In a move to encourage investment in the capital markets, the Ministry of Finance (“MoF”) has removed the enhanced surcharge arising from the transfer of various securities. This surcharged was introduced in the recent union budget. The MoF has decided to withdraw this enhanced surcharge on transfer of equity shares, unit of an equity oriented fund and unit of a business trust for Financial Year 2019-20.
This withdrawal is applicable only to income arising from transactions made through the stock exchanges.
Following is the surcharge that was proposed in the union budget –
|
Entity |
Conditions |
Rate |
|
Domestic Company |
Total income exceeds one crore rupees but does not exceed ten crore rupees. |
7% of income tax |
|
Total income exceeds ten crore rupees |
12% of income tax |
|
|
Every Company other than Domestic Company |
Total income exceeds one crore rupees but does not exceed ten crore rupees |
2% of income tax |
|
Total income exceeds ten crore rupees |
5% of income tax |
|
|
Individual (Indian) |
Total income exceeding fifty lakhs rupees but not exceeding one crore rupees |
10% of income-tax
|
|
Total income exceeding one crore rupees. |
15% of income tax |
MoF has also clarified that tax payable on gains arising from the transfer of derivatives (Future & options) by Foreign Portfolio Investors (“FPI”) shall also be exempted from the levy of the enhanced surcharge.
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This is a welcome move for entities making investments in the capital markets, as they will not have to pay an enhanced surcharge over their earnings. However, this withdrawal is not applicable to off-market transfers like private equity transactions, mergers and acquisition transactions. This will have an impact on the start-up ecosystem which is an important catalyst for growth in India.
Also, this withdrawal. can be availed by both domestic as well as foreign investors on long-term and short-term capital gains arising from the transfer of equity share in a company or unit of an equity oriented fund/business trust.
Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.