Post the announcement of higher tax rate, 40 percent of FPIs naturally fall under the high income category as many invest as the non-corporate entity such as trust or Association of Persons (AOP), which is categorized as the individual for the purpose of taxation in the Income Tax Law. According to Dhruva Advisors, about 40 percent of FPIs registered in India and operating as trusts are likely to be impacted by the proposal, though there could be many that are inactive.

These non-corporate FPIs will be imposed with higher tax rates. The tax applied to these trust or AOPs which earn through the funds and whose income is more than 5 crore per annum, will increase to 42.7 percent from the present rate of 35.8 percent. For funds earning from 2 crore to 5 crore, the tax rate will grow up to 39 percent from 35.8 percent. In addition to this, there will also be an increase in the tax paid by the FPIs on capital gains, where the long term capital gains tax will be elevated from 11.96 percent to 14.25 and the short term capital gains tax will increase from 17.94 percent to 21.37 percent. Apart from the capital gains tax, FPIs will now have to pay two other taxes namely securities transaction tax and stamp duty.