Sensex falls 793 pts and costs Rs 3 lakh crore on Monday

FM Nirmala Sitharaman proposed to raise the surcharge on individuals earning ₹2-5 crore a year to 25%. For those earning more than ₹5 crore, it was increased to 37%, and the raising the income tax rate on the two highest slabs of income earners to 39% and 42.7%, respectively. A surcharge is a tax on tax and is levied on the tax amount you are liable to pay, this has impacted the market so badly.

The budget proposal to impose an additional surcharge on India’s top earners damage investor confidence, force the wealthy to find loopholes or relocate to other countries and hit individuals who have made a large one-time gain. Sensex falls 793 pts and it is the biggest crash in 2019 till now and it costs in excess of Rs 3 lakh crore on Monday.

The tax burden on the rich class could also affect about 2,000 foreign funds that are legally equivalent to associations of persons (AOP), a class of income earners required to pay more taxes after new liability slabs were created in the federal budget.

Many foreign portfolio investors (FPI) in India are structured either as trusts or AOP and would be affected by the new surcharges. The increased surcharge on income-tax will hit the foreign portfolio investors (FPIs) hard, resulted Monday’s big selloff.

On Monday, CBDT Chairman Pramod Chandra Mody said, the board was examining FPIs' concern on tax surcharge and would issue a clarification on the issue soon. Later the FM said no fresh clarification is needed on FPI taxation. "I do not think any clarification on tax surcharge on FPIs is needed for now," she said in a press conference after the RBI board meeting.

Reserve Bank Governor Shaktikanta Das said, it used to take up to six months for an interest rate cut to be transmitted to consumers but things have improved, and now it is taking shorter time, he said. Of the 50 basis points cut in interest rate announced by the RBI prior to the June monetary policy, about 21 basis points had been transmitted, he said, hoping better transmission of interest rate cuts in coming weeks and months.