TAX TREATMENT OF INDIAN DEPOSITORY RECEIPTS (IDR)…

TAX TREATMENT OF INDIAN DEPOSITORY RECEIPTS (IDR)…




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INDIAN DEPOSITORY RECEIPTS

Query 1]

I have filed wrong (ITR-2), digitally signed, electronically for the F.Y. 2008-09. It was thereafter corrected by me by filing Revised Return. But Asst. Commissioner of Income Tax has called me under section 143(2) of the I.T. Act -1961 for hearing which may start in Feb-2011. My return has come in Scrutiny under ‘CASS’.

My mistake was, I have filled the Challan amount of entire employee of our DDO instead of mentioning my T.D.S Amount, due to which refund amount of Rs. 45 Lacs is being shown in the scrutiny case. Please advise me how to proceed for this goof up? I am a PSU employee working in western coalfields limited, Majri area.

[s_c_swami@yahoo.com]

Opinion:

There appears to be genuine mistake in filing your Return of Income & in mentioning the T.D.S amount therein. Since your case is selected for scrutiny, you have to make the submission of the fact during the hearing of the case. You may further be required to produce additional details/documents to your Assessing Officer to substantiate your Income & Investments.

Query 2]

A] Sir, I got allotment of the Standard Chartered PLC (IDR) through IPO route. No STT appears to be chargeable on the sale of these securities via BSE/NSE. Further, these do not appear to be normal securities. Please let me know how the LTCG/ STCG and the income tax payable will be calculated on their sale through recognized Stock Exchanges? [k_kumar39@hotmail.com]

B] The shares of the STANCHART-IDR are listed on the BSE/NSE. Please enlighten whether the Dividend Income/Capital gains (short/long)  incurred on these IDRs (Indian depositaries receipts) are taxable in the same way as is applicable in case of any other Indian company say RIL or BHEL etc? If it is otherwise, please tell how IDR (i.e. Dividend/Capital gains) are taxed in case of IDRs. [apteashok@gmail.com]

Opinion:

  1. Indian Depository Receipts (i.e., IDR) are similar to American Depository Receipts (ADR) and Global Depository Receipts (GDR) and are derivative products that have shares as their underlying assets. The IDRs will be listed both on Bombay Stock Exchange and National Stock Exchange, and the investors will have the option to convert them into shares after one year.

  2. Based on current provisions of Chapter VII of Finance (No.2) Act – 2004, pertaining to STT, IDRs is not subject to Securities Transactions Tax (STT). No STT is chargeable / payable on the trading of IDRs.
  3. TAXIBILITY OF IDRs:
    a] As IDRs would be a listed security, Capital Gain on sale thereof will be considered long term if the IDRs is held for more than 12 months from date of purchase.
    b] Short Term Capital Gain arising from transfer of such IDRs shall be normally taxed as per the tax slab of the IDR holder. Tax rate of 15% as specified in section 111A shall not be applicable to the IDRs.
    c] Long Term Capital Gain arising from transfer of such IDRs, shall be taxed under section 112 of IT Act. Amount of tax shall be lower of the following:
    i)     An amount calculated @ 10% of capital gain without availing the benefit of indexation, or
    ii) An amount calculated @ 20% of capital gain after availing the benefit of indexation.
  4. TAXIBILITY OF DIVIDEND:
    In case of IDR, No Dividend distribution tax is payable by the Issuer company and hence it will be not be exempt from tax in the hands of IDR holders. It will be taxable like any other income in the hands of investor of IDR.

Query 3]
Sir, Can you please elaborate about following points regarding Minimum Alternative Tax (MAT): –
  1. Minimum Alternative Tax is governed by the Companies Act or Income Tax Act and under which section?
  2. To whom it is applicable i.e., Public limited Co. or private ltd co. or partnership firms or individuals?
  3. What is threshold limit i.e., if tax as per income tax act is less than tax on book profit, but to what extent?
  4. What is rate of tax?
  5. Can it be adjusted against advance tax paid (in four installments?)

[dineshsinghgaharwar@rediffmail.com]

Opinion:

  1. MAT is governed by section 115JB of the Income Tax Act-1961.
  2. It is applicable to a Company, may be a private limited company or a public limited company. It is not applicable to a partnership firm or to individuals.
  3. There is no such threshold limit as such for MAT. MAT is applicable when income tax payable on total income of company computer under the Income Tax Act is less than 15% of the book profit.
  4. Rate of tax for MAT is @ 18% of the book profits from the Assessment Year 2011-12.
  5. MAT can be adjusted against the Advance tax paid.

INDIAN DEPOSITORY RECEIPTS

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