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No clarification over FPI surcharge needed at present, says FM

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Mumbai: Confusion continued over the government’s stand on the applicability of increased surcharge on foreign portfolio investors (FPIs), a move in the Budget that is likely to impact long-term money coming through mutual funds and pension funds.

While Finance Minister Nirmala Sitharaman said after the RBI board meeting in the capital that there was no need for any clarification on the additional tax burden, CBDT Chairman P C Mody said on the sidelines of an Assocham event in Delhi that the matter was being examined and a clarification could be issued soon. Several industry bodies, which represent portfolio investors such as Asset Managers Roundtable of India, are lobbying with the finance ministry and other sections of the government for an exemption on surcharge.

In case the government wants to exempt FPIs from the surcharge, it will have to insert a carve-out in the Finance Bill and make changes to Part-II of the First Schedule before it is passed into law, said legal experts. The tax on funds that earn an income of more than Rs 5 crore in a year and structured as association of persons (AOPs) or trusts will increase to 42.7 per cent, from the current 35.8 per cent. For funds earning an income between Rs 2 crore and Rs 5 crore, the tax rate will go up to 39 per cent, from 35.8 per cent.

 

The higher rates will apply to non-corporate FPIs and funds; about 50 per cent of FPIs are registered as non-corporates. A large number of FPIs are impacted by the increase in surcharge, as they are structured as trusts or AOPs. Such structures have been adopted to avoid minimum alternate tax.
The Budget has proposed to raise the surcharge to 25 per cent, from 15 per cent, on taxable income between Rs 2 crore and Rs 5 crore, and to 37 per cent, from 15 per cent, for income above Rs 5 crore.

There will be an increase in tax to be paid by FPIs on long-term capital gains and short–term capital gains as well. For the former, effective rates will increase to 14.25 per cent, from 11.96 per cent, and for the latter, to 21.37 per cent, from 17.94 per cent.

“Admittedly, there is a difference in surcharge between corporate and non-corporate FPIs even today. However, because the percentages of surcharge were not too high, this was not a cause for concern. With surcharge rates as high as 25 per cent and 37 per cent, this is now beginning to hurt,” said Tejas Desai, partner, tax & regulatory services, EY.

According to Desai, there is no apparent basis to tax FPIs organised in different legal forms in their home country on a differential basis.

“In fact, a lot of the foreign MFs and pension funds, which ultimately represent the interests of small investors and invest long-term capital in the country, are organised as non-corporate vehicles and will be impacted by the higher surcharge. If that is not the intention, as it seems, the government should clarify this by proposing changes to Part-II of the First Schedule to the Finance Bill before it is passed into law,” added Desai.

Besides paying tax on capital gains, FPIs currently have to pay other taxes, including securities transaction tax and stamp duty.


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India’s trade deficit narrows by 7.98% to $15.28 billion in June, exports falls by 9.71%

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New Delhi: India’s trade deficit for June 2019 narrowed by 7.98 percent to USD 15.28 billion as against the deficit of USD 16.60 billion in June 2018, government data showed.

The country’s exports registered a negative growth of 9.71 percent during June 2019 to USD 25.01 billion as compared to USD 27.70 billion in June 2018. Non-POL exports for June 2019 declined by 5.73 percent; non-POL and non-gems and jewelry exports declined by 4.86 percent.

India’s imports in June 2019 too fell 9.06 percent to USD 40.29 billion in June 2019 as compared to USD 44.30 billion in June 2018, data further showed.

 

The major commodities which contributed towards decline exports in June 2019 have been Petroleum products (-32.85 percent), Rice (-28.05 percent), Cotton yarn/Fabrics/made-ups (-19.73 percent), Gems and Jewellery (-10.67 percent), Readymade garments (-9.18 percent), Organic & inorganic chemicals (-8.17 percent), and Engineering goods (-2.65 percent), data showed.

Import of petroleum crude & products in June 2019 (USD 11.03billion) has recorded a negative growth of 13.33 percent as compared to June 2018 (USD 12.73billion). In this connection it is mentioned that the global Brent price ($/bbl) has decreased by 15.81 percent in June 2019 vis-à-vis June 2018 as per data available from World Bank, official data said.

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It will take 2-3 days for scheduling to use Pakistani airspace: AI

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New Delhi: Hours after the Pakistan Civil Aviation Authority ordered its airspace to be opened to all civilian traffic for flights between India and Pakistan, Air India official said that it will take 2 to 3 days for scheduling to use Pakistani airspace.

Indian airlines resumed flight operations over the Pakistan airspace, after the latter removed access restrictions, following Balakot airstrikes by the Indian Air Force in February. Air India was saddled with heavy financial losses following this.

The Ministry of Civil Aviation wrote on Twitter, “After cancellation of NOTAMS by Pakistan and India in the early hours of Tuesday, there are no restrictions on airspaces of both countries, flights have started using the closed air routes, bringing a significant relief for airlines”.

 

In March, Pakistan partially opened its airspace but did not allow Indian flight to fly over its airspace.

Since then, foreign carriers had been using Indian airspace have been forced to take costly detours because they cannot fly over Pakistan. The closure mainly affects flights from Europe to Southeast Asia.

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RBI slaps Rs 7 cr penalty on SBI for violating various norms

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Mumbai: The Reserve Bank of India said it has slapped a penalty of Rs 7 crore on the country’s largest bank SBI for non-compliance with norms related to NPA identification and fraud risk management, among others.

The penalty has been imposed on the bank for non-compliance of income recognition and asset classification (IRAC) norms, code of conduct for opening and operating current accounts and reporting of data on Central Repository of Information on Large Credits (CRILC), and fraud risk management and classification and reporting of frauds.

Giving details of the case, it said the statutory inspection of SBI with reference to its financial position as on March 31, 2017, revealed, non-compliance with IRAC norms, sharing of information about customers with other banks, reporting of data on CRILC, fraud risk management, and classification and reporting of frauds.

 

Based on the inspection report and other relevant documents, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed on it for non-compliance with directions issued by the RBI.

“After considering the bank’s reply and oral submissions made in the personal hearing, RBI came to the conclusion that the aforesaid charges of non-compliance with RBI directions were substantiated and warranted imposition of monetary penalty,” the RBI said.

The penalty, RBI said, is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

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