CII for tax on dividend income

CII for tax on dividend income
ENS ECONOMIC BUREAU

NEW DELHI, FEB 20: The Confederation of Indian Industry (CII) has called for removal of tax on dividend and taxing the dividend income in the hands of the recipient. “There is a need to extend the long term capital gains of 10% to unlisted securities so as to encourage these companies to come out with public offering. This is particularly important if India is to attract venture capital and private equity funds,” Nimesh Kampani, chairman of CII financial services committee and chief of JM Morgan Stanley said while addressing a press gathering organised by CII to discuss its pre-budget recommendations on the financial sector.

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

Emphasising the need to carry forward the reforms process in the capital markets, Kampani said that the foreign institutional investor (FII) ceiling should be hiked to 49 per cent from 40 per cent, allowing banks to invest in ADRs issued by Indian issuers without prior RBI approval and allowing Qualified Institutional Buyers (QIB) in India to invest in foreign companies promoted by persons of Indian origin among others.

Kampani further suggested that limit for tax saving investments under section 88 should be increased from Rs 80,000 to Rs 1,20,000, tax exemption fo investments in mutual funds from Rs 10,000 to Rs 20,000 and one time approval be granted to infrastructure companies instead of yearly renewals under section 10 (23G).

In order to promote corporate restructuring through mergers and amalgamations, Kampani said that section 2 (1B) of the Income Tax Act should be amended to include in the definition of amalgamation, transactions wherein amalgamated company acquires 100 per cent equity of amalgamating company as a subsidiary. Further, section 72A of the IT Act should also be amended to enable 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.

CII has called for the introduction of 20 per cent withholding tax for individuals and HUFs, which would cover all fixed income instruments, including bank FDs, corporate FDs, debentures and bonds that would generate revenue to the tune of Rs 8,700 crore from bank deposits alone. The withholding tax should be allowed as a tax deductible expense for corporates and banks, CII has said in its pre-budget memorandum.

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 of 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 further suggested the inclusion of a new ‘calamity fund’ under section 88.