Central Board of Direct Taxes (CBDT) has said that rollback of enhanced surcharge on short-term and long-term capital gains earned by foreign portfolio investors (FPIs) and domestic investors (DIs) announced by finance minister Nirmala Sitharaman, has not created a differential regime between FPIs and DIs. It noted that this differential regime existed even prior to the 2019 Budget, therefore it was not the creation of the Finance (No 2) Act, 2019, or the announcement made by the Finance Minister.
CBDT said the perception that the withdrawal of enhanced surcharge has created the differential regime in certain sections of media is completely misplaced. It also stated that even before Budget 2019, income arising from derivatives for the domestic investors including AIF category-III as well as for foreign investors who are not FPIs, has been treated as business income and not as capital gains, and taxed at applicable normal income tax rates. Hence, it said the announcement by the Finance Minister has not created a differential regime between FPIs and DIs.
In case of FPIs, it explained that 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, it said 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.