PM Narendra Modi hints at increase in taxes on income from stock markets; promises prudent reforms

Ahead of the Budget, Prime Minister Narendra Modi on Saturday favoured increasing the tax contribution from various market participants in a "fair, efficient and transparent way" and promised more "sound and prudent policies and reform measures".

Asking the regulators and taxmen to think about the contribution of market participants to the exchequer, Modi said, "The low contribution of taxes may be due to the structure of our tax laws. Low or zero tax rate is given to certain types of financial income."

Securities transaction tax also features among the various levies in the financial markets. According to estimates, an investor pays around 15.3% in taxes.

The Prime Minister's remarks assume much significance ahead of the Budget 2017 to be presented in the first week of February.

"Those who profit from the financial markets must make a fair contribution to nation-building through taxes. For various reasons, the contribution of tax from those who make money on the markets has been low. To some extent, it may be due to illegal activities and fraud," Modi said without mentioning about any particular tax.

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"We should consider methods for increasing it in a fair, efficient and transparent way," added the Prime Minister, while inaugurating the new educational and training campus of the Sebi-run National Institute of Securities Markets (NISM) in this industrial township near Mumbai.

Modi said tax rates can go up as every investor today gets equal tax treatment.

"In the past, there was a feeling that some investors were getting an unfair deal by using certain tax treaties. As you know, those treaties have been amended by the government. Now, it is time to rethink and come up with a good design which is simple and transparent, but also fair and progressive."

Former Finance Minister P Chidambaram had introduced the securities transaction tax (STT) in 2004. When introduced, the rate was 0.125% for a delivery stock and 0.025% on intra-day transactions and 0.017 % on futures and options transactions, to stop tax avoidance of capital gains tax.

The 2013 budget reduced STT to 0.1% on the turnover for delivery and also futures, while for equity options, it was cut to 0.05% on sale premium.

Currently, the STT is charged at 0.1% on all delivery trades in the cash market, and at 0.025% on sell leg of all non-delivery trades in the cash market (equity shares and units of equity oriented funds).

On top of it, there is 15% tax from June this year -- 14% towards service tax and 0.5% each of Swachh Bharat and Krishi Kalyan cess. 

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