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'Remove distribution tax on dividend'

Addressing a press conference organised by Confederation of Indian Industry (CII) as a part of its CEOs budget series in New Delhi on Tuesday, Nimesh Kampani, Chairman, CII Financial Services Committee and Chairman, J M Morgan Stanley said that the distribution tax on dividends should be removed altogether and the dividend income should be subject to tax in the hands of the recipient.

Emphasising on the need for doing so, Kampani said that while the tax on dividend amounts to double taxation, it also encourages corporates to undertake alternative means of rewarding on one hand and loss to the government in terms of revenues on the other.

Kampani pointed out that the long term capital gains tax payable on sale of listed securities of 10 per cent should be extended to unlisted companies so as to encourage companies to come out with public offering.

This is particularly important if India is to attract venture capital and private equity funds, he added.

Kampani suggested that there should be an increase in limits for tax savings investments u/s 88 from the current Rs 80,000 to Rs 120,000. He further added that tax exemption for investments in mutual funds should be raised from Rs 10,000 to Rs 20,000 and one time approval be granted to infrastructure companies instead of yearly renewals u/s 10 (23G).

He also said that Section 45 (2A) of IT Act dealing with FIFO method for demat securities should be modified so as to allow investors the freedom to choose the method for computation of capital gains tax, municipal bonds should be made tax-free in the hands of the investors and infrastructure bonds should be made tax free, he added.

He also suggested the inclusion of a new 'Calamity Fund' u/s 88.

Emphasising on the need for carrying forward the reforms process in the capital markets, Kampani outlined some measures that should be implemented.

According to him FII investment limit must be increased from the current 40 per cent to 49 per cent, banks must be allowed banks to invest in ADRs issued by Indian issuers without prior RBI (Reserve Bank of India) approval and QIBs (Qualified Institutional Buyers) in India must have the freedom to invest in foreign companies promoted by persons of Indian origin among others.

To promote corporate restructuring through mergers and amalgamations, Kampani said that Section 2 (1B) of IT Act should be amended to include in the definition of amalgamation, transactions wherein amalgamated company acquires 100 per cent of equity of amalgamating company as a subsidiary. Section 72A of the IT Act should also be amended to enable the holding company to avail benefits of carry forward and set-off of accumulated loss and unabsorbed depreciation of the 100 per cent subsidiary, he added.

Kampani also suggested the introduction of a new Indian Stamp Act to ensure that uniform provisions would apply to all States as well amendment to labour laws as some of the other measures to remove the bottlenecks to mergers and amalgamations.

Kampani in his presentation proposed a withholding tax on deposits and interest bearing instruments so that the income at the hands of the recipient shall be tax-free. The withholding tax should be allowed as a tax-deductible expense for corporates and banks, he added.

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