The government’s rollback of enhanced surcharge on select investors, announced as part of a series of measures to boost the economy last week, has not created a differential regime between FPIs and domestic investors, CBDT said in statement on Wednesday.

This differential regime existed even prior to the 2019 Budget, the Central Board of Direct Taxes (CBDT) said, adding that it was, therefore, not the creation of the Finance (No 2) Act, 2019, or the announcement made by the Finance Ministry last week.

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Finance Minister Nirmala Sitharaman on Friday announced the withdrawal of enhanced surcharge on short-term and long-term capital gains earned by foreign portfolio investors (FPIs) and domestic investors.

CBDT said, following the announcement, the perception that the withdrawal of enhanced surcharge has created the differential regime in certain sections of media is completely misplaced.

It stated that even before Budget 2019, income arising from derivatives for the domestic investors including AIF category-III as well as for foreign investors who are not FPIs, has been treated as business income and not as capital gains, and taxed at applicable normal income tax rates.

Hence, the announce by the Finance Minister last week has not created a differential regime between FPIs and domestic investors, it said.

In case of FPIs, Income Tax Act, 1961 (the Act) contains special provisions [section 115AD read with section 2(14) of the Act] for taxation of income from derivatives, it explained.

Under this regime, income of FPIs arising from derivatives was treated as capital gains and liable for special rate of tax as per section 115AD of the Act, it said.

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