| GEO Business|
| India proposes tax on gains from stock sales, funds|
| Updated at: 1507 PST, Wednesday, June 16, 2010|
NEW DELHI: India proposes to impose a capital gains tax on all stock transactions by Indians and overseas funds, aimed at boosting revenue and pare the budget shortfall from a 16-year high.
The new proposals include a move to tax investments in stocks and equity-linked mutual funds at the applicable tax rates for income, according to a document posted on the Finance Ministry’s website yesterday. The so-called direct tax code also proposes to allow a deduction at a specified percentage for investments held for more than a year.
India’s Finance Minister Pranab Mukherjee last year unveiled plans for the biggest change to the nation’s tax law in almost five decades, seeking to raise revenue in Asia’s third- largest economy where a majority of the nation’s 1.2 billion people don’t pay a rupee in income tax. Raising tax revenue would help Mukherjee narrow the budget deficit to 5.5 percent of gross domestic product in the year started April 1, from a 16- year high of 6.9 percent in the previous 12 months.
“It’s understandable why the government is targeting foreign institutional investors and domestic investors, they’re easy targets,” Vikas Pershad, Chicago-based chief executive officer of hedge fund Veda Investments LLC, said in e-mailed comments. Still “FIIs are the worst taxpayers to target, because they’re the people for whom it’s easiest to take their capital elsewhere,” he said.
Overseas investors, categorized as Foreign Institutional Investors, will be liable to pay tax as per the proposals. All investments by such investors will be considered as capital gains. Overseas funds that have been reporting income from stock investments as business income and claiming exemptions will not be allowed to claim such benefits, the tax code proposes.