Weak Asian stocks to weigh on sentiment

The market may edge lower, tracking weak Asian stocks. Trading of S&P CNX Nifty futures on the Singapore stock exchange indicate that the Nifty could fall 36 points at the opening bell. On the macro front, the government will today, 31 August 2010, unveil Q1 June 2010 GDP data. The economy expanded an annual 8.6% in Q4 March 2010.



The government has delayed the implantation of the direct taxes code by one year to 1 April 2012. Earlier, the government had planned to implement the code from 1 April 2011.

Under the Direct Taxes Code Bill, 2010 tabled in the Lok Sabha by Finance Minister Pranab Mukherjee and referred to the Select Committee of Parliament for scrutiny, the government has sought to raise the income tax exemption limit from Rs 1.6 lakh to Rs 2 lakh while retaining a host of incentives for individuals. While senior citizens (above 65 years) will enjoy a higher exemption of Rs 2.5 lakh, women taxpayers will have no additional relief as they have not been categorised separately.

As for corporate taxes, the levy will be at a flat rate of 30% with no surcharges or cesses. The minimum alternate tax (MAT) will be levied on book profits at 20%.

The good news for investors in the stock market is that the DTC bill has maintained the benefit of zero tax on long-term capital gains on sale of shares held for a period exceeding one year. Short-term capital will now be charged at 50% of the base rate, i.e., 5%, 10% or 15%, depending on the applicable slab rate for individuals and 15% for corporates. Short-term gains are currently taxed at 15% for all investors.

It has also been clarified that profit on sale of shares by foreign institutional investors (FIIs) will be charged under the head capital gains. Hitherto, the law was vague as to whether such gains are capital gains or business income. Also for FIIs, regardless of any tax-friendly treaty, long-term capital gains on listed equity will be exempt but treaty benefit of short-term capital gains currently available in relation of certain tax-friendly jurisdictions, while not having been withdrawn, may attract anti-avoidance provisions.

The applicability of the existing profit-linked tax incentive scheme has been extended to units being set up in special economic zone (SEZ) till 31 March 2014, provided the SEZs are notified before 1 April 2012. However, with respect to SEZ developers, the profit-linked incentive scheme would continue only if the SEZ is notified on or before 31 March 2012. All other new SEZ developers and units would be entitled to investment-based incentive scheme.

Asian stock markets were lower Tuesday, 31 August 2010, after Wall Street's drop on Monday, 30 August 2010, with the Japanese market falling sharply as investors continued to fret about the yen's strength. Soft US data on Monday, including weak readings on personal income and Texas-area manufacturing activity, also kept many investors on the defensive. The key benchmark indices in Hong Kong, China, Japan, South Korea, Singapore, Taiwan, and Indonesia, were down by between 0.03% to 2.59%.