16th November 2004, 08:15 AM
|
|
Supporting Member
|
|
Join Date: Mar 2004
Posts: 340
Thanks: 0
Thanked 16 Times in 6 Posts
Reputation: 138
|
|
Securities Transaction Tax & the Indian Investor
Securities Transaction Tax & the Indian Investor
Quote:
Most equity investors are waiting eagerly to take maximum advantage of capital gains benefits. However, what most of them don’t realise is that there is a bit of work to be done before the provision can actually come into effect.
According to the provisions in the Finance Bill, there is a securities transaction tax (STT), which will have to be paid at the rate of 0.075%, both at the time of sale and purchase in case of delivery-based transaction in equities.
The benefit for such investors is that the long term capital gains will not be taxed and at the same time the tax rate on short-term capital gains has been brought down to 10%.
The key is the time period from which this is applicable. The benefits come into effect on the date from which the securities transaction tax is applicable, which will be notified by the government. What this means is that the losses or gains on transactions before the applicable date are liable to be taxed in line with the old provisions.
Now, consider the different situations that investors find themselves in.
First, consider a case where an individual has long-term capital gains in the current financial year. If the gain is booked in the current financial year before the transaction tax comes into force, then, unless there is a loss to be set off, the investor will end up paying tax on this sum. The same gain booked after the capital gains benefits become available will mean that the tax liability is zero.
Consider another case where there is a long-term capital loss already incurred in the first few months of the current fiscal. This is possible considering that many investors had losses in the aftermath of the market crash following the general elections.
Unless this loss is adjusted against long term capital gains, the loss will become worthless, because it will not be able to have the facility of carry forward once the transaction tax comes into force and the long term gains become exempt.
Move on to short-term capital gains. A short-term capital gain at this stage will mean that the amount will be added to the income and then taxed at the applicable rate, which will push up the tax bill quite a lot. This is on account of the fact that the tax rate payable could well be 30.6% for most people. Once again, unless there is a short term loss to be set off, the financial impact will be high
On the other hand, the presence of just a short-term capital loss will enable the loss to be used against short-term capital gains in the future, as short-term capital gains will be taxed at 10% after the securities transaction tax comes into effect.
However, there is a difference in the time period of set off. A set off at the current stage will mean that the tax saving will be higher as the tax rate is higher currently and consequently the saving on tax will be higher.
|
http://economictimes.***************/articleshow/msid-842929,curpg-1.cms
|
Similar Threads for: Securities Transaction Tax & the Indian Investor
