Budget 2022: Brokerage industry seeks reforms around STT, long term capital gains, stamp duty & GST

As the Union Budget draws near, the brokerage industry has sought reduction or removal of securities transaction tax (STT), long-term capital gains (LTCG), stamp duty and GST in the upcoming Budget 2022-23. Dividend taxation is another area that needs the government's immediate attention. They feel this will be a step forward towards making domestic stock market more investment-friendly.  They are of the view that reforms around these taxes will only aid the economy going forward.  Experts also want the government to provide more clarity and pace in the government’s asset monetization and divestment program.   

Securities Transaction Tax is a direct tax charged on purchase and sale of securities that are listed on the recognized stock exchanges in India. STT is always calculated on the Average Price.   

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Relief on STT, LTCG, stamp duty and GST   

"I believe STT should be removed or at least reduced because initially it was introduced in the place of long-term capital gain tax but now, we have both LTCG and STT that is not fair for the Indian Investors," said Parth Nyati, Founder, Tradingo.   

Nyati said transaction cost in India is too high and LTCG and STT are seen as a sentiment dampener for the market, resulting in very few traders turning a profit.  

Nikhil Kamath, Co-founder, True Beacon and Zerodha also believes that investment industry will benefit if the STT is abolished, as both LTCG and short-term capital gains (STCG) are in place. "If the government does not intervene with STT, it could look at removing the tax on long-term capital gains," he said.  

Echoing their sentiment, Sunil Nyati, Managing Director of Swastika Investmart Ltd too feels that STT should be removed or at least reduced. "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, where reducing LTCG and STT could be a good step in that direction," said Swastika Investmart Managing Director.   

Dividend Distribution Tax (DDT)   

As per Archit Gupta, Founder and CEO, Clear, a domestic company is not liable to pay Dividend Distribution Tax on the dividend declared or distributed on or after 1st April 2020, and, consequently, such dividend is now taxable in the hands of shareholders. However, shareholders are required to include the dividend income received under the head of ‘Income from Other Sources’ and pay tax at the applicable tax slab rates. DDT is a tax levied on dividends distributed by companies out of their profits among their shareholders.  

"The government may bring a threshold limit above which such dividend income should be taxable. It will encourage investments in the country, says Archit Gupta.    

Revision in tax slab    

There has been demand of increasing the basic tax exemption limit of RS 2.5 lakh. In this view, Gupta opines that personal income tax exemption limit could be reviewed and revised to Rs 4 lakhs from current Rs 2.5 lakhs in both new and old tax regimes. "Under the old tax regime, the tax rate for the slab Rs 5 Lakhs to Rs 10 Lakhs to be fixed at 10%, next slab may be revised to Rs 10 lakhs to Rs 20 lakhs with a tax rate of 15%, and on income above Rs 20 lakhs, tax may be levied at 25%," said Gupta.