2018 Budget Highlights: Affecting Foreign Investors
India’s Finance Minister Arun Jaitley, on February 1, 2018, presented the union budget for this year. From the perspective of foreign investors, new provisions of long-term capital gains or LTCG tax have been included in the budget. The proposed budget has re-introduced a 10% tax on LTCG from the sale of listed equity shares.
This new tax applies to equity sales from April 1, 2018, on gains above Rs. 1 lakh.
It is clarified that Long-term Capital Gains on listed equities arising up to 31.01.2018 has been grandfathered for resident & non-resident assessees (incl. Foreign Institutional Investors). Refer clause 31 & 32 of Finance Bill, 2018 @PMOIndia @FinMinIndia @adhia03 @arvindsubraman
— Income Tax India (@IncomeTaxIndia)
Another important step taken by the government in the Budget 2018-2019 is the reduction of corporate tax rates to 25% for companies with turnover up to Rs. 250 crore. Reducing corporate tax rate along with the LTCG tax from equity shares and equity-oriented funds will make SME stocks lucrative.
Market analysts believe that despite re-introduction of LTCG, equity remains a superior asset class for investors and this tax makes the asset class more tax efficient than options such as interest on deposits.
The current investments of foreign investors are protected. However, the future earnings may dip by 10%. It remains to be seen if rolling out LTCG may turn out be a substantial change and the potential earnings of foreign investors will continue to be strong in the emerging markets of India.