The Central Board of Direct Taxes (CBDT) on Wednesday said Foreign Portfolio Investors (FPIs) and Alternative Investment Funds (AIFs) can opt for a corporate structure to avoid paying an additional surcharge.
This comes after FPIs raised concerns that the increased surcharge on super-rich could also affect foreign funds investing in India since the same tax structures apply for individuals, HUFs and Associations of Persons (AOPs).
In an interview to CNBC-TV18, PC Mody, chairman, said, "The consideration was that people who have the higher ability to pay can shell out for the cause of nation-building. Basically, the increase in surcharge was to provide benefit to the lower end."
Union finance minister Nirmala Sitharaman in 2019-20 budget tabled in Parliament proposed to increase surcharge from 15 percent to 25 percent on taxable income between Rs 2-5 crore, and from 15 percent to 37 percent for income above Rs 5 crore.
Following the increase in surcharge, the effective income tax rate for individuals with a taxable income of Rs 2-5 crore will go up from 35.88 percent to 39 per cent, and for those above Rs 5 crore it would go up to 42.7 percent.