Union Budget 2020-21: Brokers seek withdrawal of dividend distribution tax, relief on STT, LTCG

New Delhi: With the government getting ready for the presentation of Union Budget for 2020-21, various industry representatives have come up with their wish list. Stock brokers in India have sought the reintroduction of rebates on the payment of securities transaction tax (STT), withdrawal of dividend distribution tax, and restoration of the exemption on long-term capital gains tax in listed shares.

According to a report in the Economic Times, the Association of National Exchanges Members of India (ANMI) has also sought reduction in the rate of STT, and listed these four demands in a letter addressed to the Central Board of Direct Taxes (CBDT); these will be included in the budget recommendations to the finance ministry.

ANMI believes that the reintroduction of Section 88E under the Income Tax Act and reduction in STT will help boost volumes and increase government’s revenue as well.

The publication citing a World Bank study said India’s turnover to market-cap ratio has fallen by over 43% from 101 in 2004 to 58 in 2018. It is measured as total traded value of all shares in a year divided by Average Market Capitalisation of the entire market in that year.

The broker’s body is of the view that the dividend distribution tax of 15% results in double/triple taxation of corporate earnings.

“The tax on the dividend should be in the form of equalisation to balance the difference between corporate and highest rate of personal tax. Hence, it is recommended that DTT be withdrawn and the tax be levied at 10% on the recipient and should be deducted by the corporate as TDS,” the letter said.

On LTCG, ANMI said the actual collection will be marginal while investments in equity have sharply declined.

The reintroduction of LTCG led to strong negative sentiment regarding equity investment and there was a sharp fall in the prices of equity shares, said ANMI. Even after a period of 22 months, the midcap index is lower by 11% and small cap index is lower by 31%; the large cap index has gained by a mere 7% over January 31, 2018 prices, the publication mentioned.
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