MUMBAI Investors in India are bracing for higher taxes and less incentives from the government's annual budget to be unveiled on Feb. 1 as the focus shifts to wringing out revenues to finance giveaways and higher public investment to support the economy. For story see [nL4N1FH2JC]Below are the main elements expected in the measures that could impact markets:GUIDELINES FOR GENERAL ANTI AVOIDANCE RULES (GAAR)
- Government set to announce additional details behind GAAR, which will be implemented starting on April 2017.- GAAR is meant to crack down on tax havens, making it harder to claim some tax exemptions.- The government on Friday said GAAR would not apply for foreign investors based on a jurisdiction because of genuine commercial reasons and not just to benefit from exemptions under India's tax treaties with other countries. - India also said investors who meet so-called limitation of benefits criteria for individual tax treaties would be exempt from GAAR.- Limitation of benefits seeks to ensure foreign companies or investors based in countries with special tax treaties with India meet certain criteria such as minimum level of investment and a commercial presence in the relevant jurisdiction.
TAXES UNDER INDIRECT TRANSFER RULES
- Government expected to say whether foreign portfolio investors, private equity funds and venture capitals are liable to pay indirect transfer taxes - Confusion created after tax department said in December such investors could be liable to pay taxes if more than 50 pct of a fund's or investment vehicle's assets are based in India under some conditions- Tax department also said indirect transfer tax could be charged under certain ownership and investment levels
MASALA BONDS WITHHOLDING TAX
- Government may keep in place a 5 percent withholding tax paid by issuers on "masala" bonds, or rupee-denominated debt sold overseas, despite some lobbying for its removal
SECURITIES TRANSACTION TAX (STT) ON EQUITY MARKETS
- STT on futures and options may rise for second year in a row from current levels of 0.05 percent for every 10 million trades, which rises for bigger transactions.REDUCE TIME PERIOD FOR CAPITAL GAINS EXEMPTIONS
- Reduce threshold for tax exemptions for capital gains- Currently, investments sold after at least a 12-month holding period are exempt from taxes, while anything below that is taxed at up to 20 percent of the gains. (Reporting by Rafael Nam; Editing by Kim Coghill)
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Updated Date: Jan 27, 2017 18:35 PM