Government withdraws enhanced surcharge on tax payable on transfer of certain assets

Newsroom24x7 Network

New Delhi: Government of India today announced the decision to withdraw enhanced surcharge on tax payable on transfer of Equity shares in a company; Unit of an equity oriented fund; and Unit of a Business Trust from the current FY 2019-20.

The the tax payable on gains arising from the transfer of derivatives (Future & options) by Foreign Institutional Investors (FPI) also has been exempted from the levy of the enhanced surcharge.

The Governemnt has taken the decision to withdraw the enhanced surchare on the Income tax Act,1961, on assets mentioned in section 111A and section 112A of the tax Act:in order to encourage investment in the capital market.

The surcharge withdrawn today was levied by Finance (No. 2) Act, 2019 on tax payable at special rate on income arising from the transfer of equity share/unit referred to in section 111A and section 112A of the Income-tax Act, 1961.

Transfer of derivatives (Future & options) by Foreign Institutional Investors (portfolio Investment or FPI)

The derivatives (Future & options) are not treated as capital asset and the income arising from the transfer of the derivatives is treated as business income and liable for normal rate of tax. However, in the case of FPI, the derivatives are treated as capital assets and the gains arising from the transfer of the same is treated as capital gains and subjected to a special rate of tax as per the provisions of section 115AD of the Act. Therefore, it is also decided that the tax payable on gains arising from the transfer of derivatives (Future & options) by FPI which are liable to special rate of tax under section 115AD of the Act shall also be exempted from the levy of the enhanced surcharge.

Therefore, the enhanced surcharge shall be withdrawn on tax payable at special rate by both domestic as well as foreign investors on long-term & short-term capital gains arising from the transfer of equity share in a company or unit of an equity oriented fund/business trust which are liable for securities transaction tax and also on tax payable at special rate under section 115AD by the FPI on the capital gains arising from the transfer of derivatives. However, the tax payable at normal rate on the business income arising from the transfer of derivatives to a person other than FPI shall be liable for the enhanced surcharge.

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