The Finance Bill is normally passed only after correcting the anomalies in it, but this time around the Bill went through on a voice vote without amendments. With the government now being reduced to the status of caretaker, no changes can be issued till after the elections are over and a new government is installed.

One such major initiative which was to have transformed the sagging Indian debt market is the waiver of stamp duty on transfer of debt instruments. The finance bill has taken into account only one out of three scenarios for transfer of a security. This has resulted in a situation where dematerialisation of existing debt instruments would attract a stamp duty which may well render it unviable for debt instrument holders to dematerialise.

There are three stages of transfer where a stamp duty may be leviable. The first is when a security is lodged for demat as at this point of time the security is transferred from the name of the holder to the depository which becomes the registered owner. The second is when a demat instrument is transferred from one investor to another within the depository and the third is when such an instrument is again rematerialised. The third scenario is not high significance as the cases of rematerialisation are not expected to be much.

In the case of equity instruments the waiver from stamp duty was accorded in all three cases. However, in the case of debt, the finance bill has only taken into account the second scenario ie of transfer of one demat instrument to another within the depository.

After the announcement of the measure a representation was made to the government on extending the waiver to in case of the other two scenarios as well. With the bill being passed without any changes this has not happened and is unlikely to happen in the immediate future as well.

"While fresh issues in demat form would not attract stamp duty, dematerialisation of existing debt holdings seems unlikely now rendering the entire proposal redundant till such time the amendments are made," said a debt market expert.

The other major reform which has been indefinitely delayed is the introduction of equity derivatives. The standing committee on finance has already approved the amendment in the SCRA but with the Lok Sabha being dissolved, the entire process would have to be replayed. Even the standing committee would be recast in the new Lok Sabha and the process followed for introduction of an amendment would need to take place. Even after the amendment is made to the Act it would take between 3-6 months to start actual trading in equity linked derivatives, thus virtually ruling out its introduction before the end of the current year.

The passage of the Finance Bill without the much-needed amendments may also delay amendments to certain tax provisions. "In any case, tax amendments should not be brought about through the Finance Bill. To top it all, there are several slips in the current bill which have not been rectified and are not likely to be so for a few months, leading to unnecessary confusion," said NV Iyer of CC Chokshi & Co.

For example, Iyer said that the proposal to allow carryforward of losses has not been followed up with regard to carryforward of depreciation. "This is, no doubt, a slip. But unfortunately it will now take months to correct the mistake," Iyer added.

There are other grey areas as well. In case of a demerger, for example, all the properties and liabilities of an undertaking, must be transferred to the demerged company. How one should allocate general liabilities is something which is not at all clear.

Another crucial question that continues to haunt tax consultants is what happens if the swap is not just shares for shares, but shares and debentures? The Gujarat High Court, in the Gautam Sarabhai (173 ITR 216) case, held that exemption u/s 47(vii) is restricted to share for shares only. The Madras High Court, has however, held in the case of MCTM Corporation P. Ltd. (221 ITR 524), that the exemption is available on the issue of debentures also.

There is also a crying need to clarify tax treatments in case of employee stock options. The Finance Bill, 1999, has partly clarified the tax treatment of Employee Stock Options but tax practitioners say that several issues remain unanswered. It is not clear whether ESOs will be taxable at the time of grant of option or at the time of vesting or when the option is exercised.

In regard to mutual funds, clauses (ii) and (iii) in Sec 10(33) of the Finance Bill provide that any income received from mutual funds (meeting the criteria specified in Sec 10(23D) will be exempt from tax. It means that even capital gains tax will not be attracted, which in itself seems to be a drafting error. However, tax consultant VB Haribhakti said that there are no major loopholes in the Finance Bill, and the needed amendments can be taken up once the new government takes over. "Drafting errors can be corrected by the new parliament, and there is absolutely no reason to panic," Haribhakti said.