LTCG exemption, clarity on dividend tax
As in previous years, capital market participants have a number of expectations from the upcoming Union Budget. Many are longstanding demands, whereas some stem from budgetary changes effected last year. Business Standard takes a look at key industry proposals and changes that the government might consider this year.
LTCG and STT
Industry players are hopeful that the government will exempt tax on long-term capital gains (LTCG) arising from sale of listed equity shares. The government could also streamline the holding period for granting such exemption to 24 months, bringing it on a par with unlisted shares.
“Abolishing the much-criticised LTCG tax would be a welcome move. A widely discussed point of note is redefining the concept of long term to two years and the change of taxation to zero. This can bring stability to the duration of investments across financial assets,” said Tejas Khoday, co-founder and chief executive officer, FYERS.
Reduction in the quantum of Securities Transaction Tax (STT) and Commodity Transaction Tax (CTT) has been a long pending demand as well.
Parity between ULIPS, MFS
Industry players also hope for tax parity between unit-linked insurance plans (ULIPS) and MFS. At present, ULIP investors do not have to pay capital gains tax on switching. There is no STT levied on the withdrawal proceeds and no income tax (I-T) on proceeds from ULIPS of insurance companies, including early surrender and partial withdrawals (subject to certain conditions).
The Securities and Exchange Board of India’s (Sebi’s) ‘Longterm Policy for MFS’ published in February 2014 had emphasised the need to eliminate tax arbitrage and that similar products under different regulators should get similar tax treatment.
MFS
The Association of Mutual Funds in India (Amfi) has made a pitch for launching pension plans as ‘Mf-linked Retirement Plan’ (MFLRP), which will be eligible for tax benefits under Sections 80CCD (1) and 80CCD (1B) of the I-T Act, 1961, with ‘exempt-exempt-exempt’ status.
Where matching contributions are made by an employer, the total of employer’s and employee’s contributions should be taken into account for calculating tax benefits. Contributions made by the employer should be allowed as an eligible ‘Business Expense’ under Section 36(1) (iv a) of the I-T Act. Amfi wants switch transactions from one MF plan/option to another within the same scheme of a fund house to be exempted from capital gains tax.
FPIS
The government may re-examine tax laws that deal with withholding tax on dividends for FPIS. At present, companies withhold tax at the rate of 20 per cent plus surcharge and cess on the dividend paid to FPIS, even if they invest from a jurisdiction that provides for a lower rate based on India’s double tax avoidance agreement with that country. The lower rate could be five per cent, 10 per cent or 15 per cent.
Brokers
The Association of National Exchanges Members of India (Anmi) has requested rationalisation of the goods and services tax (GST) rates for the broking industry. Anmi has also asked for scrapping the concept of speculative income and limit income classification arising out of capital market transactions to business income, LTCG, and shortterm capital gain. This is because too many classifications created fungibility problems regarding profits or losses incurred in different trades. For example, intraday cash market trading is classified as speculative income, but intraday derivative trade is classified as business income.