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Brokers want dividend tax to go, also seek relief on STT & LTCG

Brokers’ body says steps to boost volumes will help govt increase its revenue.

, ET Bureau|
Updated: Dec 14, 2019, 03.58 PM IST
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Agencies
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Mumbai: Indian stock brokers have sought the reintroduction of rebates on the payment of securities transaction tax (STT), withdrawal of dividend distribution tax, and restoration of the exemption on long-term capital gains tax in listed shares.

The Association of National Exchanges Members of India (ANMI) has also sought reduction in the rate of STT, and listed these four demands in a letter addressed to the Central Board of Direct Taxes (CBDT); these will be included in the budget recommendations to the finance ministry.

ANMI is of the view that reintroduction of Section 88E under the Income Tax Act and reduction in STT are required to boost volumes, helping the government increase its revenue.

As per a World Bank study, India’s turnover to market-cap ratio has fallen by over 43% from 101 in 2004 to 58 in 2018. It is measured as total traded value of all shares in a year divided by Average Market Capitalisation of the entire market in that year.

The present form of adversarial taxation on dividend of around 15% results into double/triple taxation of corporate earnings, according to ANMI.

“The tax on the dividend should be in the form of equalisation to balance the difference between corporate and highest rate of personal tax. Hence, it is recommended that DTT be withdrawn and the tax be levied at 10% on the recipient and should be deducted by the corporate as TDS,” the letter said.

The reintroduction of LTCG led to strong negative sentiment regarding equity investment and there was a sharp fall in the prices of equity shares, said ANMI. Even after a period of 22 months, the midcap index is lower by 11% and small cap index is lower by 31%; the large cap index has gained by a mere 7% over January 31, 2018 prices.

“The actual collection of LTCG on listed shares would only be marginal while investments in equity have sharply declined,” according to ANMI.

The demands also include a proposal on the National Development Mission, which suggests a strategy to augment the efforts of the government to raise risk capital / equity for recapitalising public sector banks and encourage disinvestment in government companies.

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