciences among others, as per data from Prime Database, which pegs the cumulative size of buy-back offers that would benefit from Friday’s relief at approximately ₹1,100 crore.
