Khyati Dharamsi

Mumbai: In a first, the Central Board of Direct Taxes (CBDT) has slapped long-term capital gains tax on equity investments made by Oriental Insurance Company.

The general insurer has been asked to cough up Rs 450 crore as tax liability for two years —- 2006-07 and 2007-08.

It is learnt that other insurers have also been served with similar notices.

“In February, we were asked to pay Rs 450 crore as tax for two years. Of this, Rs 350 crore is just for 2007-08. This has dented our cash flow,” said M Ramadoss, chairman and managing director of Oriental Insurance.

The move comes as a surprise, as there is no longterm capital gains on equity.

Oriental made a total profit of Rs 560 crore on investments made “when the Sensex was at 5000 levels”, Ramadoss said. “Now, the income tax department has claimed Rs 450 crore as tax liability. It is illogical,” he said.

“There is a huge decline in the value of our investments due to this.”

The company has appealed to authorities, including the finance ministry.

“But we have to pay the tax for now, despite the appeal. The tax liability apart, the overall yield on the investments has also slipped to 8.6% from 9% earlier,” Ramadoss said.

The hit may be greater as the stock market has plunged this calendar year. But Ramadoss says “investment income will continue to be our bread and butter.”

Source : DNA