Govt should abolish STT to encourage new investors to start trading: Experts

The government had introduced Securities Transaction Tax (STT) in 2004 on transactions in different types of securities. The rate presently varies from 0.025 per cent to 0.25 per cent depending upon the type of security traded and transaction — whether sale or purchase.

“The investment industry will benefit if the Securities Transaction Tax is abolished, as both long-term capital gains (LTCG) and short-term capital gains (STCG) are in place,” Nikhil Kamath, co-founder of True Beacon and Zerodha, said.

Nonetheless, if the government does not intervene with STT, it could look at removing the tax on long-term capital gains, he added.

Puneet Maheshwari, Director, Upstox, said the government may consider relieving traders of the STT. By doing so, new investors would be encouraged to start trading.

“There needs to be more participation in indexes or exchange-traded funds. By offering a lock-in and tax incentives on the lines of equity-linked tax savings schemes, the government can encourage long-term savings in Nifty or Sensex,” he noted.

A greater allocation by the government-owned provident funds and pension funds into equity markets could also help, he added.

Kamath believes that there is a strong case for easing the listing norms in India while tightening penalties for violation of laws.

“While companies reach out to the government requesting a change to existing regulations, allowing unlisted Indian companies to list abroad, I believe it is the right time to work in-house,” he said.

According to him, entry barriers for companies to get listed are high in India. However, once listed, the penalty for violations is minimal, making investors, especially retail, susceptible to a lot more risk.

“We should be looking at it the other way around to foster innovation while keeping a check on corporate governance,” he added.

Kamath said bringing taxation of Category-III Alternative Investment Funds (AIFs) in line with Category-I and Category-II AIFs will be a shot in the arm for the budding hedge funds industry.

Rohit Sarin, co-founder of Client Associates, Private Wealth Management and India’s first Multi Family Office (MFO) firm, said capital gains taxation should be simplified by having a uniform long-term and short-term capital gains structure across all categories of capital assets.

He further said capital gains taxation on unlisted equities and real estate should be brought at par with that of listed equities.

This would invite more investment capital into these growth asset classes which would then have an indirect impact on the growth of the economy, he added.

Last month, in its Budget proposals to the finance ministry, Commodity Participants Association of India (CPAI) had said the government should look at waiving the commodity transaction tax to boost trading volumes.

CPAI urged the government to take a relook at commodity transaction tax (CTT) as it has yielded little revenue and destroyed national market volumes by 60 per cent.