Given that long-term capital gains tax on equities was introduced two years ago, why has NBI not yet addressed the “double-taxation” issue, given the company’s professed commitment to good corporate governance?
The Union Budget 2018-19 presented by Arun Jaitley introduced long-term capital gains taxes on the sale of listed equity shares held for more than one year, at a rate of 10% (link). This became effective on 1 April 2018.
Since that date, companies such as NBI which directly hold listed equity portfolios have been liable for capital gains taxes on them, which they must record as deferred tax liabilities according to Indian Accounting Standards.
On top of this, shareholders of companies such as NBI are liable for their own capital gains taxes, whether as retail or institutional investors.
This means that NBI’s shareholders effectively face two layers of capital gains taxes on the listed equity portfolio: once at the company level, and then again at the shareholder level.
By contrast, shareholders in a mutual fund which held listed equities would face only one layer of taxes.
NBI’s directors highlight the company’s commitment to efficiency in the 2019 Annual Report, page 30 (our emphasis):
The Company is fully committed to the principles of transparency, integrity and accountability in all spheres of its operations and has been practicing the principles of good corporate governance over the years. In keeping with this commitment, the Company has been upholding fair and ethical business and corporate practices and transparency in its dealings and continuously endeavors to review, strengthen and upgrade its systems and procedures so as to bring in transparency and efficiency in its various business segments.
It is not clear how with the maintenance of a corporate structure which results in double taxation for its shareholders is consistent with a commitment to efficiency.