Sensex cuts losses on clarity about Mauritius tax treaty

REUTERS - Indian shares fell on Wednesday on concerns the government may amend tax treaties with countries including Singapore after it agreed to tax capital gains on foreign investments from Mauritius.

The tax, which will be effective April 2017, would be at 50 percent of the domestic rate for two years, and at the full rate thereafter, the government said on Tuesday.

Shares took a beating, losing more than 1 percent earlier in the day, also on worries about the tax impact on holders of popular derivatives that track Indian equities, which are sold to foreign investors.

The participatory-notes, as they are known, account for a substantial part of equity inflows and most are bought by investors based in Mauritius or Singapore, analysts said.

 

Shares however trimmed losses from earlier in the day as investors took comfort after clarity emerged that the tax would not apply to existing holdings.

India and Singapore will need to renegotiate their own double tax-exemption treaty, as rules say that any changes to the capital gains exemption clause in the treaty with Mauritius would also lead to changes in the agreement with Singapore.

"The good thing about this tax treaty is that it's not retrospective in terms of the applicability of the taxes and this is what has assuaged negative sentiment in the market," said Mahantesh Sabarad, deputy vice-president of research at SBI Capital Securities.

"However, market is waiting to understand whether similar treaties existing elsewhere will be revised or not."

Shares in Mumbai cut losses, with the broader NSE Nifty falling 0.43 percent to 7,853.21 as of 0840 GMT. It earlier dropped as much as 1.35 percent.

The benchmark BSE Sensex was down 0.67 percent at 25,600.98. It lost as much as 1.4 percent earlier on Wednesday.

Blue chips with sizeable foreign fund holdings were largely down, with HDFC Bank and State Bank of India losing 0.6 percent and 1.7 percent, respectively.

Oil explorers too fell on weaker global crude oil prices, with Bharat Petroleum Corp Ltd down 1.2 percent, while Oil and Natural Gas Corp Ltd lost 1 percent.

Ammong the gainers, Zee Entertainment Enterprises Ltd rose 6.47 percent after reporting a 13 percent rise in March-quarter profit.

Hindalco Industries gained 2.5 percent after unit Novelis reported strong earnings for the March quarter. (http://bit.ly/1VSQ620)

(Reporting by Aastha Agnihotri in Bengaluru; Additional reporting by Nichola Saminather in SINGAPORE; Editing by Sherry Jacob-Phillips and Biju Dwarakanath)