VR Logo

SEBI Wants ST Tax Cut

SEBI is looking to give retail investors another reason to invest

With the present UPA government all geared up to script a new era of reforms, at least that is the general expectation, starting immediately on the presentation of the Budget in July, suggestions have started pouring in from all quarters -- the softer and gentler version of lobbying.

Institutions like the Securities and Exchange Board of India (SEBI) have already come out with suggestions on various issues, the most important one of them being the Securities Transaction Tax (STT).

If SEBI’s suggestions hold ground, the government may well be on its way to clearing the way for a phased reduction in the STT, which would be a critical first step to further develop and boost the capital markets, according to a Business Standard report.

The move, if the government clears it, would improve retail participation in the capital markets by reducing transaction costs. Insiders believe that this might be the best time to do so as markets hold good prospects for investments for the retail investor.

This particular tax has not gone down well with stock brokers ever since it was put into effect. In fact, it is a major irritant for all concerned and brokers have been seeking its removal. It was introduced in 2004-05.

Putting to rest some concerns on the tax issue, analysts believe that government’s revenue collection would not take a very big hit, as it already levies short-term and long-term capital gains tax on almost all transactions.

For those who don’t know, the tax is imposed on sale and purchase of securities, which can be on shares, derivatives or units of mutual funds traded on a recognized stock exchange. At present, the STT rate is 0.125 per cent of the total volume of the transaction.

The measure would help investors as they can either write off such losses stemming form such investments against business profit, which may or may not accrue from market dealings, or amortize it over time during the normal course of business. On the other hand, the investor can take advantage of tax rebates.

SEBI has also proposed that the government can treat losses in currency derivatives as business loss and not speculative, just like in equity derivatives.

SEBI has also suggested measures such as providing tax benefits for investments by retail and institutional investors in real estate mutual funds for the development of the sector. The latter has suggested that the provident funds and pension funds be given tax benefits to invest in mutual fund units.