To calm the apprehensions in the capital market following Prime Minister Narendra Modi's comments on "fair contribution to nation-building through taxes" last week, the Finance Ministry said there is no move to impose long-term capital gains tax on share transactions.
The recent clarification by CBDT on the applicability of Section 9 (1) (i) of the IT Act, 1961 on incomes, which are deemed to accrue or arise from India has also added to the concern of capital market investors.
"Long-term capital gains tax is a legitimate concern for FPIs. Ever since the law was amended in 2012, it has had uncertainties,” Abhishek Goenka, Partner at PwC told CNBC-TV18.
Even many of the clarifications that came in terms of the 50 percent threshold or the 5 percent safe harbour came only in 2015. So, you have this three year period of uncertainty between 2012 and 2015, he added.
Seeking more clarity on the overall articulation of the philosophy of the government, he said, “While the committee that has been setup by the government to look into retroactive cases technically applies only for cases pre 2012 -- what is creating a lot of concerns for the foreign portfolio investment (FPIs) and the funds is what happens in that interim period and particularly what happens to transactions where taxes have not been paid and where the concessional rate does not apply because it is an offshore transaction, so certainly very legitimate concerns.”
Sudhir Kapadia, National Tax Leader, EY, told the channel that as of now holdings below 5 percent aren’t affected by tax.
“I think the debate on this should focus on aspect of control. Five percent is a low threshold for determining control. Control should be a minimum of 26 percent."
"I would put it in two aspects rather -- the first is the law as it stood amended is exactly what it stated. There was no exemption for any category of indirect investors. We could go back and say when the new government took power why didn’t they scrap it I mean all those debates were done and FM had clarified his view or the government’s view. So, we were dealing with a law which stated what it stated,"he added.