New Delhi: Here comes a post-Diwali bonanza for the stock markets as the Prime Minister’s Office (PMO) and the Finance Ministry are working to scrap dividend distribution tax (DDT) and are also planning to review the existing slabs and holding period of long term capital gains (LTCG), short term capital gains (STCG) and securities transaction tax (STT). Also Read - Diwali 2019: Sensex Rises by 210.76 Points as Mahurat Trading Session Underway at Bombay Stock Exchange
The development comes as the officials of Department of Economic Affairs (DEA) and Revenue Department in the Finance Ministry had held a meeting with the PMO in this regard recently. Also Read - Sensex, Nifty End Marginally Lower; Infosys Falls Over 2 Per Cent
Regarding LTCG, it was discussed in the meeting that it will be reviewed and after a particular holding period, it will be also be scrapped. The LTCG was introduced in the 2018 Budget after more than a decade with a tax of 10 per cent on an amount above Rs 1 lakh.
Short term capital gains (STCG) are taxed at 15% of total gains for equity holdings less than a year. Capital assets in this category include listed equity shares, ETF (exchange traded fund) and equity-oriented mutual funds.
The STT is charged on buy and sale of securities instruments, including equity. The decision to review the STT comes as the markets have been demanding a reduction of the STT or doing away with it altogether. But the decision in this regard has not yet been taken as it is a big money spinner for the government, and it also helps to track equity buying at source and was introduced in 2004 after abolishing capital gains.
According to analysts, the announcement related to buyback attracting 20% tax to close the loophole on ADDT had made investors jittery. Also, no booster shot for LTCG, STCG and STT had left the stock markets disappointed.
The provision on buybacks was a new one, introduced in this year’s Union Budget by Finance Minister Nirmala Sitharaman. The motive was to clamp down on the strategy of avoiding dividend distribution tax (DDT) through buyback of shares by listed companies. The Budget had proposed an additional tax of 20 per cent in case of buyback of shares by listed companies.
This was one of the key reasons for the nervousness in the stock markets post Budget when they fell heavily. Hundreds of companies which were planning buybacks were stuck in the middle of the new tax and since then there has been a lull for new buybacks. This has also unnerved investors who used to benefit from surrendering shares to the companies.
As per the Budget provision, as per section 115QA of the Act, buyback of unlisted shares attracts additional tax at 20% (plus surcharge and cess) in the hands of the company distributing the income on such buyback. Such income arising in the hands of shareholders is exempt under section 10(34A) of the Act.
However, such provision is not applicable on buyback of listed shares. “It is now proposed that section 115QA of the Act will be amended to include such tax on buyback of listed shares. Further, section 10(34A) of the Act is consequentially proposed to exempt income received by the shareholders on buyback of listed shares. The proposed amendment will be applicable with effect from 5 July 2019”, the Budget provision said.
(With inputs from IANS)