Why market shakes every time the taxman shouts 'GAAR'

Moneycontrol Bureau

The BSE Sensex rose 1.3% on Tuesday, helped by short covering ahead of March contracts expiry, on CNBC-TV18 reports, citing finance ministry sources, that the government would not target the so-called participatory notes in a blanket manner under its newly proposed rules targeting tax avoidance.

Only participatory notes, which fail certain regulatory tests, may be subject to taxation, the reports said.

FMCG and IT stocks were among the major gainers tracking a weak rupee and hopes of decent margins due to price hikes, respectively.

The main 30-share BSE index provisionally rose 1.33 % to 17,280 points, while the 50-share Nifty index rose 1.31% to 5,252 points.

However, there are still worries that FIIs would refrain from issuing fresh participatory notes on Indian stocks, pending further clarification from the government. Foreign investors have already taken that view that GAAR will have direct implications for both direct FIIs and those using p-notes.

FIIs are not taking any risk, they feel P-note structure could potentially be targeted by the GAAR rules by ignoring entire tax structure and letting the taxman look through to the end investor