The government today sought to make trading in capital markets less costlier and simpler, with the first-ever tax benefit for direct investments in stocks and lowering of securities transaction tax, along with various other measures to boost equity, commodity and bond markets.
Announcing the budget proposals for 2012-13, Finance Minister Pranab Mukherjee also said that the process for Initial Public Offer of shares would be made simpler and the costs would be lowered in this regard.
Besides, he proposed to allow Qualified Foreign Investors in the corporate bond market and establish a mechanism for voting by shareholders electronically on important decisions by the companies.
Accepting a long-pending demand of the stock market for lowering the transaction costs in the capital markets, the Budget has proposed a reduction in Securities Transaction Tax (STT) by 20%, from 0.125% to 0.1%, on cash delivery transactions.
To further encourage flow of savings in financial markets, it also introduced a new scheme, called Rajiv Gandhi Equity Savings Scheme.
The scheme would allow for income tax deduction of 50% to new retail investors, with annual income of below Rs 10 lakh, putting in up to Rs 50,000 directly in equities. The scheme will have a lock-in period of 3 years.
The steps were readily welcomed by the various capital market players, although some said that the tax benefits under the new scheme could be against the mutual fund and insurance sectors. So far, tax benefits have been available to investors putting in their money into markets through certain mutual funds and unit linked insurance schemes.
Mukherjee also said that the the process of issuing IPOs would be simplified and the costs would be lowered to help companies reach more retail investors in small towns.
He also allowed two-way fungibility in Indian Depository Receipts with the objective of encouraging greater foreign participation in Indian capital market. This would enable more foreign firms to list and issue shares in India, as against just one such entity, Standard Chartered Bank, as of now.
Lauding the budget proposals for capital markets, the country's newest stock exchange MCX-SX's MD and CEO Joseph Massey said that Rajiv Gandhi Equity Saving Scheme, a lowered STT and introduction of electronic platform for the IPO subscription process would develop Indian capital markets and enhance retail participation.
ICICI Securities' MD & CEO Anup Bagchi said that initiatives like Rajiv Gandhi equity savings scheme, lowering of STT and higher tax-free infra bonds would lead to increased participation from retail investors.
Leading commodity exchange MCX's MD & CEO Lamon Rutten said that the budget has taken various positive steps to develop the commodity market ecosystem and infrastructure such as enhancement of agriculture credit, storage and marketing facilities are crucial.
However, doubling of customs and excise duties on gold would affect import of gold and increase prices of the precious metal, although exemption of excise duty on branded silver jewellery will boost demand, he added.
Yes Bank's Managing Director and CEO Rana Kapoor said that the Finance Minister has made a strong recognition of banking and capital markets as the main intermediary and key for transmitting monetary policy.
"Measures towards deepening the corporate bond market, attracting qualified foreign investments and increasing participation of retail investor in equity and bond is very credible and long term," he added.
Homi Mistry, Partner, Deloitte Haskins and Sells, said that the reduction in the STT rate would give a boost to the capital market, while tax benefits under Rajiv Gandhi Equity Saving Scheme is also a step in the right direction for the benefit of capital markets.
Sunil Goyal, MD, Ladderup Corporate Advisory Pvt Ltd, said that the proposal to allow QFIs to access corporate bond market and tax incentive for subscription to capital issues by retail investors will attract funds in capital market from a larger number of the investors.
Centrum Broking CEO Sandeep Nayak said that the broking industry would get a big boost with the proposed Rajiv Gandhi Equity Scheme and more retail investors would into the market to avail the tax benefits.
"This coupled with the reduction in STT by 20% on investment transactions is very positive for capital market intermediaries," he added.
