The Hindu Business Line : No plan to re-introduce long-term capital gains tax

FMspeak
Fall in stock prices due to global factors such as hardening of overseas interest rates and fall in equity and metal prices globally.
Fundamentals of economy strong despite tumble in market.
Whether FII is a trader or an investor would be decided in each case on a question of facts.

No climbdown: The Union Finance Minister, Mr P. Chidambaram, and the Planning Commission Deputy Chairman, Mr Montek Singh Alhuwalia, at the conference of chief secretaries on Public Private Partnership in Infrastructure in the Capital on Saturday. - Kamal Narang

New Delhi , May 20

The Government has no intention to re-introduce long-term capital gains tax on securities traded in recognised stock exchanges, according to the Finance Minister, Mr P Chidambaram. He also ruled out any unilateral revision to the double taxation avoidance agreement (DTAA) with Mauritius.

"I wish to make it clear that there is no intention to introduce long-term capital gains tax for securities traded in the stock market," Mr Chidambaram told newspersons here on Saturday. He also said that the issue of DTAA has been debated threadbare and that the treaty cannot be reviewed unilaterally due to a host of economic, political and diplomatic reasons.

CPI (M) stand

With the Sensex falling more than 1,300 points in the last two trading sessions, the Communist Party of India (Marxist), which is extending outside support to the Government, on Friday demanded re-introduction of long-term capital gains tax and review of the DTAA with Mauritius.

Mr Chidambaram, however, declined to remark on the demand of the CPI (M), stating that he couldn't comment on the views of a political party. He said that the fall in stock prices in the country was due to global factors such as hardening of overseas interest rates and fall in equity and metal prices globally.

He asserted that the fundamentals of the Indian economy remain strong despite the tumble in stock market indices last week. "The economic fundamentals are very strong. Fundamentals of the economy have not undergone any change in the last four days. Inflation is contained below 4 per cent for several weeks. We expect a good monsoon. India's growth story remains a growth story."

Mr Chidambaram also disclosed that nearly 70 foreign institutional investors (FII) have declared themselves as traders and their income as business income. However, they are not paying any tax on their business income as they are covered under DTAA. The Finance Minister had recently said that no FII has been assessed to tax as a trader.

"As a matter of fact, whether an FII is treated as a trader or an investor would be decided in each case on a question of facts (of the case)," he pointed out.

The Finance Minister said that it would be wrong to attribute the fall in stock market indices to the draft supplementary instructions of the Central Board of Direct Taxes (CBDT). The draft instructions are an update of the 1989 circular issued by the tax department to factor in the court judgments of the intervening period.

MUTUAL FUNDS' role

The Finance Minister said that FIIs play a significant role in Indian stock market, but was quick to add that mutual funds also play an equally important role. He also said that FIIs are aware of the legal position on taxation.

In 2004, Mr Chidambaram had abolished long-term capital gains tax while introducing securities transaction tax (STT) on transactions put through recognised stock exchanges.

A foreign investor can participate in the Indian securities market either as a foreign institutional investor (FII) or as a sub-account. In December 2005, the number of FIIs stood at 823 and the number of sub-accounts stood at 2,273.

More Stories on : Taxation | Foreign Institutional Investors | Stock Markets

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