Amendments in the Finance Bill 2010 have clarified some of the questions and concerns of market participants. While news flow on capital gains tax has been frequently quoted in news papers, other amendments worth noting are mentioned below. We await the release of Finance Act 2010 for final confirmation of the proposed changes.
· The clause in the Finance Bill which seeks to deem the 10% tax on profit on debt as final has been deleted. This was a major source of concern for alternate asset classes as it would have given debt securities an added tax advantage.
· The clause envisaging increase in turnover/ minimum tax to 1% from 0.5% earlier has been deleted. This should be positive for loss making companies and companies with thin net profit margins such as OMCs.
· Companies undertaking capex for BMR shall be entitled to tax credit of 10% of the amount invested
· Companies opting for listing will be entitled to benefits worth 10% of tax payable as against 5% earlier. This will bring effective tax rate down to 31.5% and lead to ~5% EPS impact in the year of listing
Capital Gains tax related clarities
· Any stocks sold after June 30th 2010 will be taxed based on holding period
· Individual investors will not be required to file quarterly advance tax
· Capital Gains will be treated as a separate block of income. Loss on securities can only be adjusted in the year of occurrence and not carried forward
· Equity mutual funds will deduct capital gains tax of unit holders based on holding period and cost while debt/ money market funds will be exempted from capital gains tax.
· Bonus shares will be treated as acquired at zero cost
29 June 2010