With the Union Budget around the corner, discount brokers on Dalal Street urged the government to consider a reduction in securities transaction tax (STT), stamp duty and goods and services tax to encourage investors.
Market watchers further added that the transaction cost in India is too high and long-term capital gains (LTCG) tax and STT are seen as a sentiment dampener for the market, resulting in very few traders turning a profit.
Parth Nyati, founder, Tradingo said, “STT should be removed or at least reduced because initially it was introduced in the place of long-term capital gain (LTCG) tax but now, we have both LTCG and STT that is not fair for the Indian investors.”
“Stock market penetration is increasing in India and it is anticipated that the government will take policy measures to ensure that the Indian market becomes more investment-friendly in comparison to other emerging markets and reducing LTCG and STT could be a good step in that direction. It can enhance trading volumes immensely, resulting in a higher tax collection,” Nyati said.
STT is a direct tax charged on the purchase and sale of securities that are listed on the recognised stock exchanges in India. It is calculated on the average price.
There are hopes that when the cost of transacting in India decreases further, it will only encourage more foreign participants to invest in our economy and trade on our exchanges. “Government should also rationalise the LTCG and STCG because a reasonable rate of income tax will encourage people to pay tax and do things in the right way,” Nyati added.
Puneet Maheshwari, director, Upstox said that the government may consider relieving traders of the securities transaction tax. “By doing so, new investors would be encouraged to start trading. There is a need for more participation in indices or exchange-traded funds. By offering a lock-in and tax incentives on the lines of equity-linked tax savings schemes, the government can encourage long-term savings in Nifty or Sensex. A greater allocation by the government-owned provident funds and pension funds into equity markets could also help,” he said.
Given the enormous increase in medical expenses due to Covid-19, Maheshwari also urged the government to hike the standard deduction from the current Rs 50,000 to Rs 1,00,000.
“This will further lower the tax burden and put more money in the hands of the salaried class. The government should remove the concept of speculative income and restrict income classification arising from capital market transactions to business income, long-term capital gains and short-term capital gains. We hope that the Government considers tax exemption up to Rs 1,00,000 lakh on short-term capital gains tax as well as tax exemption on dividends up to Rs 50,000 for senior citizens,” Maheshwari said.
Finance minister Nirmala Sitharaman will present the Union Budget on February 1, Tuesday.
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