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First on the agenda is to restore normalcy in the markets by restructuring the budget proposal of a super rich tax surcharge on foreign portfolio investors (FPIs).Official sources said that the Prime Ministera's Office (PMO) has asked the Finance Ministry to quickly review the tax proposal on FPIs and come out with a solution that reduces the impact of new taxation on the these institutional investors.A proposal to grandfather all income generated by FPIs till the presentation of the Union Budget on July 5 is being considered that will reduce the impact of the new taxation by almost a third. This is considered a more acceptable solution as the Finance Ministry has continued to maintain a strong stand over its tax proposals that impact FPIs.Sources said that the ministry may announce the changes this week after the monetary policy review by Reserve Bank of India (RBI) on August 7. On its part, the RBI is expected by experts to reduce the policy rates by 25 basis points to improve liquidity in the market and kickstart the investment cycle by the private sector.The government proposed raising surcharge on the super rich in Budget presented by Finance Minister Nirmala Sitharaman. However, this surcharge also increased the tax burden on FPIs as most are organised as non-corporate entities such as trusts and association where taxation is similar as for individuals.The carnage at the indices began since the budget proposals were announced in Parliament on July 5. The average market capitalisation of the BSE-listed companies has fallen from Rs 151.35 lakh crore on budget day, to Rs 138.37 lakh crore on August 5, wiping out Rs 12.98 lakh crore.A large part of the selling can be attributed to foreign institutional investors (FIIs). The FPIs have also been net sellers of over Rs 20,000 crore worth of stocks in the capital market segment on the BSE, NSE and MSEI since July 1.The proposal on grandfathering would help FPIs avoid paying higher tax for the period between April 1 and July 5. As the tax proposal was made on the budget day, FPIS could get relief on income generated prior to July 5 in the current financial year when the surcharge on super rich income tax was not applicable.The sources said that the government is looking at whether provisions of Sections 119 of the Income tax Act can be applied in the case of FPIs to provide them partial relief from the super rich tax. Section 119 empowers the Central Board of Taxes (CBDT) to direct income tax authorities to allow any claim for exemption, deduction, refund and any other relief under the income tax act even after the expiry of the time limit to make such claims.This section may be used to allow FPIs deductions on the total tax paid during 2019-20. The deductions would be limited to a three-month period when income was generated without knowledge that tax changes are coming.The grandfathering clause will allow such changes to provide partial relief to FPIs till the time an alternate strategy is worked by the government to provide complete relief to overseas investors. With current Parliament session ending in few days, government will have limited option to correct FPI surcharge and the only option left would be to make changes through an ordinance.( With inputs from IANS )

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