LTCG, dividend distribution tax roll-back on top of Budget wishlist

Capital market players are hoping for a slew of changes that will make life easier for them in terms of taxation. Here are a few expectations

Long-term capital gains
 

• Industry players expect the government to exempt tax on long -term capital gains (LTCG) arising on sale of listed equity shares.

• The government could also streamline the holding period for granting such exemption to 24 months, bringing the same at a par with unlisted shares

• “This will boost investment and make capital markets more attractive and in line with global markets.  At the same time ,the longer holding period would ensure that the benefits are only available to investors having a longer term horizon,” said Mehul Bheda, partner, Dhruva Advisors

 
 
Increase in FPI limits

 
Market players want the government to increase the bond investment limit of foreign portfolio investors (FPIs) with a view to help India become a part of global bond indices

 
 
Parity between MFs and ULIPs
 

• ULIPs and equity mutual funds need to be be brought on a par on tax treatment. To do that, industry body Association of Mutual Funds in India has asked for the removal of LTCG tax and the abolishment of STT on equity funds at time of redemption.

• The industry wants DDT on dividends paid by equity-oriented funds to be abolished, and switches within MF schemes be made exempt from the capital gains tax

 

 
Dividend distribution tax
 

• There is an expectation that the government will remove the dividend distribution tax (DDT) in the hands of the company and substitute it with tax in the hands of non-corporate shareholders at a concessional rate

• “The government should abolish dividend distribution tax. This will promote foreign investment. Small tax payers will also benefit as their effective rate of tax is much lower than the DDT rate of 20.56 per cent, said Ashok Shah, partner, NA Shah Associates LLP

• “Non-resident shareholders will be able to claim tax credit in their home jurisdiction. Withdrawal of the DDT will remove the cascading impact of taxation. Government should tax dividend in the hands of the shareholders at concessional rates which may be 15-20 per cent,” he added

Category-III AIFs

 

• The other long-standing demand is for Category- III AIFs to get a pass-through status, similar to what was provided for Category-I and Category-II AIFs in 2015.

• They also want higher surcharge applicable to certain Category-III AIFs to be rationalised