Small retail investors are driving a surge in stock market activity, prompting traders and market associations to lobby for tax breaks and other benefits in the upcoming budget. Their wish list includes:
- Tax rationalization
- Higher capital gains tax exemption
- Reintroduction of a rebate on securities transaction tax (STT)
The Association of National Exchanges Members of India (ANMI) proposed an exemption of Rs 3 lakh for short-term capital gains and Rs 5 lakh for long-term capital gains to the Central Board of Direct Taxes (CBDT) last week. Currently, only long-term capital gains (equity investments over 1 year) qualify for an exemption of up to Rs 1 lakh.
“This will improve market participation and encourage investments. Any marginal revenue loss for the government will be recouped by increased volume on which STT can be earned,” said Vinod Kumar Goyal, national president of ANMI.
Market representatives also met with Finance Minister Nirmala Sitharaman last month. Their proposals included:
- A rationalized capital gains tax structure to minimize arbitrage opportunities
- A higher STT on high-frequency trades in the futures and options segment
“The current capital gains tax structure is complex,” said Dhiraj Relli, MD and CEO of HDFC Securities. “There’s a need to simplify this.” However, he cautioned that any changes that result in a higher tax outflow or longer holding periods could negatively impact the markets in the short term.
Concerns about retail investors losing money in the futures and options (F&O) segment have sparked discussions about potential tax changes.
“The government might increase tax on F&O to protect market volatility,” said Ashish K Singh, partner at Capstone Legal. “They aim to discourage retail investors whose decisions are influenced by informal sources rather than research.”
ANMI also suggested treating gains or losses from intraday transactions as business income, instead of speculative income. They argue that the current classification system creates issues with how profits and losses are treated across different trade types.
Relief on the current dividend taxation system is another key area of focus for market participants.
ANMI is proposing the elimination of TDS on dividends for all resident shareholders, regardless of their status, as long as the dividend amount doesn’t exceed a certain limit. They’ve also suggested raising the threshold from Rs 5,000 to Rs 50,000 per company per person.
