Booming market in loss-making transactions

The year-end game of investors booking losses on shares has begun. But thanks to the continuing bull market, finding losses isn't all that easy.

To reduce taxable capital gains and taxes, investors are entering into "arrangements" with private operators to buy "losses" for a price - usually 4-6 per cent of the value of the transaction.

This is how it works. When approached by an investor with high taxable gains, a market intermediary executes buy orders for the investor on small value scrips and then sells them at a small loss.

This loss is then passed on to the investor, which can reduce his taxes by setting it off against gains booked earlier. Market sources say that sub-brokers and also some brokers of regional stock exchanges are active in this loss trading business.

In fact, it is alleged that contracts are being issued without any actual transactions taking place on the bourses.

In some other cases, client codes on bills from earlier transactions are also changed, market sources said. While investors are obviously happy to pay out lower taxes, the intermediates are more than happy because their take is going up.

Market sources say that rates for such transactions have gone up in recent years because of the booming equity market, especially in view of the risks.

With regulations getting tougher, finding accommodative intermediaries is tougher "" hence costlier.