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The government may withdraw the higher tax surcharge

The government may withdraw the higher tax surcharge on foreign portfolio investors (FPIs) official sources indicates.

official from finance ministry said  this will help Indian markets and rupee recover from early lows today. “Prime Minister Narendra Modi’s administration is finalising a package to reverse the economic slowdown,”

Among the proposals is a likely exemption to foreign portfolio investors from a tax on super rich announced in the Budget.

Indian markets are down about 10% from their June highs after Finance Minister Nirmala Sitharaman announced higher surcharge on FPIs, who have sold Indian stocks (net) worth over $3 billion over last two months.

In the 2019-20 Budget, the government had increased surcharge from 15% to 25% on taxable income between 2 crore and 5 crore, and from 15% to 37% for income above 5 crore. It was also applicable for FPIs operating as trusts or as association of persons.

A series of meetings this month between Finance Minister Nirmala Sitharaman and FPIs, and between Sitharaman and Prime Minister Narendra Modi had raised hopes of stimulus measures.

Sitharaman had said earlier that FPIs registered as trusts may consider the option of registering as companies to escape the higher tax. However, the conversion would have required several changes to the tax law.

Market regulator Sebi on Wednesday eased the regulatory and compliance framework for FPI by broad-basing their classification, and simplifying their registration, entry and know-your-customer (KYC) norms in a bid to boost investments.

The government will announce the GDP data for quarter ended June later this month. According to the  estimates India’s gross domestic product expanded 5.6% in the quarter ended June, slower than the 5.8% pace seen in the previous three months.

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