Explainer: Will India's tax on the rich hit foreign investment inflows?

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The Indian government's budget proposal earlier this month to increase taxe...

NEW DELHI/MUMBAI - The Indian government’s budget proposal earlier this month to increase taxes on those with annual incomes of more than 20 million rupees has rattled many foreign portfolio investors.

The additional taxes apply to individuals, and groups of individuals who are an Association of Persons or a body of individuals. It takes the tax rate of someone earning 20 million rupees up to 39 percent, and for those earning more than 50 million rupees the rate climbs to at least 42.7 percent. There is still a possibility of some relief to the FPIs, when the parliament gives final approval to the tax proposals later this month.There are about 9,400 foreign portfolio investors registered in India, largely from tax domiciles in the United States, Mauritius, Ireland, Luxembourg, Singapore and the United Kingdom, who have invested nearly $50 billion in Indian equity, debt and hybrid instrument markets.

Future investments in India could depend not only on tax rates but on corporate earnings and the fundamentals of the Indian economy compared with other countries.

 

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