India Examining Alternatives To Capital Gains Tax On Shares

by Lorys Charalambous, Tax-News.com, Cyprus

25 June 2004

The Indian government is currently mulling whether to scrap capital gains tax on the sale of shares and replace it with a turnover tax, Indian media reports stated this week.

According to the Economic Times, this is one of several options now being explored by the Finance Ministry ahead of the budget and experts have indicated that this form of levy would be a much more efficient method of taxation. However, not all would stand to benefit, with costs likley to escalate for those investors involved in intra-day trading.

Nevertheless, it has been calculated that a turnover tax levied at a hypothetical rate of 0.1% would yield the government around R1,500 crore (US$327.4 million) in revenues, more than the present system of capital gains tax on share sales.

Another option apparently being examined is the elimination of the distinction between long-term and short-term capital gains, settling for a uniform lower rate of tax. Some domestic investors have also suggested capital gains tax should be removed on profits re-invested in the equity markets.

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