The government's proposal to hike income tax surcharge on high net-worth individuals has dragged the benchmark BSE Sensex over 1,000 points over concerns that foreign portfolio investors (FPI) will also face the increased taxes in India, said experts.

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“I understand is that this surcharge has been applied to FPIs or Trusts and including Indian alternate investment funds AID-III as they are falling in the highest net worth bracket," said Samir Arora, Helios Capital. Arora believes the government may reverse the move as it was unintended. He said the tax impacts markets as it is unique and only in India.

Tejas Desai, partner- financial services tax, Ernst & Young, is also of the view that this may have been unintended but the markets will have to wait and see what steps the government takes after looking at the reactions coming out on the increased surcharge.

> India's super-rich will now pay highest income tax in the world

However, TP Ostwal, senior partner and associate, TP Ostwal & Associates, said there will be no clarification because this category — on which the tax slab has prescribed— from the first day includes individual, HUF, Association of Person, body of individual and artificial judicial person. Across the board, in this category of tax payers, the tax rate and surcharge have increased, he added.

This may seriously impact people not only the FIIs, FPIs, AIF-III because most people organise in the form of trust, he said. REITs and InVITs are also in form of Association of Person the trusts and so they are all going to be impacted, said Ostwal.

“I don’t think government must have intended, their zeal was only to collect tax in lieu of their state duty from the super-rich people and this is a unique way they found out by just increasing the surcharge,” said Ostwal, adding that if it is impacting everybody then they will have to create a separate category of person, association of person to be dealt with at a separate rate and that has never happened in the history of Income Tax Act.

The government has estimated collection of around Rs 30,000 crore separately extra from these people but the amount will be much bigger, said Ostwal.

Desai said the move will also impact certain mutual funds and pension funds, which put long-term money into the country since most of them have been organised as trust vehicles in their home country. And that is not a great outcome.

First Published:Jul 8, 2019 2:08 PM IST