Taxes and India’s Equity Market
Recently, the Association of National Exchanges Members of India (ANMI) has requested the government to withdraw the Long Term Capital Gains Tax and Securities Transaction Tax.
- It highlighted the issues in taxation related to India's equity market, which makes the Indian capital market unattractive globally.
- India is the only country to levy a tax on equity trading in the form of Securities Transaction Tax (STT).
- Dividends, currently are taxed thrice in the form of corporate tax, dividend distribution tax and finally at the investor level, i.e Securities Transaction Tax (STT).
- Corporate Tax: It is levied on a firm's profit by the government.
- It is taxed on operating earnings after expenses have been deducted.
- The rate of corporate tax in India varies from one type of company to another i.e. domestic corporations and foreign corporations pay tax at different rates (25-50%)
- Dividend Distribution Tax (DDT): Dividend refers to the distribution of profits to shareholders of a company.
- Thus, the dividend distribution tax is a type of tax that is payable on the dividends offered to its shareholders by the corporate.
- Higher dividends mean a greater tax burden for the corporate entity.
- Presently, the dividend distribution tax that is payable on the dividends offered to a company’s shareholders is 15% of the gross amount distributed as dividend
- Securities Transaction Tax(STT): It is a tax levied at the time of purchase and sale of securities listed on stock exchanges in India.
- Both purchaser and seller both need to pay 0.1% of share value as STT.