The Govt has Constituted a Expert committee on GAAR(General Anti avoidance Rules) under the Chairmanship of SHri P Shome and committee popularly known as Shome commitee. The committee has recommended to abolish the Tax on equities ,whether in the form of Capital gain or Business profit. Recommendation in this regard has been reproduced here under.
The Government should abolish the tax on gains arising from transfer of securities, being equity shares or units of equity oriented mutual funds, which is subject to securities transaction tax (STT), whether in the nature of capital gains or business income, to both residents as well as non-residents.
In the present tax regime of taxation of listed securities being equity shares and units of equity oriented funds-
(a) there is a transaction tax as well as capital gains tax (on short term gains);
(b) there is a tax incentive for treaty shopping;
(c) taxpayers prefer round tripping of funds due to tax arbitrage between resident and non-residents (using favourable jurisdictions);
(d) taxpayers and revenue litigate on characterization of income as capital gains or business income as rates of tax are different for capital gains and business income;
(e) the fund managers prefer to stay out of the country lest their presence should constitute permanent establishment for foreign investors; and
(f) it is advantageous to trade outside in offshore derivatives having underlying assets in India.
Currently, the revenue on account of short term capital gains taxation under section 111A of the Act is very small as compared to overall direct taxes collection. On the other hand, such a measure—abolishing the tax on short term capital gains—may provide a big boost to capital markets, and, in turn, help attracting investments.
Other major recommendations are
- Defer GAAR provision till Fy 2016-17(Ay 2017-18)
- There should be Monetary Cut off of 3 Crore Rupees without interest.