Financial markets worldwide play an important role in garnering growth capital for the economy. Following the Coronavirus pandemic, catalysing equity market participation will hold the key to reviving India’s GDP growth.

In view of the above, the Association of National Exchanges Members of India (ANMI) the pan-India brokers’ organisation comprising of over 900 members, has urged the government to incentivise and encourage equity market investments by streamlining the tax structure applicable for market transactions in the Union Budget for the financial year 2021-22. ANMI has sent a representation to the government’s tax body Central Board of Direct Taxes (CBDT), suggesting the following:

Lesser income classification

ANMI has pointed out that in India, currently, there are multiple classifications for capital market income, such as speculative income, business income, etc. While the intraday cash market trading is classified as speculative income, the intraday derivatives trade, on the other hand, is classified as business income.

In fact, except India, no other country has this concept of speculative income. Globally trading positions are treated as ordinary business income and investment positions are treated as capital gains.

This large variety of classification of income arising out of capital market transactions is creating fungibility problems with respect to profits or losses incurred in different types of trades, ANMI said.

ANMI also said that to boost equity market participation, the concept of speculative income should be done away with in the Union Budget 2021-22. Also, like global markets, there should be limited categories of classification of incomes viz., Business Income, Long-term Capital Gain, and Short-term Capital Gain, for the ease of the taxpayer.

Rebate under Section 88E on STT/CTT

ANMI said that due to the revenue implications, while abolition of Securities Transaction Tax (STT) and Commodities Transaction (CTT) on all non-delivery trades may not be a feasible option at this point in time, the tax rebate under section 88E should be reintroduced to provide a level play field to Indian market participants compared to global markets.

ANMI cited an E&Y Report, which shows that India is the only country that levies STT and CTT in the derivatives and commodities segment, respectively. STT is applied on both sides (sell/buy) in the case of cash equity and only on the sell-side in the case of derivatives.

STT was introduced “in lieu of capital gains tax” in 2004 by the then Honourable Finance Minister, exempting the tax on long term capital gains and levying a tax on the inception of transactions. Initially, the amount of STT paid was allowed to be claimed as a tax rebate under Section 88E of the Income Tax Act, but this rebate was later discontinued.

“Reintroduction of Section 88E will result in increased volumes and therefore a much larger collection of STT/CTT. In fact, revenues could also double due to increased participation in markets, which will be a boon for stimulating the GDP growth in the post-COVID recovery phase,” ANMI said.