The proposed Asset Management Company (AMC), which would take over the entire government holding in all public sector companies and be responsible for their sale, may be exempted from capital gains tax on the income generated through sale of the equity.
The ministry of disinvestment, in its comments to the finance ministry on the issue, has suggested that the government find a way to prevent the proposed AMC from paying the tax while defining its exact structure and role, a senior government official told Business Standard. As per the Income Tax Act, fully-owned government entities are exempted from paying tax but other entities have to pay capital gains tax on sale of equity.
"Although there is no decision yet on whether the AMC would be 100 per cent government-owned, we want to avoid a situation when other financial institutions approach us demanding tax exemptions. These are among the issues that need to be resolved before the AMC comes into being," the official said.
The disinvestment ministry has also recommended that North Block seek opinion from other ministries before deciding on the exact role of the AMC.
"We need to be very clear on the role of the administrative ministry after equity has been transferred to the proposed AMC. It may not be practical for the administrative ministry to retain day-to-day control in a PSU while decisions regarding the sale of its equity are being taken elsewhere," the official said.
The Prime Minister's Office (PMO) had suggested that the administrative ministry transfer management control to the AMC once the Cabinet Committee on Disinvestment (CCD) clears its sell-off plan.
Among other things, the disinvestment ministry has also sought a clear definition on the role, location and mandate of the proposed AMC and under whose control it would function, the official said.
The finance ministry is in the process of chalking out the broad structure of the AMC and is expected to seek Cabinet approval for the company in the next couple of months.
The proposed company, that would control assets of almost Rs 1,66,000 crore of listed PSUs alone, would hold government equity in the 250-odd public sector companies and be responsible for selling government equity in the markets at the right time.
