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| DTC may boost investment flow into capital markets: Analysts |
| Press Trust of India / New Delhi Aug 30, 2010, 20:10 IST |
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The Direct Taxes Code (DTC) Bill is expected to boost investment flow into capital markets, as the government proposes to retain a zero long-term capital gain tax, less than that proposed in the first DTC draft.
The DTC Bill, introduced today by Finance Minister Pranab Mukherjee in the Lok Sabha, proposes to keep long-term capital gain tax at the present level of zero per cent, that means any investor selling a share after a year of holding will not have to pay any tax on the gains.
"The draft DTC had proposed long-term capital gain tax at the same rate as that of Income Tax slabs. This had raised concerns amongst investors. With the DTC Bill retaining the present status, it will be a boost for capital market as more investments will flow in," Deloitte Haskins & Sells Partner NC Hedge said.
Besides, the DTC has also tinkered with the short-term capital gain tax charged from investors. Individual investors will now have to pay tax on 50 per cent of the gains earned. The rate of short-term capital gain tax would be according to the income tax slab of that individual.
For corporates, the short-term capital gain tax would be calculated at 30 per cent after deducting 50 per cent from the overall gains.
In an overall positive reaction to the DTC Bill, the Dalal Street experts said that the new code is in favour of the common man and can even boost retail participation in stock market.
"On the long-term basis, the move will give a big push to the inclusive growth agenda. Retail investors will get a big booster from the proposal," CNI Research CMD Kishore P Ostwal said.
The DTC Bill seeks to increase tax exemption on income from Rs 1.6 lakh to Rs 2 lakh and fix the corporate tax at a flat 30 per cent.
Echoing a similar view, Geojit BNP Paribas Assistant Vice President Gaurang Shah said, "On long-term basis it is a healthy and a positive move for retail investors, who will have more money to invest in markets."
On the Distribution Dividend Tax, which will be at 15 per cent, Ostwal said, that "it will slightly affect the cash proportion of smaller companies".
The DTC also proposes to raise minimum alternate tax to 20 per cent. MAT is imposed on profit-earning entities, which do not fall under the tax net because of various exemptions.
"Overall the DTC Bill is good for the market, though rise in MAT had some negative impact on some specific sectors," Networth Stock Broking Head of Institutional Business Prakash Diwan said.
Investors were concerned about the changes in taxation of capital gains in the revised DTC and at one point of time, the Bombay Stock Exchange's benchmark Sensex slipped 38 points, though later bounced back as the details of the Bill trickled in. The Sensex ended 34 points higher at 18,032.11.
"Market heaved a sigh of relief and recovered a part of the lost ground," Bonanza Portfolio Vice-President Avinash Gupta said.
Market is likely to open in a positive note tomorrow, as the DTC issue has already been factored in, analysts said.
"The GDP data, scheduled to be released tomorrow, will set the tone on the Dalal Street tomorrow," a broker said.
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