Market players meet Sitharaman, seek single tax on sale of employee stock options | The Financial Express

Market players meet Sitharaman, seek single tax on sale of employee stock options

Among the main demands was the tax incidence on employee stock options (Esops) only on selling. Currently, tax is levied at two points.

Market players meet Sitharaman, seek single tax on sale of employee stock options
Insurance players asked that the companies be allowed to register or function as composite insurance firms offering life insurance, general insurance and reinsurance under one roof. (IE)

Market players reached out to finance minister Nirmala Sitharaman with a litany of demands at a closed door, pre-Budget meeting on Tuesday.

Among the main demands was the tax incidence on employee stock options (Esops) only on selling. Currently, tax is levied at two points. One, at the time of vesting and then, there is a capital gains tax when the shares are sold. Industry players said that since the investor doesn’t have the money (since the shares haven’t been sold at the time of vesting), the taxation should be when the shares are sold.

The other demands include increased STT rates on options trading in the equity derivatives segment since it was being used as a vehicle for speculation, which needed to be curbed, they said. Incentivising investment over speculation is the need of the hour, said sources.

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The Securities and Exchange Board of India (Sebi) is deliberating on ways to dissuade retail investors from recklessly punting in the equity derivatives segment. In June, Sebi had reached out to the country’s top brokers, asking them to furnish details of F&O clients, including age, income range, city and the profits made from trading in the segment in the year before and after the pandemic.

Insurance players asked that the companies be allowed to register or function as composite insurance firms offering life insurance, general insurance and reinsurance under one roof. There is a need to simplify taxation of annuities products which are taxed at different rates post retirement, lowering overall taxes and ensuring that only the interest component, and not the principal component, is taxed. Mutual funds want the tax treatment for retirement plans to be brought on par with NPS plans.

Currently, there are different tax rates for NPS, mutual funds, Ulips and zero-coupon debentures. The industry sought parity in taxation so that investors put in money on the basis of merit rather than post tax returns. In addition, the industry seeks centralised KYC across regulators for the ease of investing.

Another concern raised by the industry was the flight of capital when high networth individuals move to another country. Industry players seek enhancement of provisions under Gift City rules so as to ensure that there is no flight of capital.

Banks want greater credit enhancement framework and lowering of the risk weightage. NBFCs want parity with banks in terms of exemption of TDS and EMIs, and better coverage under the SARFAESI Act.

The industry wants the expenses of an AIF to be passed through to the investor the same way income and losses are. The expenses are considered “dead loss” in industry parlance since neither the AIF nor the investors can offset these expenses against income or capital gains. A separate legal structure in the form of a variable capital structure should be created for AIFs to ensure that any changes in the Companies Act or the definition of an LLP does not impact the funds from an operational standpoint. Category III AIFs is taxed at the AIF level depending on whether it is set up as a trust, company or LLP and should be allowed a pass-through status.

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The commodities market has asked for rationalisation of costs in the form of lower commodities transaction tax, or CTT, to Rs 500 for commodities derivative trades per crore on the exchanges from Rs 1,000 at present. Reintroduction of banned agri commodities on the exchange platform is another ask. “There is no reason for banning agri commodities as there is no evidence that such trading pushes up inflation,” said a person familiar with the matter.

The industry also demands parity in tax on capital gains from unlisted and listed securities across different holding periods. Similarly, debt and equity categories of mutual funds should be taxed uniformly across holding periods, they said.

The government has already indicated it is looking simplifying the capital gains tax regime to align the tax rates and holding period across the asset class in the upcoming Budget.

Currently, the long-term capital gains tax (LTCG) is more benign on listed shares, while other types of assets, including real estate, attract the tax at higher rates. The taxpayers have to hold these for longer periods to escape the higher short-term taxes.

The industry is hopeful that the tax rejig could lower the tax incidence on gains arising out of the sale of unlisted equity shares, units of real estate investment trusts and perhaps even debt funds.

The last time the government tinkered with the capital gains tax regime was in the Budget for FY19, when it reintroduced LTCG on listed shares.

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First published on: 23-11-2022 at 06:15 IST