Indian Mutual Funds Concerned Over Lapse Of Dividend Tax Exemption

by Lorys Charalambous, for LawAndTax-News.com, Cyprus

06 February 2004

The Indian mutual fund industry is concerned that a one year exemption on dividend tax for mutual funds, introduced in last year's budget, is set to expire at the end of March.

The measure was introduced by Finance Minister Jaswant Singh in his 2003-04 budget in order to boost the country's capital markets. However, no mention was made of extending the exemption in his interim budget speech.

Although it is expected that an extension of the measure will be contained in the 2004/05 budget in June, investment experts have warned that if the tax exemption lapses, dividend pay-outs from funds may decline until it is reinstated.

Speaking to the Indian Business Standard, head of equity with the IL&FS Mutual Fiund, Suchas Naik explained that:

"The dividend pay-out policy of any fund is based on the distributable profits; it is more of a function of the market movements. So if markets move up significantly by March, dividend pay-outs could be higher."

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