The Central Board of Direct Taxes (CBDT) has decided to withdraw the enhanced surcharge levied by the Finance (No. 2) Act, 2019 on tax payable on income arising from the transfer of equity share/unit referred to in section 111A and section 112A of the Income-tax Act, 1961 from the financial year 2019-20. The capital assets mentioned in the section 111A and section 112A are:

i. Equity shares in a company;

ii. Units of an equity oriented fund; and

iii. Units of a Business Trust

The derivatives (futures & options) are not treated as capital assets and the income arising from the transfer of the derivatives is treated as business income. However, in the case of Foreign Institutional Investors (FPI), the derivatives are treated as capital assets and the gains arising from the transfer of the same are treated as capital gains and subjected to a special rate of tax as per the provisions of section 115AD.

Therefore, the Board has clarified that the tax payable on gains arising from the transfer of derivatives (Future & options) by FPI shall also be exempted from the levy of the enhanced surcharge.