Market seeks transaction tax cut, sop for investors

Mumbai: Market participants have, in their Budget wish list, proposed lower transaction tax, an alternative to dividend distribution tax and tax break on investment up to Rs 50,000 to attract at least half of the 7.14 crore income-tax assessees to invest in equities and mutual funds.

The Union Budget on July 5 will be the first big event to know the thought process of the new NDA government and on markets and economy, both in need of a helping hand from the government.

As always while markets will be looking for incentives and markets boosting announcements, the government may have other pressing priorities to address first.

Vijay Bhushan, President, the Association of National Exchanges Members of India (ANMI) said, "There is an urgent need to incentivise and encourage equity investments. Although the Nifty index is at a lifetime high, it has annualised gain of only 6 per cent, which is lower than the interest on one-year fixed deposit."

ANMI and the BSE Brokers Forum (BBF) called for reintroduction of rebate under erstwhile Section 88E for STT and CTT paid, and a reduction in the rate of STT.

A joint pre-Budget proposals submitted by ANMI & BBF said "There has been increase in the rate of STT, withdrawal of tax rebate and introduction of GST without subsuming of statutory levies applicable to stock exchange transactions. This has lead to increase in the cost of transactions and we feel that reintroduction of Section 88E under Income Tax Act and reduction in STT will give desired fillip to the volume in market which in turn will increase government revenue."

The brokers' associations also proposed an alternative to the dividend distribution tax.

"The present form of adversarial taxation on dividend of around 20 per cent results in triple taxation of corporate earnings. The tax on the dividend should be in the form of equalisation to balance the difference between corporate and personal tax. Hence, it is recommended that dividend distribution tax be withdrawn and the tax should be levied at 10 per cent on the recipient," they said.

They also proposed on Rs 50,000 investment by all individuals and HUFs in IPOs, FPOs and mutual funds, 50 per cent, or Rs 25,000, be allowed as a deduction from the gross total income to channelise household savings.