Markets surge on tax cut buzz; Sensex zooms 582 points to a 4-month high

The benchmark indices gained the most in three weeks on Tuesday as investors lapped up shares of blue chip companies amid reports that the government was planning to abolish the dividend distribution tax (DDT), along with the newly-introduced buyback tax. 

A new high by the S&P 500 of the US and gains in the Asian markets amid progress on the US-China trade talks and hopes of interest rate easing by the Federal Reserve also boosted sentiment. 

The Sensex gained 582 points, or 1.5 per cent, to end at 39,831, a level last seen on July 4. The Nifty 50 index gained 160 points, or 1.4 per cent, to close at 11,787, with nearly 90 per cent of its component logging gains. 

During market hours, news agency IANS reported that the Prime Minister’s Office (PMO) and the finance ministry were working on measures which may include the DDT being scrapped. 

At present, companies are subjected to a 15 per cent tax on the total dividend distributed to their shareholders. 

The abolition of the DDT is one of the long-pending demands of market players as it leads to double taxation. 

There was also speculation the government may soon rationalise the equity tax structure, including a review of  the long-term capital gains tax (LTCG) and the securities transaction tax (STT). Also, there was a buzz around lowering personal income tax.

“Following the surprise move to cut corporation taxes last month, speculation is high that a reduction in personal income taxes is on the cards next. With the all-in corporation tax rate at 25 per cent, it is likely that personal income tax rates, which are at 30 per cent-plus levels, will also be lowered, surcharges notwithstanding,” wrote Radhika Rao, economist, DBS, in a note.

“A proposed review of key taxes such as the LTCG, the STT and the DTT before the Budget have given impetus to investor sentiment,” added Sandeep Nayak, chief executive officer, Centrum Broking.