Market regulator SEBI has recommended tax changes to the government to provide relief to domestic investors as well as to increase foreign investment in the Indian stock market. News agency Reuters, quoting two sources with knowledge of the matter, has said that SEBI has recommended removing the Long Term Capital Gains (LTCG) tax imposed on foreign investors.
Not only this, SEBI has also proposed relief for domestic mutual fund investors. The proposal is that if investors sell their mutual fund units held for more than a year and invest in another scheme, then this switch should not be considered as taxable sale. That means tax should be waived on them.
These recommendations have been made 3 months before the Union Budget to be presented in February. The government will take the final decision on these recommendations of SEBI.
How much tax do investors have to pay now?
According to current rules, securities held for more than one year currently attract 12.5% long term capital gains tax. Short term capital gains tax on securities sold in a period of one year or less is 20%. Apart from this, STT i.e. Securities Transaction Tax is also applicable on buying and selling of shares and withholding tax on dividends.
SEBI says that the transaction costs associated with equity investment are much higher than other markets. According to brokerage firm Jefferies, the reduction in capital gains tax may make the Indian market more attractive for foreign investors and increase portfolio investment.
Whereas brokerage firm IIFL estimates that with the removal of capital gains tax, the returns of foreign investors may increase by 2.3 percentage points.
Relief proposal to domestic mutual fund investors also
SEBI has also recommended tax relief for domestic mutual fund investors. According to sources, if investors sell mutual fund units held for more than a year and invest in another scheme, then this change should not be considered as taxable sale.
Its objective is to encourage investors to continue investing in domestic mutual funds. India’s mutual fund industry has assets worth Rs 82.6 lakh crore. In this, an average of Rs 30,000 crore comes every month through Systematic Investment Plan (SIP).
Foreign investors withdrew 31 billion dollars from the market
SEBI’s recommendations have come at a time when the challenge of attracting investment in the Indian stock market has increased amid weak market performance and selling by foreign investors.
In the last two years, the performance of the Indian stock market has been weak compared to other emerging markets. This year, foreign investors have sold a record $31 billion in Indian shares. At the same time, amid weak returns, investment by Indian retail investors in foreign markets has increased.
According to sources, during the continuous talks with foreign investors, the demand for changes in the tax system came up prominently. SEBI has held several meetings with foreign investors in the last two years. The rupee has also come under pressure due to continuous selling. A source said the proposals are aimed at reducing the initial tax burden on foreign investors.
Let us tell you that in the last two years, Nifty 50 has declined by 4.8%, while MSCI Emerging Market Index has increased by 40%. The average return of domestic equity mutual funds investing in major stocks has fallen by 1.6% during the same period.
Source: ndtv.in
