NDTV – Wednesday, February 21, 2007 (New Delhi):

Dalal Street is booming and if you want a slice get ready to share it with the taxman. Anyone who opens a demat account might have to pay a higher effective tax if the tax departments proposals go through.

Right now, service tax is already included in the total charges paid by an investor who opens a demat account. However, now the tax department wants to levy service tax on all transaction between depository participants like NSDL and CSDL as well.

If that happens, the cost for maintaining a demat account will go up and the extra burden will be passed on to the account holder.

“Mutual fund investors may also face a higher tax burden after this budget,” said M Murlidharan, Manager, PwC.

Entry and exit loads

NDTV has learnt that the tax department is thinking of levying a service tax on entry and exit loads over and above the service tax on fund management charges, currently levied.

Whether the Finance Minister actually implements these proposals would only be known on budget day. However, experts say that any such move will go against the Finance Minister’s stand that mutual fund investments need to be encouraged.

Mutual fund investors are already paying twice the STT that stock market players do. Once when they buy a mutual fund and second when the fund manager buys stocks.

Now if service tax is levied on entry and exit loads, investors would face another round of double taxation and experts say that would be a huge blow to the mutual fund industry.