A proposed 0.15 per cent transaction tax on securities purchases will apply only to trades where securities are delivered, Finance Minister P Chidambaram said on Wednesday.
Chidambaram also said the bond market will be exempt from the proposed tax.
Chidambaram had proposed to impose the 0.15 per cent transaction tax on purchase of securities at stock exchanges in the Union budget on July 8.
Sensex cheers up
Shares rallied to a near-two-month high closing at 4,993.76 points on Wednesday as investors cheered the government's decision to scale back the controversial transaction tax that had dogged trade since July 8, when the federal budget was presented.
Finance Minister P Chidambaram declared in Parliament that a proposed 0.15 per cent tax on the purchases of exchange-traded securities would only apply to the delivery of securities and that it would be split equally between the buyer and the seller. His announcement that the tax would also not cover debt market trades sparked a relief rally in federal bonds, which recovered from lows hit earlier in the session amid worries about the medium-term outlook for local interest rates.
But the rupee extended its weak spell into a third session as the overseas dollar extended gains.
The rupee ended at 46.1250/1350 per dollar, taking its losses in the week to 0.36 per cent.
The Sensex rose by 0.72 per cent to 4,993.76 points, its highest close since May 27. Gainers outpaced losers 970 to 695 in volume of 123 million shares.
Chidambaram's concessions on the transaction tax gave the market a lift, but nagging worries about the monsoon capped gains.
"We are very happy with the changes. It's even better than what we expected, and should boost the market," said Sandeep Shenoy, a strategist at Pioneer Investcorp.
"There were two swords hanging over the market- the tax and the monsoon. Now one has been lifted," he added.
Earlier, Prime Minister Manmohan Singh said the rains had been below normal so far, mainly in north-western states. He said relief would be provided for any areas hit by drought.
Index heavyweight and energy and petrochemicals major Reliance Industries Ltd. was among the bluechips that gained on the tax relief, rising 1.4 per cent.
An improving global outlook for the technology sector boosted most software services firms. Wipro Ltd. the third-largest exporter, rose nearly 1 per cent and Satyam Computer Services Ltd, the No. 4, gained 2.5 percent.
