Shome panel for abolishing tax on capital gains on equities

Investors' Gain

     Print Edition: October 2012

The cat is not out of the bag, but its tail is visible. This is exactly the situation for investors in India's capital markets considering the recommendations of the Parthasarathy Shome Committee , appointed by the government to review General Anti Avoidance Rules (GAAR).

GAAR, as the name suggests, are aimed at discouraging Indian companies and investors from routing their investments through tax havens just to avoid taxes

The panel has recommended deferment of GAAR for three years to give the government time to put the necessary administrative infrastructure in place. GAAR will be applicable from assessment year 2017-2018. However, the panel has recommended that the details be announced this year for providing clarity to stakeholders.

The panel has also recommended abolition of tax on capital gains on equities.

"In order to make the proposal tax-neutral, the government may consider increasing the rate of Securities Transaction Tax (STT) appropriately," the panel said in its report.

At present, long-term capital gains on listed securities are not taxed in India, whereas short-term capital gains are taxed at 15 per cent.

If short-term capital gains are part of the business income, they are taxed according to regular tax slabs. On the other hand, STT is levied at 0.10 per cent on all share transactions.

"While STT will be an issue for traders, retail investors will hardly be affected," says Girish Vanvari, executive director, KPMG India.

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