To check tax evasion and attract more retail investors to stock markets, top exchange BSE has proposed that the Securities Transaction Tax (STT) should be substituted by long Term Capital Gains Tax (lTCG) on equities.
This would also help the Government get more tax revenues as the overall STT collection (about `21,000 crore in last four years) is far below the quantum of suspected tax evasion. "If STT is substituted by lTCG on equities, Government would get more revenue, misuse of the tax incentive curbed and retail investors would come back to market," BSE has said in a a presentation to the Finance Ministry. In last four years, BSE and NSE had collected STT to the tune of `21,090 crore, while the suspected tax evasion by misuse of incentives available in stock market is estimated at about `20,000 crore in just a one-year period.
The capital gains needs to paid on profits made by an investor. But, the lTCG in stock market is nil if the investment is held for more than a year. The STT on the other hand is payable on all sale and purchase transactions of the securities.