Government seeks data on FPI tax liabilities from SEBI

The government has asked for information on the sources of foreign portfolio investors (FPIs) from SEBI. The government is interested in knowing the FPIs using the trust structure and the assets managed by them. 

Furthermore, the government has asked for data on the tax liability of FPIs, which includes limited liability partnerships, companies, and trusts. The market regulator SEBI has requested the concerned authorities to furnish the necessary information. 

The Union Budget 2019-20 increased the surcharge on the foreign individuals earning high-income and association of persons (AoPs). The amendment will impact a large number of FPIs as they are either structured as trusts or AoPs. 

As per the available data, 40% of the FPIs are of the trust structure, and they are mostly from USA and Luxembourg. 60% of the FPIs are of the corporate structure. Trusts and LLPs are set up globally with the intention of collective investment.

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The Finance Minister amended to increase the surcharge rate from 15% to 25% on individuals earning taxable incomes between Rs 2 crore and Rs 5 crore, and it is enhanced to 37% on individuals earning taxable income of more than Rs 5 crore. The effective tax rate for these two groups has touched 39% and 42.74% respectively. 

The increased surcharge rates apply to individuals, Hindu Undivided Families (HUFs), trusts, and AoPs. The long-term capital gains tax rate has gone up to touch 14.25% for individuals earning more than Rs 5 crore, while the short-term capital gains tax has surged from 17.9% to 21.4%.

Trusts are used to attain the pass-through tax status, and hence, the tax is collected from the investors’ end. The variable investment structure is required for the collective investment vehicles (CIVs) for which the trust structure is the most suitable.