Measures Expected From Annual Budget That Could Impact Markets

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. 

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 percent 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 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.