Finance Minister Nirmala Sitharaman Friday announced a partial rollback of the enhanced surcharge on foreign portfolio investors (FPI) levied in the Budget and indicated a review of the surcharge levy for high net worth individuals as well. Surcharge on long and short term capital gains arising from transfer of equity shares has been withdrawn, she said. “The pre-Budget position is restored,” she said.
In another major announcement, she said the CSR violation would be treated as a civil offence, and not a criminal offence. Apart from these two measures, the FM announced a slew of measures aimed at boosting a flagging domestic economy. This includes an assertion that ICE (internal combustion engine) vehicles will coexist with EVs (electric vehicles) and that there is no phasing out of ICE vehicles, a fear expressed in certain quarters of the auto industry. Banks would also be asked to pass on the full impact of the interest rate cuts to consumers, she said. Nirmala Sitharaman presser highlights
What is the surcharge that’s been withdrawn?
The surcharge of 3 per cent and 7 per cent on those earning between Rs 2 crore and Rs 5 crore, and over Rs 5 crore respectively had been announced by Sitharaman as part of her Budget proposals. This had led to different taxation outcomes for FPIs registered as Association of Persons or trusts and companies, even as those registered as companies were spared of this surcharge. Ever since the budget announcement, markets have been seeing a selloff on most trading days, largely in light of the FPI impact. Today’s announcement reverses the levy imposed in the budget. However, tax experts said the surcharge would continue to be levied on business income of the FPIs and unlisted shares.
Why was the CSR announcement controversial?
The amendment to the Companies Act, passed earlier this month, introduced harsh penalties including jail term for non-compliance on CSR (corporate social responsibility) by listed companies. This had been slammed by industry as a regressive move, especially given the fact that in the last five years, the total CSR spend of companies has progressively jumped from 70% to over 90% now, according to data sourced from Prime Database.
Why have these decisions been taken now?
Over the last few weeks, the Finance Minister had chaired a series of meeting with the industry leaders, bank representatives, ministry officials and PSU chiefs to discuss the issues impacting the economy. Last week, she had also held a review meeting with the Prime Minister on the state of the economy. The announcements come at a time when the perception that the slowdown has been aggravating in recent weeks and spreading across sectors. The ongoing slowdown is not specific to India and is a global issue, Sitharaman said at the media interaction.