IDRs may be put on par with listed securities

After proposed changes, IDRs would be subject to STT but would be exempt from long-term capital gains tax

 THE government is likely to spell out that Indian Depository Receipts (IDR) would be treated on par with listed securities in the country, a move that will clear the air on the taxation of this instrument which is yet to takeoff since its launch in 2004.
    This would mean that IDRs would be subject to the securities transaction tax (STT) but would be exempt from long-term capital gains tax. A government official privy to the development said that the finance ministry is actively looking at the proposal and the issue may be clarified in the forthcoming budget.
    IDRs are derivative instruments like global depository receipts (GDRs) and American depository receipts (ADRs) that have shares as the underlying asset. Indian companies raise capital overseas through ADRs and GDRs. The IDRs would allow foreign companies to raise capital in India. Like any other depository receipts, IDRs are negotiable financial instruments, issued by a local depository against the shares of the foreign company's publiclytraded securities held by it.
    The foreign company IDRs will deposit shares to an Indian depository. The depository would issue receipts to investors in India against these shares. The benefits of the underlying shares would accrue to the depository receipt holders in India.
    The government and the stock market regulator have periodically made changes in IDR norms to kick start the instrument but without any success.
    Recently, foreign institutional investors and mutual funds have been allowed to invest in IDRs. The official said that the government hopes the clarity on tax related issues will kindle some interest in the instrument which is still unused by foreign companies even as some issuers such as Standard Chartered have evinced interest in floating an IDR issue.
    If equity or preference shares in a company are held for more than 12 months then from a tax perspective it is treated as a long term capital asset. Sale of such an asset gives rise to long term capital gains, if the selling price is more than the cost price. Such longterm capital gains arising on transfer of equity shares is not chargeable to tax from assessment year 2005-06 if STT has been paid on the transaction carried on an exchange. The STT was introduced in 2004 and is applicable on all transactions including purchase and sale of equity shares in a company, purchase and sale of units of an equity growth fund, sale of a unit of an equity growth fund to the mutual fund and sale of a derivative instrument. The STT ranges from 0.017% on derivatives to 0.125% on delivery based share purchases.
Duty on ferro nickel
may be cut to 2%
IF A steel ministry proposal has its way, the forthcoming Union Budget may bring some cheer to your kitchen. Prices of utensils and other steel products will fall down by as much as 10% if the ministry demand to slash import duty on ferro nickel from 5% to 2%, and that on stainless steel scrap from 5% to nil, is accepted, reports Subhash Narayan from New Delhi. The ministry has pointed out to the finance ministry that 5% duty on ferro nickel is an aberration since the duties on other forms of nickel - unwrought nickel and nickel oxide sinter -were reduced to 2% in the 2007-08 budget. The ministry has also said that duty on stainless steel and alloy scrap should be withdrawn in line with the government policy wherein import duty on iron and steel melting scrap already stands withdrawn. Ferro nickel is the prime raw material used for manufacturing stainless steel.

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