India proposes higher taxes for securities FDI as rupee falls

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India proposes higher taxes for securities FDI as rupee falls

India has pledged to apply a higher band of capital gains tax to foreign individuals who invest in the country's capital markets.

The proposed non-corporate rate increases would apply to some Indian-resident investors also, yet companies and partnerships would be exempt.

The new rate would apply to most US trusts and investment trusts around the world. The increases have been approved by parliament and are awaiting final approval by the president's office. 

Potentially affected investors should evaluate the possible implications and consider its effects on the net asset value of Indian securities."

The planned hike comes as FDI into India fell in the 2H2018 by 7%, to $33.49bn. 

The new rates, if approved, will be applicable from 1 April and would include taxes on long-term capital gains on sales of equity and debt securities at the new rate of 14.25% (up from 11% currently).

Taxes on short-term capital gains on sales from Indian stock markets will rise from 17.94% to 21.37%, while short-term capital gains on debt and equity securities will be taxed at 42%, up from the present rate of 35.88%.

The tax consultants EY advised, "Potentially affected investors should evaluate the possible implications and consider its effects on the net asset value of Indian securities — including the fact that if the budget becomes law, it will be retroactive to 1 April 2019."

The changes are being proposed as Indian stock markets have endured their worst July in 17 years, and the rupee is at its lowest value against the US dollar in six years, losing at 70.73 per dollar. The depreciation of the Chinese yuan and Delhi's scrappinig of Kashmir's special status are both significant factors in the fall of the rupee.

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Christopher Copper-Ind

Christopher Copper-Ind is editor-in-chief of International Investment. Before this, he was editorial director of The Business Year, from 2014 to 2017.