Budget proposals: Hits & misses

Five key capital market announcements from the previous Budget

1. Proposal: Foreign investor investment ceiling on bourses raised from 5% to 15%

Impact: None of the exchanges have seen any of their foreign investors take advantage of the higher ceiling. Most have restricted their investments to 5%. However, the measure is expected to help the BSE, which will list on Friday, and bigger rival National Stock Exchange (NSE), which, too, is expected to go public soon 

2. Proposal: Tax sops for Real Estate Investment Trusts (Reits), Infrastructure Investment Trusts (InViTs) and International Financial Services Centre (IFSC)

Impact: The finance minister gave some tax incentives to jump-start these. Although all three hold promise, they have been slow starters. A few infra companies have filed documents with the Securities and Exchange Board of India to launch InViTs. BSE’s bourse in IFSC at GIFT City, Ahmedabad, has been launched but volumes are thin.

3. Proposal: Increase in Securities Transaction Tax (STT) on options to 0.05%, from 0.017% 

Impact: Options trading contributes to the bulk of stock exchange volumes. The increase, although nearly threefold (but on a very low base), hasn’t had a negative impact on trading volumes. On the contrary, the share of options in the overall futures and options (F&O) pie has increased to 85%, from 82%.

4. Proposal: To provide for more members and benches of the Securities Appellate Tribunal

Impact: The promise has remained unfulfilled. The quasi-judicial body, which hears appeals against those aggrieved with orders passed by markets regulator Sebi and insurance regulator Irdai, is currently operating with three members. No additional benches have been formed.

5. Proposal: Additional 10% dividend distribution tax (DDT) on those earning annual dividend in excess of Rs 10 lakh

Impact: The move was criticised by market players, as it amounted to double taxation — income earned by companies is also subject to tax. Some companies opted for share buybacks, instead of dolling out dividends, to explore tax arbitrage.