Addressing a press conference on Friday, Finance Minister (FM) Nirmala Sitharaman brought about a big relief to the stock market and equity mutual fund investors. The FM announced relief from the enhanced surcharge on the long-term and short-term capital gains arising in the stock market transactions. The statement issued by the government states – “In order to encourage investment in the capital market, it has been decided to withdraw the enhanced surcharge levied by Finance (No. 2) Act, 2019 on long/ short term capital gains arising from the transfer of equity shares/units referred in section 111A and 112 A respectively.”
The surcharge on foreign portfolio investors (FPIs) was not taken lightly by the market participants and the markets had moved lower since the Budget 2019 announcements. The FM said that the earlier taxation regime will be restored and the enhanced surcharge gets removed. “The amendment is proposed to be made effective from 1 April 2019 and appropriate notifications will be issued in this regard,” informed Jairaj Purandare, Chairman, JMP Advisors.
“This is a welcome announcement which will bring the much awaited relief for FPIs, and in turn, provide a boost to the equity markets,” said Purandare. He added, “However, surcharge should still be applicable on capital gains from debt instruments, futures and options and other income such as interest.”
Union Minister of Finance Nirmala Sitharaman in her Budget 2019 speech had proposed to tax the super rich further by proposing a higher surcharge for income category falling between Rs 2 crore and Rs 5 crore and for those earning above Rs 5 crore. The effective tax rate for them increased by 3.12 per cent and 6.86 per cent, respectively.
Effectively, the surcharge had increased from the earlier rate of 15 per cent to 25 per cent on the income slab falling under Rs 2 crore and Rs 5 crore and from the current 15 per cent to 37 per cent on the income falling above Rs 5 crore. The net impact for the high income tax payers because of the increase in the surcharge so levied increased the tax rates for such individuals from 35.88 per cent to 39 per cent and 42.74 per cent, respectively.
Currently. for those with income above Rs 50 lakh, there is an additional payout in the form of a surcharge. If net income is more than Rs 50 lakh but less than Rs 1 crore, a Surcharge of 10 per cent on the amount of income tax is to be levied. For net income more than Rs 1 crore, a Surcharge of 15 per cent on the amount of income tax is to be levied. In such cases, the Health and Education cess of 4 per cent will be levied on the amount of income tax plus surcharge.
As of now the Health and Education Cess of 4 per cent is levied on the income tax that makes the effective tax rates to become 5.2 per cent, 20.8 per cent and 31.2 per cent for the 5 per cent, 20 per cent and 30 per cent tax rates, respectively.