The finance ministry is likely to extend a one-time tax exemption to all stock exchanges on their accumulated reserves to facilitate their conversion into a 'for profit' corporate entity from a non-profit company or association of members.
The total benefit that will accrue to all the bourses is estimated to be about Rs 275 crore (Rs 2.75 billion).
The Bombay Stock Exchange will be one of the biggest beneficiaries.
According to finance ministry sources, the stock exchanges could escape tax only if they retained the reserves in their corporatised avatar.
All the bourses would also be required to follow the corporatisation and demutualisation guidelines of the capital market regulator, the Securities and Exchange Board of India.
The move would give a fillip to the corporatisation plans of the regional bourses and their eventual consolidation.
The Justice MH Kania committee's report on demutualisation had recommended amendment of the Income-Tax Act to ensure that past profits of a stock exchange, which were not taxed when it was a non-profit entity, should not be taxed upon its conversion.
Market sources said the move would resolve long-pending disputes of the stock exchanges with the income-tax department.
The BSE and the Delhi Stock Exchange have challenged the department's claims on their past profits.
The department's tax claims against the BSE as on March 31, 2002, were to the tune of Rs 173.89 crore (Rs 1.738 billion). In the case of DSE, the amount under dispute is about Rs 10 crore (Rs 100 million).
While the Kania committee did recommend tax waiver on past profits, it said there would be no objection to taxation if these reserves pass into the hands of shareholders when they are distributed as dividend.
Finance ministry sources said a final decision on this would be taken after the issue of tax on dividend distribution was tackled.
The finance ministry is also likely to provide for allotment of shares and trading rights to members of stock exchanges by making statutory provisions in the Income-Tax Act.
This will ensure that issue of shares and trading rights to members of a bourse in exchange for the membership card will not be regarded as transfer within the meaning of Section 47(xiii) of the Income-Tax Act.Run-up to the Budget 2003
