Capital market representatives on Tuesday urged the government to cut securities transaction taxes (STT) and introduce measures to deepen the financial sector.
During the pre-Budget meeting with Finance Minister Nirmala Sitharaman, they also put forward proposals to improve market efficiency, widen investor participation and strengthen capital-raising mechanisms, sources said.
The meeting was attended by MoS Finance Pankaj Chaudhary, Economic Affairs Secretary Anuradha Thakur, Chief Economic Adviser V Anantha Nageswaran and other senior officials.
A key demand was the reduction of the STT on cash market trades, which stands at 0.10% for delivery transactions — higher than the levels applicable to derivatives.
Market participants argued that this imbalance has skewed trading volumes towards options and futures, amplifying speculative activity and weakening the depth of the cash market. Aligning STT rates, they said, would help restore equilibrium and promote healthier market behaviour.
Industry representatives also pushed for a rationalisation of the buyback tax. At present, companies pay 20% tax on the entire buyback amount —essentially the full consideration paid to shareholders. The market’s suggestion is to levy tax only on the profit component, calculated as the difference between the buyback price and the original issue price. Such a move, they said, would align the tax with capital-gain principles and encourage cleaner capital-allocation strategies.
Another key recommendation centred on dividend taxation. NRIs currently pay a flat 20% tax on short-term dividend income, while domestic investors can face rates as high as 42% since dividends are added to total taxable income and subjected to slab-based tax plus surcharge and cess. Market players urged the government to harmonise tax rates, ensuring domestic investors, too, pay 20%.
Capital markets mobilised Rs 14.6 lakh crore in FY25, up 33% from the previous year, driven largely by equity and debt issuances, which together accounted for Rs 14.2 lakh crore.