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Sebi Budget Note: Cut STT, Ease Tax Rule for Debt MFs

Regulator also wants ELSS investment limit increased to Rs 2 lakh
The capital market regulator is said to have asked the finance ministry to ease tax rules for stock trading and investments in mutual funds, measures that should help give the equity market a boost if accepted.
In its recommendations to the government ahead of the Union budget, the Securities and Exchange Board of India has suggested lowering the securities transaction tax (STT) for stock trading and reducing the holding period for debt mutual funds to 12 months from 36 months for consideration of long-term capital gains. The regulator has also sought an increase in the investment limit for tax-saving equity mutual fund schemes to Rs.2 lakh from Rs.1.5 lakh. ā€œSebi has written to the gov ernment that rebates under Section 88E for securities transaction tax paid should be restored,ā€œ said a senior regulatory official.
STT, introduced in 2004, was initially fully deductible against the income tax payable. In 2008, this was amended to allow STT as a deductible business expenditure, and the rebate under section 88E was withdrawn. ā€œA reversal of this to the pre-2008 system would result in lowering the income tax on business income from securities and be overall positive for taxpayers who trade in securities,ā€œ said Gautam Mehra, partner, India tax and regulatory services, PwC.
Stock brokers said an increase in STT and reduction in tax benefits amounted to a double whammy . ā€œUsually, one pays tax on profit, but, in this case, you pay tax (STT) irrespective of whether you make profit or loss,ā€œ said Siddharth Shah, director, JGA Shah Share Brokers. ā€œSTT is the biggest component of direct expenses (almost 70% to 80%) for a person trading on stock exchanges,ā€œ Shah said. ā€œIf section 88E is reintroduced, the direct cost for trader will go down substantially , resulting in more volume and liquidity . High liquidity will also help to lower the impact cost for investors and high volume will also generate more STT for the government.ā€œ
Sebi has also asked the government to harmonise tax rules for investments in debt mutual funds and debt securities, said the people cited above.The regulator has said that if debt funds are held for more than12 months, there should be no long-term capital gains tax against the current requirement of holding them for 36 months. ā€œMutual fund is a pass-through vehicle. You can't have different norms for a passthrough and the underlying assets,ā€œ said Dhirendra Kumar, CEO, Value Research, a Delhibased mutual fund research organisation.
The regulator has also told the government to re-incentivise equity linked saving schemes (ELSS) by increasing the investment limit to Rs 2 lakh from the current Rs 1.5 lakh under section 80C and has suggested some changes in tax treatment for alternative investment funds, including safe harbour rules among others.
The Economic Times New Delhi,24th January 2017

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