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To energise capital markets, the government today proposed a slew of measures, including tax benefits and easier regulations for foreign investors and corporate bonds besides creating a new instrument Bharat Depository Receipts, helping BSE benchmark Sensex to jump 434 points.
Finance Minister Arun Jaitely in his maiden budget also annouced incenvtive for real estate and investment trust (REIT).
The government has proposed introducing uniform KYC (Know Your Customer) norms with inter-usability of the KYC records across the entire financial sector and a single demat account so that consumers can access and transact all financial assets through this one account.
In his budget presentation for 2014-15 in Parliament, Finance Minister Arun Jaitley announced introducing a much more liberal and ambitious Bharat Depository Receipt (BhDR).
He also allowed international settlement of Indian debt securities and completely revamped the Indian Depository Receipt (IDR) scheme.
Jaitley proposed liberalising the ADR (American Depository Receipt)/GDR (Global Depository Receipt) regime to allow issuance of depository receipts on all permissible securities.
He proposed that financial sector regulators to take early steps for a vibrant, deep and liquid corporate bond market and deepen the currency derivatives market by eliminating unnecessary restrictions.
The Minister proposed extending a liberalised facility of five per cent withholding tax to all bonds issued by Indian corporate abroad, extending validity of the scheme to June 30, 2017. (At present, the tax rate varies across bonds and could be higher as well).
Regarding Real Estate Investment Trusts (REITS), the Minister said that he intend to provide necessary incentives for REITS.
"In innovation, a modified REITS type structure for infrastructure projects is also being announced as Infrastructure Investment Trusts (InvITs), which would have a similar tax efficient pass through status, for PPP and other infrastructure projects," Jaitley said.
These structures would reduce the pressure on the banking system while also making available fresh equity. These instruments would attract long term finance from foreign and domestic sources including the non resident Indians (NRIs).
The Finance Minister said that he will expeditiously complete the ongoing process of consultations with all the stakeholders on the recommendations of the Financial Sector Legislative Reforms Commission (FSLRC). He said suggestions of the FSLRC is necessary for better governance and accountability.
Addressing the tax concerns of Foreign Portfolio Investors (FPIs), Jaitley proposed to provide that income arising to this class of investors from transaction in securities will be treated as capital gain.
FPI encompasses all foreign institutional investors (FIIs), their sub-accounts and qualified foreign investors (QFI) under