 "Market players get mixed bag")
There was some pain for investors in the stock market, with the Budget announcing an increase in the Securities Transaction Tax (STT) on options to 0.05 per cent from the existing 0.017 per cent. And, imposed an additional Dividend Distribution Tax (DDT) of 10 per cent on payout in excess of Rs 10 lakh.
However, the increase in STT takes effect only when one sells the option and will be charged on the premium value, not the contract value. At present, STT on normal option trades done on exchanges is 0.017 per cent of the selling side of the premium value. STT on buy option positions that get exercised is 0.125 per cent of the entire contract value. There is no change in STT for the latter. For example, if you were to buy four lots of Nifty options at Rs 100 and sold these back at Rs 100, the break-even on this trade would now be Rs 100.05 instead of Rs 100.017. "This does not make any material difference to active traders but the fact that STT has been raised does not send the right signal to market participants," said Nithin Kamath, founder, Zerodha, an online discount stock brokerage.
He believes the impact on high net worth individuals (HNIs, meaning the wealthy) and retail participants will be negligible. "It won't reduce trading volumes but some of the jobbers and arbitrageurs will see a slight increase in cost."
The levy of a 10 per cent DDT for those earning annual dividend income of Rs 10 lakh or more is targeted mostly at promoters who pay hefty dividends and ultra HNIs. "This measure could prove counter-productive, as it might compel promoters with higher holding in companies to distribute less," said Deven Choksey, managing director, KR Choksey Investment Managers.
Assuming an average dividend yield of two per cent, one will have to own a portfolio of Rs 5 crore to get a dividend of more than Rs 10 lakh.
According to Manoj Purohit, director at Grant Thornton Advisory, this tax would discourage investors from remaining in equities for a long term. And, accelerate exit from the equity market prior to declaration of dividend and book closure dates. It will also create a disparity between resident and non-resident investors, as the latter are outside the purview.
The proposal to tax dividends in the hands of resident individuals, Hindu Undivided Families and companies will amount to multiple layers of taxation, said experts. First, the income earned by companies will be subject to tax. Then, DDT at 28.84 per cent to be paid by such companies on distribution of dividends. Then, additional DDT on investors whose dividend income is in excess of Rs 10 lakh.
In a positive for stock market participants, the Budget did not change the existing capital gains tax norm. Market participants had expected the holding period for equities to qualify as a long-term capital asset to be raised to three years, from the existing one year.
Also, a Budget proposal to not levy dividend distribution tax (DDT) on Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) could pave the way for listings of these instruments, said experts. The Budget also proposes to allow foreign companies to raise stake in Indian stock exchanges to 15 per cent from the existing five per cent, in line with the government's policy of allowing more foreign direct investment across sectors. Foreign investors including the likes of Deutsche Boerse, Argonaut PE, SAIF Partners, Tiger Global and Singapore Exchange hold about 30 per cent in the National Stock Exchange and 25 per cent in the BSE.
Market regulator Sebi (Securities and Exchange Board of India) has recently changed the norms to make it easier for exchanges to list.
"BSE welcomes the proposal. This is expected to improve the functioning of Indian stock exchanges and bring them at par with the best ones in the world, creating stronger links with the best foreign exchanges," said Ashishkumar Chauhan, managing director of the BSE.
The Budget has also proposed an amendment to the Sebi Act to increase the number of Benches of the Securities Appellate Tribunal (SAT). This will help speed up cases, as SAT only has a single, Mumbai-based one at present. It is also proposed to bring a comprehensive central legislation to deal with Collective Investment Schemes regulated by Sebi.
IT'S COMPLICATED
However, the increase in STT takes effect only when one sells the option and will be charged on the premium value, not the contract value. At present, STT on normal option trades done on exchanges is 0.017 per cent of the selling side of the premium value. STT on buy option positions that get exercised is 0.125 per cent of the entire contract value. There is no change in STT for the latter. For example, if you were to buy four lots of Nifty options at Rs 100 and sold these back at Rs 100, the break-even on this trade would now be Rs 100.05 instead of Rs 100.017. "This does not make any material difference to active traders but the fact that STT has been raised does not send the right signal to market participants," said Nithin Kamath, founder, Zerodha, an online discount stock brokerage.
He believes the impact on high net worth individuals (HNIs, meaning the wealthy) and retail participants will be negligible. "It won't reduce trading volumes but some of the jobbers and arbitrageurs will see a slight increase in cost."
The levy of a 10 per cent DDT for those earning annual dividend income of Rs 10 lakh or more is targeted mostly at promoters who pay hefty dividends and ultra HNIs. "This measure could prove counter-productive, as it might compel promoters with higher holding in companies to distribute less," said Deven Choksey, managing director, KR Choksey Investment Managers.
Assuming an average dividend yield of two per cent, one will have to own a portfolio of Rs 5 crore to get a dividend of more than Rs 10 lakh.
According to Manoj Purohit, director at Grant Thornton Advisory, this tax would discourage investors from remaining in equities for a long term. And, accelerate exit from the equity market prior to declaration of dividend and book closure dates. It will also create a disparity between resident and non-resident investors, as the latter are outside the purview.
The proposal to tax dividends in the hands of resident individuals, Hindu Undivided Families and companies will amount to multiple layers of taxation, said experts. First, the income earned by companies will be subject to tax. Then, DDT at 28.84 per cent to be paid by such companies on distribution of dividends. Then, additional DDT on investors whose dividend income is in excess of Rs 10 lakh.
In a positive for stock market participants, the Budget did not change the existing capital gains tax norm. Market participants had expected the holding period for equities to qualify as a long-term capital asset to be raised to three years, from the existing one year.
Also, a Budget proposal to not levy dividend distribution tax (DDT) on Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) could pave the way for listings of these instruments, said experts. The Budget also proposes to allow foreign companies to raise stake in Indian stock exchanges to 15 per cent from the existing five per cent, in line with the government's policy of allowing more foreign direct investment across sectors. Foreign investors including the likes of Deutsche Boerse, Argonaut PE, SAIF Partners, Tiger Global and Singapore Exchange hold about 30 per cent in the National Stock Exchange and 25 per cent in the BSE.
Market regulator Sebi (Securities and Exchange Board of India) has recently changed the norms to make it easier for exchanges to list.
"BSE welcomes the proposal. This is expected to improve the functioning of Indian stock exchanges and bring them at par with the best ones in the world, creating stronger links with the best foreign exchanges," said Ashishkumar Chauhan, managing director of the BSE.
The Budget has also proposed an amendment to the Sebi Act to increase the number of Benches of the Securities Appellate Tribunal (SAT). This will help speed up cases, as SAT only has a single, Mumbai-based one at present. It is also proposed to bring a comprehensive central legislation to deal with Collective Investment Schemes regulated by Sebi.
IT'S COMPLICATED
- Rs 50 lakh/day
Govt may earn from the increase in STT on options
- 10%
Dividend Distribution Tax on those earning annual dividend income in excess of Rs 10 lakh, may compel promoters with higher holding to distribute less dividend
- 15%
Amount till which foreign firms can increase their stake in Indian stock exchanges, as opposed to the existing 5% cap
- STT
Increase unlikely to hit trading volumes
- TAX
May lead to investor exit from the equity market before declaration of dividend and book closure dates
- SAT
Proposed increase in its Benches will help the tribunal speed up cases