India considers capital gains tax cut for PE investors – report

A senior government official told The Economic Times that the ministry's revenue department, which vets taxation proposals, supports the change. Conditional on further political support, the tax cut will feature in the official amendments to the 2012 Finance Bill.

Levying 10% on transfers of unlisted assets or off-market share transfers would put private equity firms on a par with foreign institutional investors. No long-term capital gains tax applies to transactions that take place on stock exchanges.

Private equity players' wider tax concerns are tied to the general anti-avoidance rule (GAAR) proposed for inclusion in India's 2012-2013 federal budget.

Under GAAR, transactions would be presumed to have been structured to obtain tax benefits unless the taxpayer proves this is not the main objective. This would override India's double tax agreement (DTA) with Mauritius, whereby capital gains aren't taxed provided a company has a Mauritius tax residency certificate.

A large number of private equity funds are incorporated in the jurisdiction in order to leverage these DTA benefits, although an increasing number are now opting to structure their investments through Singapore.

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• Topics
• South Asia
• Regulation
• India
• tax
• regulation