Ahead of Union Budget 2017, the capital market regulator Securities and Exchange Board of India (Sebi) has sent its list of recommendations to the Finance Ministry. Sebi has asked the government to encourage stock trading and investments in mutual funds by easing tax rules.
The regulator has also recommended lowering the securities transaction tax (STT) for tax trading and a slew of other measures, a report published in Economics Times said.
Lower STT for trading
After its introduction in 2004, STT was fully deductible against the income tax payable. But, after four years, an amendment was made to allow STT as a deductible business expenditure and the rebate under section 88E was also withdrawn.
Now, Sebi has recommended lowering the STT for tax trading.
The government has been collecting around Rs 7,400 crore from securities transaction tax (STT) for the last couple of years, a Business Today report said.
Increase limit for tax-saving equity mutual fund
For relief under Section 88E, Sebi has recommended an increase in the investment limit for tax-saving equity mutual fund schemes from Rs 1.5 lakh to Rs 2 lakh.
“Sebi has written to the government that rebates under Section 88E for STT paid should be restored,“ ET quoted a senior regulatory official as saying.
LTCG on debt mutual funds
The regulator has suggested reducing the holding Union Budget 2017 period of debt mutual funds from 36 months to 12 months for consideration of long-term capital gains (LTCG).
According to Sebi, if debt funds are held for more than 12 months, there should be no long-term capital gains tax against the current requirement of holding them for 36 months.
Speaking at an event last year, Prime Minister Narendra Modi had said, “To some extent, the low contribution of taxes may also be because of the structure of our tax laws. Low or zero tax rate is given to certain types of financial income.” The statement had created ripples in the financial market. However, Finance Minister Arun Jaitley later clarified that zero tax on LTCG was not on the way out in the 2017 budget. However, speculations are still rife that there might be LTCG tax on equities.
Harmonise rules for debt mutual fund, debt securities
The regulator has recommended the government to harmonise tax rules for investments in debt mutual funds and debt securities.
ELSS and tweak tax laws
Sebi has recommended the government to re-incentivise equity-linked saving schemes (ELSS).
The regulator has suggested the ministry to increase ELSS investment limit to Rs 2 lakh from Rs 1.5 lakh under section 80C. Moreover, SEBI has recommended changes in tax laws for alternative investment funds like safe harbour rules.