p-notes, capital gains and taxes

Now that ONGC is coming out with its IPO, the SEBI suddenly decides P-notes are just fine. Now, even associates of regulated entitites can invest. Bloody hypocrites all. Shourie most of all.

Am reading Shankar Acharya’s book. Straightforward, somewhat insightful but nothing particularly profound. There’s however a fair bit of useful stuff that I didn’t know too much about earlier. In one of the chapters he says capital gains from investments in listed equities are not taxed these days. At least it wasn’t in 2003 when he wrote that. Still the case AFAIK. Jaswant Singh in the current budget/vote on account had promised to extend that tax exemption by another three years. Shankar Acharya seems to think that this tax exemption is ridiculous and that taxes should be imposed. I think so too.

Interest is taxed, dividends are taxed less, and capital gains not at all. Wah! Funny policies. Basically, every retail investor is being invited to play the markets. Whatever for beats me. Trading for the sake of trading has become the holy grail of markets. Now it’s even officially sanctioned.

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Posted on March 3, 2004, in Uncategorized. Bookmark the permalink. 4 Comments.

  1. Capital gains are definitely taxed. There is a moratorium on long term k gains (which are taxed at ~ 30%) this current year, or until the new government passes an interim budget. Short term k gains (the killer of them all) is still alive and kicking. You buy today sell tomorrow, and you end up paying ~ 43% short term k gains tax.

    • Am glad to hear that! But I believe only capital gains through the MF route are taxed. Btw, how is long term defined?

      Left to me I would tax short term equity K gains at 75%! 🙂

      • Long term k gains apply if you hold stock or any asset for more than 11 months. Anything less is taxed as short term k gains.

        Actually, MFs offer a pass-through tax structure where all income (income, k gains, no dividend tax though) is taxed in the hands of the investor and not at the MF level.

        If MFs were to be taxed, then most funds would go down- bcoz of something known as the ‘Representative Assessee’ provision in the Income Tax Act where the MF would become liable for all taxes payable by the investor.

      • Thanks for that! Yeah, I meant that if i invested through a MF I would be taxed, not that the MF would be. But does the long term capital gain tax apply if I bought into the market directly (and not through a fund), and sold only after 11 months. My understanding is it does not. Is that so?

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