The Association of National Exchanges Members of India (ANMI) has recently put forth a request to the government demanding the abolition of the Long Term Capital Gains Tax and Securities Transaction Tax. This request is based on concerns surrounding the current taxation structure of India’s equity market that is reputedly making the Indian capital market unattractive on a global scale. Notably, India is the sole country that imposes a tax on equity trading through the Securities Transaction Tax (STT). Added to this, dividends are taxed three times over: firstly as corporate tax, secondly as dividend distribution tax and lastly at the level of the investor through the Securities Transaction Tax (STT).
The Corporate Tax Structure
Corporate tax is essentially a tax imposed by the government on a company’s profits and is calculated based on operating earnings after the deduction of expenses. The tax rate for corporate tax in India varies with the type of the company in question – domestic corporations and foreign corporations have different tax rates ranging between 25-50%.
Understanding Dividend Distribution Tax (DDT)
A dividend entails the distribution of profits to the shareholders of a company. Consequently, the dividend distribution tax is a type of tax payable on these dividends supplied to its shareholders by the corporation. If higher dividends are issued, it signifies a greater tax liability for the corporate entity. At present, the dividend distribution tax that is payable on the dividends provided to a company’s shareholders stands at 15% of the total sum presented as a dividend.
Unraveling Securities Transaction Tax (STT)
The Securities Transaction Tax (STT) is a tax charged at the event of the purchase and sale of securities listed on stock exchanges in India. Notably, both purchaser and seller are obligated to contribute 0.1% of the share value as STT.
Facts About India’s Equity Market Taxation
| Tax Type | Description | Tax Rate |
|---|---|---|
| Corporate Tax | Tax on company’s profit | 25-50% |
| Dividend Distribution Tax (DDT) | Tax on dividends provided to shareholders | 15% of the gross amount |
| Securities Transaction Tax (STT) | Tax on purchase and sale of listed securities | 0.1% of share value |
The ANMI’s Stance on Current Taxation Structure
The ANMI believes that the current tax structure, particularly the trifecta of corporate tax, DDT and STT, poses an impediment to the attractiveness of India’s capital market. According to the association, the imposition of these three taxes not only burdens companies and investors but also lags behind other global markets where such a taxing regime does not exist. By advocating for the abolition of the Long Term Capital Gains Tax and Securities Transaction Tax, the ANMI hopes to rectify these detriments and enhance the appeal of India’s equity market on a global scale.
