Ahead of the Union Budget 2025, market participants have been eyeing some relief from the Finance Minister Nirmala Sitharaman in terms of the abolition of Securities Transaction Tax (STT) while they are also looking at raising of exemption limit in the case of long-term capital gains (LTCG) tax, which are seen key to boosting retail participation amid foreign outflows.
The STT was increased vide Union Budget 2024 from 0.01 per cent to 0.02 per cent for equity and index traders, raising concerns about the growing tax burden on market participants. This tax is levied on the purchase and sale of stocks and other securities traded on Indian stock exchanges.
"There has been representations from certain Industry body as well for the complete abolition of STT, arguing that the simultaneous rise in LTCG tax from 10 per cent to 12.5 per cent has disproportionately impacted investors, especially when compared to other asset classes," said CA Suresh Surana.
At present, LTCG tax is applicable to gains exceeding Rs 1.25 lakh from the sale of listed shares and equity mutual funds. The LTCG is taxed at 12.5 per cent, following recent amendments made vide Budget 2024.
But the threshold limit for LTCG could be increased to Rs 2 lakh or higher. This move could allow retail investors to retain more of their returns, thereby encouraging greater participation in the equity markets and long-term investing, Surana said while admitting of it happening this coming Budget are lower.
Niranjan Govindekar, Partner, Corporate Tax, Tax & Regulatory Services at BDO India said some provisions of the last Budget needs a relook. This applies to streamline the capital gains tax structure by aligning tax rates and period of holding across various sub-asset classes, he said.
"For instance, treating international equities the same as domestic equities, debt funds the same as gold funds, and gold funds the same as gold ETFs. The hike in short-term rates from 15 per cent to 20 per cent and in long-term rates from 10 per cent to 12.5 per cent has raised investor tax liabilities significantly. Since now the LTCG tax on securities is on par with other assets, the Securities Transaction Tax (STT) should be abolished," Govindekar said.
Rahul Charkha, Partner at Economic Laws Practice expects Budget 2025 to scrap the STT on buying or selling equity shares and also reduce the LTCG rate to 10 per cent as it was earlier.
He said investors, especially those investing with a short-term horizon where 0.2 per cent of the transaction value is paid as STT (buy and sell), would tend to benefit in case STT is scraped. The present taxation reduces the short-term gains earned in the range of 1-2 per cent, Charkha said.
Broader expectations From the capital market perspective, said Manish Chowdhury of StoxBox the policy continuity along with fiscal prudence in the upcoming Union Budget will be key triggers, especially considering the recent slowdown in the Indian economy and corporate earnings.
"A 10-12 per cent growth is capex, a fiscal deficit target of around 4.5 per cent for FY26, and measures aimed at reviving the private sector capex would set a positive tone for markets. We expect the finance minister to simplify tax structures and raise tax exemption limits to boost consumption in the economy, especially the urban side which has recently shown signs of a slowdown," he said.
Chowdhury does not anticipate any changes to the STCG, LTCG, and STT which again should be taken in a positive stride by market participants.