The government is considering some manner of relief for foreign portfolio investors (FPIs) from the super-rich surcharge levied in the budget that has pushed the marginal tax rate for those earning over Rs 5 crore to nearly 43 per cent.
One of the options is a carve-out for FPIs that are organised as trusts but pool the savings of investors such as pension funds, retirement pools or those not so well-off. “Issue is being examined,” said a government official.
The idea is that the rich who route their savings via trusts that face this surcharge should not get any relief. Trusts are essentially associations of persons (AoP) that are covered under the levy. The crucial issue while designing such a carve-out will be to clearly identify the beneficiaries of the trusts making investments in India and how they would be structured. “We do not want that this relief should be abused,” said another official familiar with the idea.
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Most trusts are pass-through vehicles where the beneficiary bears the tax. “So the tax (surcharge) is passed to the investors and they can claim credit,” said the official, adding there is a discussion on a carve-out.
“Problem here is that some trusts based in the US don’t have pass-through,” he said. For instance, in the US, if less than 50 per cent investors are overseas, then no pass-through is allowed in certain instances.
“If we do it, then how will we do it?” the official said, adding that a well-thought-out decision will have to be taken.
Source: Economic Times
