FPI tax on gains from bonds, debentures brought on par with listed equities

The Budget has raised the tax on long-term capital gains (LTCG) for listed bonds, debentures and listed preference shares to 12.5 per cent from 10 per cent for foreign institutional investors in line with listed shares and equity oriented mutual funds.

“It was seen that while the rates of taxation in the case of specified fund or FIIs in case of long-term gains referred to in section 112A have been brought to parity with the rates applicable for residents, the rate of income-tax calculated on the income by way of long term capital gains not referred to in section 112A were retained at 10 per cent vide Finance Act, 2024,” the Budget document said.

Section 112A provides for LTCG tax on the sale of listed equity shares, equity-oriented mutual funds and business trust. The rate of tax on these listed securities was raised to 12.5 per cent from July 23, 2024 for gains exceeding ₹1.25 lakh.

Sunil Gidwani, Partner, Nangia Andersen, said: “Last year when the LTCG tax rates were changed for residents, the tax rates for FPIs on shares, equity mutual funds and business trusts were changed to 12.5 per cent, too. But LTCG on other assets such as G-secs, bonds and NCDs were left out, perhaps inadvertently, and continued to be taxed at 10 per cent. This is sought to be corrected.”