For the sake of reviving market participation and volumes, stock brokers association ANMI wants the Finance Minister to bring back rebates on Securities Transaction Tax (STT) and Commodity Transaction Tax (CTT) that were allowed under Section 88E of the Income-Tax Act earlier. 

Recently, a report from Motilal Oswal Financial Services had pointed out that active participants in Indian markets had declined for the fifth straight month in November.

In a round-table meeting in Mumbai on Monday, the brokers said they have also demanded that the government rationalise the tax regime for the capital markets to bring down the cost of trading, investments. Currently, the taxes on delivery-based transactions are too high.

In the stock markets, the concept of STT was introduced as there was no long-term capital gains (LTCG) tax and short-term capital gains (STCG) tax. Despite the introduction of STCG and LTCGtaxes, STT and CTT still remain. Brokers believe this was irrational and burdensome for investors, traders and participants. 

Currently, delivery-based market transactions are taxed at the rate of 0.125 per cent or ₹12,500 on every ₹1-crore turnover. The tax is levied on both buyers and sellers. Prior to April 2008, STT was allowed as a rebate against tax liability under Section 88E of the Income-Tax Act. The rebate was discontinued as the tax outgo from broking firms was assumed to be low and most set off STT against their business income.

ANMI has more than 900 brokers under its umbrella.

Other demands

ANMI also demanded tax Exemption of up to ₹1 lakh in STCG u/s.111A: Currently , STCG arising on equity shares (listed), besides STT, are charged at 15 per cent tax plus surcharge.

TDS on Dividend U/s 194 of I-T Act: TDS on dividend is currently not required to be deducted if dividend does not exceed ₹5,000. But this is limited to individual recipient shareholders only. ANMI has recommended that TDS provision be applied to all residents, irrespective of status. The association also recommended raising the threshold exemption limit from ₹5,000 to ₹10,000 from payment of TDS.

Currently, ‘Carry forward loss’ from normal business can only be set off against ‘income from business’. Current-year business loss can be set off against any head except salary, but in the case of carry forward, business loss can be only be adjusted against business income. ANMI said that taxpayers are not able to get the benefit from this provision in case of ‘carry forward business loss’ where there is no ‘business income’ in subsequent years.

ANMI has recommended allowing carried forward business loss to be adjusted against any head of income except salary in subsequent years — maximum up to eight years and stated that this will result in the rationalisation of income which is subject to payment of tax.

The Income-Tax Act has too many classifications of incomes arising out of capital market transactions, which creates fungibility problems with respect to profits or losses incurred in different types of trades. For example, intraday cash market trading is classified as speculative income, but intraday derivative trade is classified as business income.

ANMI suggested that Budget 2023 dispense with the treatment of speculative income/loss under section 45 of day trading in listed shares, in which no delivery is taken or given and to treat income arising from purchase and sale of shares without delivery as business income. “Together with day trading not being treated as speculative (as proposed supra), this will give a fillip to investors and share brokers to engage wholeheartedly in share transactions,” the association said.

ANMI recommended that the concept of speculative income should be done away with and there should be limited categories of classification of income via Business Income, LTCG and STCG. This will ease income classification from the point of view of the taxpayer.

ANMI has also seek industry status for SEBI-registered market intermediaries. This will help remove unwarranted restrictions; cost of funding and raising capital requirements for market intermediaries and will help create financial services companies of global scale.

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