Measures expected from Union Budget that could impact markets

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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 investments to support the economy. For story see

Detailed below are the main expectations of measures that could impact markets:

GUIDELINES FOR GENERAL ANTI AVOIDANCE RULES (GAAR)

– Government set to announce detailed guidelines 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

– Key clarification awaited is whether GAAR will take precedence over individual tax treaties, including Singapore and Mauritius

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 per cent withholding tax paid by issuers on “masala” bonds, or rupee-denominated debt sold overseas, despite some lobbying for its removal

SECURITIES TRANSACTION TAX ON EQUITY MARKETS

– STT on futures and options may rise for second year in a row from current levels of 0.05 per cent 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 per cent of the gains.