Financial market participants have been trying to persuade for demolition long term capital gains tax (LTCG) on investment in equity or equity-oriented funds and to extend the holding period from the current one year to two years with nil tax.
India charges 15 per cent short-term capital gains tax if equity shares are sold within a year and at 10 per cent if sold after a year. Another demand has been made to amend the dividend distribution tax (DDT) rules.
In an interview to an eminent news agency, Gopal Krishna Agarwal, economic affairs spokesman of BJP said, "In pre-budget consultations with the finance minister and the prime minister's office, Bharatiya Janata Party (BJP) leaders have urged the government to consider industry demands and listed measures to revive investments. A concern has been put on LTCG and DDT as a lot of financial transactions are moving out of the country to Singapore, Hong Kong and London."
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After a gap of 14 years, the long-term capital gain tax of 10 per cent on the sale of equity shares was re-introduced in 2018 by former finance minister Arun Jaitley which led to the disappointment in market participants and has been a major hindrance to foreign investment.
Agarwal said there was a need to reduce the cost of financial transactions in the country: "These are doable and without putting much financial burden on the government".
As of now, Indian companies pay over 15 per cent dividend distribution tax on declared dividends and investors pay another 10 per cent tax on receiving more than one million rupees ($14,070) dividend in a financial year. Many tax experts said these rules do not allow foreign investors to claim tax credit in their countries and small investors are forced to pay higher tax.
"It may be worthwhile to consider reverting back to the taxation of dividends in the hands of recipients with a smaller amount being reduced at source," said S.R. Patnaik, Partner & Head-Taxation, Cyril Amarchand Mangaldas, a law firm.
Finance Minister Nirmala Sitharaman, who will present the annual budget to parliament on Saturday, is widely expected to announce a set of measures of support sputtering economic growth.