Capital gains tax likely to be waived for all exchanges

Subhomoy Bhattacharjee

Finance Minister Yashwant Sinha is likely to grant a one-time capital gains tax exemption to the broker-members of all recognised exchanges and give the bourses an exit route in their transition to demutualision. He had given such an exemption to Bombay Stock Exchange earlier this fiscal.

The exit route for regional exchanges, which want to shut shop could be allowed to dispose the assets without attracting capital gains tax under Section 54 E of the Income-Tax Act.

The window could be open for a limited time period, finance ministry officials said. The exchange would, however, be required to pay a corporate tax of 35 per cent on the funds realised from sale of assets.

The demutualisation guidelines along with the strengthening of the Sebi Act would be part of the finance minister's package to clean up the capital markets, finance ministry officials said.

They said this could be done by letting the exchanges exit from the business within a limited time frame. Besides BSE, the two other bourses Ahmedabad Stock Exchange and Indore Stock Exchange would be extended the one-time capital gains exemption on transfer of assets in their conversion into a corporate entity.

Exchanges like Delhi Stock Exchange, which already have a demutualisation plan by a merger with BSE, would also gain since they would be able to pick up stake in BSE based on the valuation of the bourse. The pain of closure for several other bourses like Ludhiana Stock Exchange would also be mitigated, sources said, since the exit route would be acceptable to the broker-members.

The broker-members along with the strengthening of the Sebi Act would be part of Sinha's package for the capital markets, according to ministry officials. He had given such an exemption to Bombay Stock Exchange this year to prompt the 100-year old bourse to convert itself from an association of persons to a corporate entity.

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