Lok Sabha Question No. 1273 (UNSTARRED), answered on 2020-02-10
Subject: Withdrawal of LTCG and DDT
Ministry: FINANCE
Asked by: Gurjeet Singh Aujla

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE

## LOK SABHA

## WITHDRAWAL OF LTCG AND DDT

TO BE ANSWERED ON MONDAY 10 TH   FEBRUARY, 2020 MAGHA 21, 1941 (SAKA)

## TAX BENEFITS TO PHARMACEUTICAL COMPANIES

## 1273. SHRI GURJEET SINGH AUJLA:

Will the Minister of FINANCE be pleased to state:

- (a) whether  the  Government  is  considering  to  withdraw  Long-Term  Capital  Gains  (LTCG)  tax  and Dividend Distribution Tax (DDT) on dividend payments;
- (b) if so, the details of the proposal;
- (c) whether  it  is  a  fact  that  after  the  imposition  of  LTCG,  the  investments  by  Foreign  Portfolio Investors have declined; and
- (d) if so, the details thereof?

## ANSWER

## THE MINISTER OF STATE IN MINISTRY OF FINANCE (SHRI ANURAG SINGH THAKUR)

(a) and (b) : There is no such proposal to withdraw Long Term Capital Gains (LTCG) tax.

2.   With regards to Dividend Distribution Tax (DDT) it may be noted that the Finance Bill, 2020, interalia ,    has  proposed to amend the Income tax Act, 1961( the Act) so as to provide that DDT shall not apply  on  any  amount  declared,  distributed  or  paid  after  31 st March,  2020  by  way  of  dividends  by domestic companies or income distributed by specified company or mutual funds to the shareholders or unit holders respectively.   The dividend income or income from units will now be taxable in the hands of shareholders or unit holders at the applicable rate.
3.   In order to achieve the above, it has been proposed to, -
3. (i) amend section 115-O and clause (34) of section 10 to provide that DDT will be applicable only on dividend declared, distributed or paid after 1 st April, 2003, but on or before 31 st March, 2020 and dividend received on or after 1 st April, 2020 will be taxed in the hands of the shareholder respectively.
4. (ii) amend section 115R and clause (35) of section 10 to provide that tax on income distributed by specified companies or mutual funds to its unit holder shall be applicable only on the income distributed on or before 31 st March, 2020 and income, in respect of units, received on or after 1 st April, 2020 will be taxed in the hands of the unit holders of mutual funds or specified companies respectively.
5. (iii)    insert new section 80M in order to remove the cascading effect of imposition of tax on dividend on  same  profits  by  providing  that  where  a  domestic  company  declares  dividend,  out  of  dividend received from another domestic company, it shall be eligible to claim a deduction.
3.   In addition to the above, consequential amendments to other related provisions of the Act have also been proposed.
7. (c)  and  (d): The  month-wise  details  of  Foreign  Portfolio  Investment  (FPI)  Net  Investment  since February, 2018 to January, 2020 are as below:
2.     It is apparent from the above, that there has been a net FPI investment to the tune of INR 33,230 cr. during  the  period  from  February,  2018  to  January,  2020.  Moreover,  there  has  been  net  positive  FPI investment in 15 out of the last 24 months after the introduction of LTCG.
3.     Further, FPI investment depends on many factors
10. which may include but not limited to the following:
- i. Prevailing liquidity and volatility conditions across the globe;
- ii. Global macroeconomic and geopolitical factors;
- iii. Global outlook of the investors with respect to the concerned jurisdiction vis-à-vis other emerging/developed markets;
- iv. Anticipated future returns out of the proposed investment;
- v. Taxation structure as prevailing in the concerned jurisdiction;
- vi. Country rating of the concerned jurisdiction;
- vii. Risk taking ability of the concerned FPIs;
- viii. Market infrastructure in the concerned jurisdiction;
19. Regulatory regime prevailing in the
- ix. concerned jurisdiction;
- x. Investment objective and mandate of the concerned FPIs;

| Net FPI Investment from all countries (INR Cr.)   | Net FPI Investment from all countries (INR Cr.)   | Net FPI Investment from all countries (INR Cr.)   | Net FPI Investment from all countries (INR Cr.)   | Net FPI Investment from all countries (INR Cr.)   |
|---------------------------------------------------|---------------------------------------------------|---------------------------------------------------|---------------------------------------------------|---------------------------------------------------|
| Month                                             | Equity                                            | Debt                                              | Hybrid                                            | Total                                             |
| Feb-18                                            | -11,423                                           | -253                                              | 3                                                 | -11,674                                           |
| Mar-18                                            | 11,654                                            | -9,044                                            | 51                                                | 2,661                                             |
| Apr-18                                            | -5,552                                            | -10,036                                           | 27                                                | -15,561                                           |
| May-18                                            | -10,060                                           | -19,654                                           | -61                                               | -29,775                                           |
| Jun-18                                            | -4,831                                            | -10,970                                           | 7                                                 | -15,795                                           |
| Jul-18                                            | 2,264                                             | 43                                                | -43                                               | 2,264                                             |
| Aug-18                                            | 1,775                                             | 3,414                                             | -44                                               | 5,146                                             |
| Sep-18                                            | -10,825                                           | -10,198                                           | -11                                               | -21,035                                           |
| Oct-18                                            | -28,921                                           | -9,978                                            | -6                                                | -38,906                                           |
| Nov-18                                            | 5,981                                             | 5,610                                             | 4                                                 | 11,595                                            |
| Dec-18                                            | 3,143                                             | 4,749                                             | -3                                                | 7,889                                             |
| Jan-19                                            | -4,262                                            | -1,301                                            | 7                                                 | -5,556                                            |
| Feb-19                                            | 17,220                                            | -6,037                                            | 871                                               | 12,053                                            |
| Mar-19                                            | 33,981                                            | 12,002                                            | 2,769                                             | 48,751                                            |
| Apr-19                                            | 21,193                                            | -5,099                                            | 634                                               | 16,728                                            |
| May-19                                            | 7,920                                             | 1,187                                             | 2,264                                             | 11,370                                            |
| Jun-19                                            | 2,596                                             | 8,319                                             | 2,196                                             | 13,111                                            |
| Jul-19                                            | -12,419                                           | 9,433                                             | -17                                               | -3,003                                            |
| Aug-19                                            | -17,592                                           | 11,672                                            | 49                                                | -5,873                                            |
| Sep-19                                            | 7,548                                             | -990                                              | 25                                                | 6,582                                             |
| Oct-19                                            | 12,368                                            | 3,670                                             | 31                                                | 16,069                                            |
| Nov-19                                            | 25,231                                            | -2,358                                            | 126                                               | 22,999                                            |
| Dec-19                                            | 7,338                                             | -4,616                                            | 40                                                | 2,762                                             |
| Jan-20                                            | 12,123                                            | -11648                                            | -46                                               | 428                                               |
| Net                                               | 66,450                                            | -42,083                                           | 8,873                                             | 33,230                                            |