Disappointment over the Budget proposals and muted global markets led the Sensex to log the heaviest fall in seven months on Monday. Both the key equity indices Sensex and Nifty fell over 2 per cent.
The 30-scrip Sensex closed 792.82 points or 2.01 per cent lower at 38,720.57 while the broader Nifty50 declined by 252.55 points or 2.14 per cent to 11,558.60.
"There are quite a few FPIs which are not constituted as companies or corporations. They are constituted as trusts, body of individuals etc. Under our tax system, the individual rate also applies to body of individuals and trusts. In that context, the the higher rate would be applied on the FPIs which are non-companies as well," a tax expert told .
The government has maintained that only a few thousand individuals would be impacted by the move to raise surcharge for the super rich, but as per the market watchers, the proposal has antagonised the investors.
Besides FPIs, top Chief Executive Officers (CEOs) of big firms, expats, businessmen and traders would also have to cough up more tax as a result of the surcharge hike.
Even as the market bled, the government failed to clear the air on the taxation issue. While Finance Minister Nirmala Sitharaman said that there was no need for any clarification at this moment, Central Board of Direct Taxes (CBDT) Chairman P.C. Mody said the Board was looking into the matter and would issue a clarification soon.
The Budget last Friday raised surcharge on the super rich. Accordingly, those with an annual income of between Rs 2 crore and Rs 5 crore would be levied a surcharge of 25 per cent from 15 per cent previously.
For those earning Rs 5 crore or more annually, the surcharge has been increased from 15 per cent to 37 per cent. With this, the effective tax rate will go up to 39 per cent for those in the Rs 2-5 crore income slab.
The effective rate for those in Rs 5 crore and above group would go up to 42.74 per cent.
Most FPIs earn more than Rs 5 crore in a year and hence would come under the highest income tax bracket. They generally route their investments through trusts and body of individuals in the country's capital markets.
( With inputs from IANS )