INDIA BUSINESS WORLD - March 1st - March 15th - 2008
FROZEN DEMAT ACCOUNTS TO LOSE SHARES ON PAN DEFAULT
The government is set to act on a proposal to attach the securities lying in the frozen demat accounts of lakhs of investors, if they do not furnish details of their permanent account numbers (PAN) within a new deadline.
Even though quoting PAN was made mandatory since 2007 for operating demat accounts, numerous investors failed to do so. This forced depositories to freeze their demat accounts. The failure to comply with the directive could be due to the fact that some of these accounts were benami or illegal. The unique identity number, which is what the PAN is meant to be, can help the taxman establish a trail.
The government has now decided to impose a fresh deadline for those who have not fulfilled this requirement despite repeated reminders. If investors do not comply with the identification norms, the Central Board of Direct Taxes (CBDT) plans to invoke the provisions of the Income Tax Act to provisionally attach the securities in the credit of such frozen accounts, government officials said.
At last count, the number of frozen demat accounts was reckoned to be over 20 lakh and the value of securities held by investors in such accounts at over Rs 1,00,000 crore, which is around 2% of the market capitalisation of companies listed on BSE.
India's major depository—NSDL—alone has over 77 lakh active demat accounts with the custody value of securities in these accounts at over Rs 48,45,000 crore, or about $1,211 billion.
The finance ministry has already been provided with information relating to these frozen accounts by the two depositories—NSDL and CDSL. Officials said CBDT would write to investors whose demat accounts have been frozen, warning them about the consequences of their failure to comply with the norms.
The securities in frozen accounts are mainly shares bought by investors either in the primary or secondary market. After the IPO price manipulation scam of 2006, capital market watchdog Sebi made it mandatory for depository participants and later investors to quote PAN for operating demat accounts.
Yet thousands of investors have ignored the deadline, leading to freezing of their accounts. But that has not prevented some of them from receiving substantial credits in their accounts in the form of allotment of shares in initial public offerings (IPOs), an official said.
The Income Tax Act has provisions that enable tax officials to provisionally attach and appropriate the proceeds of tax assesses even when there is no demand to be raised.
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