8216;DTC may create stock mkt volatility8217;

However,investors may not complain about another proposal in the revised draft of Direct Taxes Code to tax FII income from securities as Capital Gains tax,apparently to check the tendency of some of them to evade taxes,they added.

The DTC draft proposes to impose tax on gains in securities trading irrespective of the fact whether securities is held for short-term or the long-term. Currently,the government does not impose tax on gains made from securities held for more than a year,but levies 15 per cent tax on gains made from stocks sold before one year.

On the proposal of imposing tax on FIIs for gains in securities market as Capital Gains,HDFC Securities head for private broking and wealth management Vinod Sharma said,8221;This will not adversely impact foreign investment.8221;

Foreign investors in general will not have to subject their income to domestic tax if they have rooted their investments through some tax havens,so it is good for the market,good for the foreign institutional investors,Ostwal added.

The issue of whether their capital gains will be tax-free or not is a minor issue because that8217;s a part of cost of doing business in a country and that gets factored in any case by all the international investors,Ostwal added.

The revised draft of DTC proposed the measure as some of FIIs were showing gains in securities market as business income and claiming total tax exemption in the absence of a permanent establishment in India,leading to litigation.

8220;The FIIs were unhappy with the previous cut of the Direct Tax Code DTC. But now the FIIs are going to cheer as the DTC will not override the provisions of the bilateral treaties of tax avoidance,8221; Sharma added.

As against earlier proposals that DTC could override provisions in the double taxation avoidance agreement between India and other nations,the revised draft proposed to put three conditions in this regard.

Now,provisions of domestic laws can prevail over double taxation avoidance agreements,if branch tax is levied.

Similarly,there are other two conditions for DTC to override international tax treaties.

The revised draft of DTC also proposed Securities Transaction Tax STT to be calibrated based on the revised taxation regime for capital gains and flow of funds to the capital market. Therefore,all capital gains arising from the transfer of equity shares in a company or units of an equity oriented fund will be taxed if there is gain in aggregate term.

8220;If the STT adjusted by a capital gains tax regime,there is likely to be shortfall in the tax collections,because there is going to be leakage from the system. In the STT regime,there is no leakage possibility. It is collected 100 per cent at source with no additional machinery required to collect the tax,8221; Sharma added.

The revised draft is put for public discussion till June 30. On the basis of comments received,a bill will be drafted and tabled in the monsoon session of Parliament.