Only BSE 500 Stocks And IPOs Exempted From CGT Says Singh

by Mary Swire, Tax-News.com, Hong Kong

02 May 2003

In his response during the Finance Bill 2003 debate, Indian Finance Minister Jaswant Singh declared that exemption from long term capital gains tax will be restricted to those stocks listed on the Bombay Stock Exchange (BSE) 500 and to Initial Public Offerings made after March 1 2003.

According to reports, the top 200 stocks on the BSE account for around 95% of total trading volume, and the recent measure is designed to counter the threat of money laundering in thinly traded stocks that had seen a sudden upsurge in activity.

However, Indian brokers are unhappy at the move and are considering mounting a legal challenge to the new law, on the grounds that the Income Tax Act does not recognise specific differences between different classes of stocks.

"The Income Tax Act makes no distinction between one class of equities and another. It is a bad decision, and is likely to be challenged in a court of law," one leading broker told the Business Standard.

The Finance Minister has also exempted political parties from capital gains tax.

There was rather better news for overseas banks in the 2003 Finance Bill, which allowed for a continuation of 100% income tax exemption in the designated Special Economic Zones (SEZ) for three further years. The provision allows for 50% exemption for the subsequent two years plus a reinvestment allowance of 50% on reinvested profits.

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