Moneycontrol Bureau
It was a volatile day on Dalal Street as Mauritius tax treaty kept Indian investors on tenterhooks. Though the market recovered post tax treat blow only to be pegged back by global weakness. The European market traded weak as sentiment was curbed by weakness in the banking sector, a slew of corporate earnings and fluctuating oil prices.
The Nifty ended tad below 7850, down 38.95 points or 0.5 percent at 7848.85. The Sensex closed down 175.51 points or 0.7 percent at 25597.02. About 1103 shares have advanced, 1446 shares declined, and 158 shares are unchanged.
The government's decision to amend the Mauritius tax treaty has come under fire from some foreign investors (FPIs) such as Singapore-based Samir Arora. In an interview with CNBC-TV18, Arora said that mechanics of investing in India were operationally not feasible.
He maintained that under the current structure, foreign investments made through investments such ETFs or participatory notes would come under a cloud as there would be uncertainty on withholding tax.
However, terming the amendment to the India-Mauritius Double Tax Avoidance Agreement (DTAA) as a "sensible move by a sensible government", ace investor Rakesh Jhunjhunwala said income on investments made by foreign investors should be subject to tax.
He also allayed fears that the law would hamper inflows coming in through the participatory notes route, saying that as long as FIIs were able to get decent returns from India, they would not mind paying tax.
Indian government amended a long-standing tax treaty with Mauritius that plugs loopholes in the system and aims to check tax evasion. The amendment to the Mauritius Double Tax Avoidance Agreement, which comes into effect April 1, 2017, will give India the right to tax capital gains from investments coming from the tax haven.
Tax lawyers said that while the move may have a short-term negative impact on market sentiment, given the fact that about USD 33 billion of inflows come into India via the controversial participatory-notes route, more sharing of information would be a long-term positive.
Axis Bank, Asian Paints, Maruti, NTPC and L&T were top gainers while Bharti, SBI, Dr Reddy's Labs, Tata Motors and BHEL were major losers in the Sensex.
Meanwhile, in a massive relief for telecom operators the Supreme Court has struck off the telecom regulator's order imposing a penalty on call drops. The apex court which had earlier asked the TRAI and the government to try and work out a solution with the telecom operator ruled that the imposition of the levy was arbitrary and unreasonable.
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