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Dividend tax, capital gains tax to go — Capital markets get a lift
Our Bureau
NEW DELHI, Feb 28
IN a move that is designed to boost the capital markets, the Finance Minister, Mr Jaswant Singh, today announced the withdrawal of dividend tax at the hands of shareholders and abolishment of long-term capital gains tax.
From April 1, 2003, while dividends would be tax free in the hands of the shareholders, a 12.5 per cent dividend distribution tax would be levied on domestic companies. Mutual funds including UTI Mutual Fund would have to pay a dividend distribution tax. However, equity oriented schemes would further be exempted from the dividend distribution tax.
The Finance Minister has proposed exempting all listed equities that are acquired on or after March 1, 2003 and sold a year later from long-term capital gains tax.
The Managing Director, Mr Milind Barve, HDFC Mutual Fund said that as far as the equity markets are concerned, the exemption of Dividends And Long Term Capital Gains from Income Tax in the hands of the investor will provide a sorely needed fillip. "Also, with the reduction of interest rates on other small savings products, investment in equity related schemes by mutual funds would look very attractive," he said.
In order to accelerate the demutualisation of stock exchanges, the Finance Minister also announced a one-time exemption of capital gains tax that may accrue in the process of separating ownership of stock exchanges, which are presently owned by stock brokers. However, the broking community is confused over the issue of stamp duty that may be applicable in the process as this has not been clearly spelt out.
According to Mr Vijay Bhushan, Chairman of the Federation of Indian Stock Exchanges (FISE), "The Budget is generally market friendly as is reflected from the fact that indexes like the NifTY or the BSE-100 have shown a higher proportionate raise during the day compared to the bench mark Sensex reflecting that the prices of the medium shares have gone up more than the Sensex shares. This will mean that there is an increased buying interest for dividend income than capital gains income."
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