A government-appointed panel, looking to rationalise the proposed General Anti Avoidance Rule tax regime, has suggested a hike in the STT (Securities Transaction Tax) -- levied on stock transactions, among others.
At the same time, the Parthasarthi Shome-headed panel has suggested abolition of capital gains tax levied for transfer of securities or from business income.
The market entities and various industry bodies have been strongly demanding a complete abolition of STT, which was lowered earlier this year in the Union Budget.
In its draft report, the Shome panel said, "The government should abolish the tax on gains arising from transfer of listed securities, whether in the nature of capital gains or business income... In order to make the proposal tax neutral, the government may consider to increase the rate of STT appropriately".
The committee has argued that the abolition of tax on portfolio investment may encourage fund managers to shift their bases to India.
Portfolio investments in listed securities attract STT at rate of 0.1%. A hike in STT rate would increase costs of equity transactions. The levy was introduced in 2004.
The report further said that revenue from taxation of capital gains from such securities is less than Rs 3,000 crore.
It said there would be some revenue foregone on account of non-taxation of short term capital gains in the case of FIIs who avail treaty benefit (mainly India-Mauritius and India-Singapore tax treaties).
Short term capital gains are taxable at 15% while business income is taxed at 30%.
"Distinguishing capital gains and business income depends on several factors, and disagreements have resulted in numerous litigation cases between the Revenue and 35 taxpayers," it added.
