Interim Budget 2024 & stock market wishlist: Removal of STT, double taxable on dividend; changes to LTCG & more

Interim Budget 2024 & stock market wishlist: Removal of STT, double taxable on dividend; changes to LTCG & more

Given it is an interim Budget, the stock market is not expecting much from the interim Budget 2024 this time around but the wish list include a removal of security transaction tax (STT) and a relief from double taxation on dividends. A simplification of capital gains taxation structure could be announced, analysts said.

Pranav Haridasan, MD and CEO, Axis Securities said the interim Budget ay retain the growth roadmap and reaffirm the government’s commitment to long-term growth, with a continued focus on infrastructure development. He noted that the impact of the Union Budget on the equity market has reduced notably over the past few years, with the government undertaking most of the reforms outside the purview of the Budget.

“Nonetheless, the market participants continue to view it as a critical catalyst stimulating the growth of the Indian economy and, thereby, the Indian market,” he said.

In the case of STT, ICRA said the removal of STT has been a long-sought demand by market participants and as the GST collection went up, this demand has again gained traction. The move, if it does, will attract more investors to invest in domestic equity markets, the ratings agency said.

Besides, ICRA noted that corporates pay tax on profit and at the same time the government levies tax on dividends at the hands of shareholders, resulting in double taxation on dividends. A relief from double taxation on dividends will be appreciated by markets, it said.

“I advocate for a consideration of removal of either Long-Term Capital Gains (LTCG) or Securities Transaction Tax (STT), which may provide further support to the equity culture in India,” Sunil Nyati of Swastika Investmart said in his Budget preview.

The capital gains taxation structure may be simplified by introducing a uniform holding period across domestic equities and mutual funds. Uniformity in tax treatment, ICRA said, is expected to encourage higher compliance.

“However, it needs to be noted that equity investors take higher risks than other investors and hence the same needs to be taken care of accordingly,” it said.

Rahul Charkha, Partner, Economic Laws Practice noted that the taxability of capital gains on equity shares is widely disseminated, saying rates of tax for STT paid on listed shares and STT paid on non-listed shares is different. Likewise, he said, there is a disparity in the capital gains tax treatment on transfer of unlisted equity shares by resident and non-resident assesses.

“Add to this, is the incongruity in the valuation requirements under income-tax laws and other laws. There has been a long-standing demand to align the capital gains tax treatment on transfer of equity shares. Such alignment will not only simplify the taxability but also provide clarity. The simplification of corporate tax rates has been well received by the corporates. People at large look forward to a similar universalisation of capital gains tax on transfer of equity shares,” Charkha said.

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