GIVE TAX REBATE TO STOCK TRADERS

Among the key reforms in the upcoming Budget should be simplifying classification of income, reintroduction of 88E tax benefit on STT and CTT, exemption of STT for designated market makers and exempting dividend income of up to Rs 10,000 per firm

The Union Budget for the financial year 202122 is likely to focus on measures for the economy’s recovery from the shocks of the Coronavirus pandemic. Since stock markets are critically important for an economy, a recovery prescription that includes incentivising and encouraging equity investing will catalyse India’s GDP growth.

Simplifying classification of income

Currently, there are multiple classifications for income from capital market transactions under the Income Tax Act, namely speculative income, business income, short-term capital gains and long-term capital gains. This creates confusion and fungibility challenges for the participants for profit and loss calculations on different types of trades. For example, intraday cash market trading is classified as speculative income but intraday derivatives trade is classified as business income

The concept of speculative income must be done away with and categories of income from capital market transactions should be limited to business income, longterm capital gains and shortterm capital gains. This will ease the problems of tax payers investing in equities also create opportunities for cash and futures arbitrage.

Reintroduction of rebate under Section 88E

Recognising the fact that there were categories of market players who treat the income from trading in the market as their business income, a rebate was allowed to such market participations under Section 88E of the Income Tax Act to be claimed while filing their returnsagainst any STT paid to avoid double taxation. This tax treatment was changed from rebate to expenditure in 2008-09.

The tax rebate must be reintroduced as both STT and LTCG results in high cost-per-trades and thus becomes a disadvantage for investors. Reintroduction of Section 88E will result in increased volumes and therefore much larger collection of STT/CTT. In fact, complete abolition of CTT, which has been a long-standing demand of the market, and exemption to designated market makers from STT will lead to an increase in revenues due to increased participation in markets.

Further, exempting dividend income of up to Rs 10,000 per company for investors of shares, rationalising GST rate applicable for Capital Markets from the current 18% to 12%, making necessary amendments to theSEBI Act, 1992 to impose a time limitation upon SEBI for issuance of show cause notices and initiating proceedings and allowing at least 3 months to brokers to submit Form 37BA are some measures for consideration of the FM in this Budget.

The writer is President at Association of National Exchanges of Members of India