【Wealth Succession】

India plans higher taxes for foreign investors in securities

India’s federal budget proposes an increase to capital gains tax rates payable by foreign individuals who invest in public and non-public Indian securities.

The increases, which if enacted will be retroactive to 1 April 2019, include:

1. taxes on long-term capital gains on sales of equity and debt securities, currently taxed at a maximum of 11.96 per cent, rising to 14.25 per cent;
2. tax on short-term capital gains on sales of equities on Indian exchanges rising from 17.94 per cent to 21.37 per cent, including securities transaction tax; and
3. short-term capital gains on sales of debt securities and off-exchange sales of equity securities being taxed at 42.74 per cent instead of the current 35.88 per cent.

The actual tax rates depend on the security and the period for which it is held before disposal.

The rate increases, if enacted, will also apply to certain Indian-resident investors, although entities deemed to be companies or partnership firms are exempt. As well as individuals, the new ‘non-corporate’ rates could also apply to US business trusts, investment trusts, common trust funds, group trusts, and charitable trusts and foundations, depending on the entity’s constituting documents and legal status.

The relevant legislation, Finance Bill (No.2) 2019, has been passed by both houses of India’s parliament. It is awaiting approval by the President of India.

‘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’, commented tax advisors EY.