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Budget may bring exemption for those backed by Indian securities other than shares
"The Budget may provide capital gains tax relief on a host of ADRs, and GDRs where there is ambiguity at present," a government source told Business Standard.
It has not been long since the government last tried reviewing and reforming the ADR-GDR market for underlying Indian securities. In 2013, it had set up a committee under M S Sahoo, former board member of the Securities and Exchange board of India (Sebi), to review regulations governing ADRs and GDRs. The committee had in November of that year given its report to P Chidambaram, the then finance minister.
Among its many recommendations, the committee had suggested that any security of an Indian company - and not just equity shares - be used as underlying for ADRs and GDRs. It had also recommended that tax treatment and other rules for these depository receipts, as applicable to investors, should be the same as those for the underlying securities.
The Centre had accepted some of these suggestions and in November 2014 notified new regulations for ADRs and GDRs. However, officials say that even since then the market for ADRs and GDRs on underlying Indian securities has not picked up. This is because of an ambiguity over the taxation of unsponsored ADRs and GDRs, as well as of those based on unlisted Indian stocks and instruments other than equity.
Meanwhile, Bank of New York Mellon had earlier filed for more than 50 unsponsored ADRs - based on Indian securities like Tata Consultancy Services, Bajaj Finance and Apollo Tyres. But these are yet to come up.
Rajesh H Gandhi, partner (tax), Deloitte Haskins & Sells, says: "While the government has made the necessary regulatory announcements permitting unsponsored ADRs, industry is awaiting clarity over tax treatment on conversion of shares into ADRs, and reconversion of such ADRs back into shares." Business Standard has learnt that Finance Minister is likely to make these announcements as part of the capital market section of his Union Budget for 2016-17, on February 29.
Reference - http://www.business-standard.com/budget/article/unsponsored-adrs-gdrs-likely-to-get-tax-relief-116020100027_1.html
Saturday, January 30, 2016
Cash pile-up indicates Centre may be reluctant to spend in order to meet fiscal deficit target of 3.9% of GDP for 2015-16
"We are looking at all measures to ensure there is sufficient liquidity and we are able to support what is required as far as the Budget is concerned," Minister of State for Finance Jayant Sinha said in response to a question on the government sitting on cash. "RBI is fully supportive of all requirements of liquidity and is standing by to provide whatever liquidity is necessary," Sinha said, in Mumbai on the sidelines of a banking conclave organised by industry body Assocham.
Analysts said government cash balance with RBI was usually around Rs 70,000 crore at this time of year. Finance ministry officials said while the Centre was not holding back on capital expenditure, there was a tightening over schemes where spending was weak in the first three quarters of 2015-16. "Other departments have been told that pending disbursement on revised estimates may occur after February. So that may have contributed to the additional cash," an official said.
The finance ministry has told the departments concerned that it might not support schemes in January-March that have not utilised funds in the first three quarters of the year. Schemes for the social sector and of national importance are, however, unlikely to be affected.
Officials said the finance ministry was not keen to release Rs 12,000 crore of the Rs 40,000 crore gross budgetary support for the railways citing poor pace of work. Sources from other ministries confirmed similar instructions from the finance ministry, which has not reacted positively to the foreign ministry's proposal for higher than its budgeted allocation. Banks usually face a liquidity shortage at the time of tax outflow but money starts coming back into the system when the government begins spending. This has not happened so far, indicating the government could be hunkering down to meet its deficit target. Banks are finding it difficult to meet higher demand for year-end credit from companies and enhanced liquidity reserve requirements. An executive with the State Bank of India (SBI) said most banks were struggling to meet the enhanced liquidity coverage ratio under Basel III norms. The obligation ruled out selling gilts, an SBI executive said. Foreign institutional investors were liquidating part of their holdings in Indian debt and taking out money, putting additional strain on liquidity, bank treasury executives said.
An executive with Andhra Bank said the RBI's intervention in the forex market was sucking out rupees. The RBI sold $5 billion in the past month to stabilise a falling rupee and removed an equivalent amount of money from the system.
Reference - http://www.business-standard.com/article/economy-policy/govt-s-cash-balance-with-rbi-high-puts-stress-on-liquidity-116013000031_1.html
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