Another revolutionary change has been recommended in tax computation of financial assets. Currently, tax is calculated on the difference between initial purchase price and the current market price. This has led to cumbersome detailing of each financial asset (such as stocks, bonds, debentures and deposits). Now the market price all portfolios on 31 March, 1990 would be considered the base price on which the investor's portfolio block would be determined. So long as the block of assets at the end of a financial year is a positive figure after taking into account purchases and sales during the financial year, no capital gains tax would be applicable
Only when the value of the block turns negative (in other words, if more assets were sold than bought during the year) would the difference be assessable for capital gains tax. But if the difference were to be invested back in the capital market for a positive block, no capital gains tax would be applicable. "The Government has ensured constant liquidity in the capital and financial market by creating the concept of these portfolio blocks. Since this will be applicable to Indians as well as NRIs, the capital market is in for a busy time in the months to come," says Kapadia.
These and other recommendations involving depreciation, conversion of proprietary firms to partnerships and limited companies and vice versa have all been re-defined and made easy. "Now, the ball is in the court of the state governments to follow up the income tax recommendations with necessary alterations in their own statutes," beams Kapadia.
Of course, the other side of tax incentives is penalties for tax avoidance. The Finance Ministry has till now been remarkably silent about that, whereas it should be clear to anyone that without harsh penalties for non-compliance, the average Indian tax-evader is likely to continue fudging his accounts, low tax rates or no low tax rates.
The penalties part could be the next move from the Government.
