New India Legislation Reduces Capital Gains Tax, Introduces Transaction Tax

Washington, DC, October 15, 2004 - The India Ministry of Finance recently passed a new law that will reduce or eliminate capital gains taxes and imposes a new securities transaction tax on certain transactions.

Background
The Indian Finance Act of 2004 (No. 2) amends the Indian Income Tax Act of 1961 and the tax rates that apply to capital gains arising from the transfer on a recognized stock exchange in India of equity shares and units of “equity oriented” funds. The new Act:

• eliminates the tax on long-term capital gains;
• reduces the tax on short-term gains from 30 to 10 percent; and
• imposes a security transaction tax, the amount of which varies based on the nature of the security exchanged and the mode of settlement of the trade.

ICI Position
The Institute supports this legislation, which will improve returns for shareholders of funds that invest in India.

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