Sensex gains 100 points; clarity on tax residency certificates awaited

The BSE Sensex jumped over 100 points on Friday after ending at a three-month low in the previous session. Foreign funds turned net sellers on Thursday after Finance Minister P Chidambaram's Budget announcement created confusion regarding tax residency certificates.

The Sensex traded 101 points or 0.53 per cent higher at 18,962, while the broader Nifty gained 34 points to 5,728 as of 10.15 a.m. However, the rupee extended losses, declining 0.42 per cent to 54.59 against the dollar.

The Budget proposal stated a tax residency certificate "shall be necessary but not a sufficient condition" to take advantage of double taxation avoidance agreements".

Tax authorities had previously considered this tax residency as enough proof to allow foreign investors registered in countries with these treaties to avoid paying taxes in India.

Ketan Dalal, a joint tax leader at PwC India called the amendment "disturbing," adding that "this does create significant uncertainty".

Mr Chidambaram addressed these concerns at a news conference, saying the amendment had sought to clarify that tax authorities would now look at not only the tax residency requirement, but also enforce rules mandating these foreign investors are the beneficiaries of any investments under double tax agreements.

Those rules already exist under certain double tax treaties the ministry said, and were thus reiterating existing policy.

More clarity on these provisions is expected later in the day.

Banking stocks rebounded, gaining 0.7 per cent. Metals, power, capital goods and consumer durables stocks also traded with over 1 per cent gains.

However, realty, energy and healthcare stocks saw selling pressure.

On the Nifty, 30 stocks traded higher, led by state-run Power Grid, which advanced nearly 4 per cent. Jindal Steel and Power, infra major Jaiprakash Associates and refiner BPCL traded over 3 per cent higher.

Reliance Infra shares, which closed 9 per cent lower on Thursday, gained nearly 3 per cent.

Realty major DLF was the top loser, down 3 per cent, followed by two-wheeler maker Hero MotoCorp, which declined 2.25 per cent.


(With inputs from Reuters)