Taxes and India’s Equity Market | 13 Aug 2019

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.