In a bid to lift sentiment, the Centre and capital markets regulator Sebi are weighing the possibility of reducing the tax burden on investors. They are considering temporary removal of tax on share buybacks and on long-term capital gains (LTCG).
These measures could be part of an ongoing exercise to provide relief and exemptions to India Inc and investors, amid the turmoil caused by the stock market meltdown, due to a halt in economic activity.
People in the know said these measures are under serious consideration and could be announced after further deliberations between various stakeholders.
Investors have already swamped the government and Sebi with such demands as stocks of several companies have taken a beating.
Market participants believe the removal of buyback tax will prompt more firms to announce buybacks, which could help provide a floor to share prices.
In addition, the removal of LTCG tax will be a good sentiment booster given shares of most firms have dropped below the January 31, 2018 grandfathering date.
At present, investors have to pay 10 per cent LTCG on gains from equities over and above Rs 1 lakh in a financial year.
The people said the government has asked the regulator to examine the changes in the tax structure and prepare a feasibility report.
The government is also looking at the revenue it may have to forgo if the buyback tax is removed.
In July 2019, there was a tax levied on buybacks by listed companies, in the Union Budget, meant to bridge the arbitrage between buybacks and dividend payouts.
“Any change in the structure of buyback tax would allow cash-rich corporates to buy more shares from investors and would certainly help them create value for remaining shareholders,” said a market expert.
Sun Pharmaceutical, Dalmia Bharat, Motilal Oswal Financial Services, and Ramkrishna Forgings are some firms to have announced share buybacks in recent weeks. Earlier, Thomas Cook India and Granules India had announced buyback schemes.
Besides, many promoters have bought shares from the open market to restore investor confidence and to raise their holdings at a time when share prices have fallen to multi-year lows.
Meanwhile, the regulator is said to have directed market intermediaries, including mutual funds, to go completely digital in dealing with Know Your Customer, subscription trading, and redemptions. At present, 30 per cent of the work requires physical documentation, especially in KYC and redemption procedures.
The regulator has taken a slew of measures to control volatility in markets. Last week, it had tightened norms for short-selling and had said that short positions in the derivatives market could not exceed the value of the holdings of the underlying stocks, or the collateral provided by them.
Further, it had imposed an additional position limit of Rs 500 crore for the futures and options (F&O) segment.