Capital markets representatives called for more credible steps to expand the corporate bond market, which is a must for realising the goal of turning India into a developed nation by 2047.
The corporate bond market accounts for just about 23% of the country’s $2.8-trillion bond market. Securities of the central and state governments currently dominate the bond market.
As for the STT, a 0.1% of the tax is levied on the transaction value on the purchase and sale of listed equity shares. However, on futures and options, the tax is 0.02% and 0.1%, respectively, of the value.
Some representatives also batted for lowering the buyback tax incidence. Companies currently fork out a 20% tax on the entire buyback amount -essentially the full consideration paid to shareholders. They also submitted proposals to improve market efficiency, expand investor participation and bolster capital-raising mechanisms.
The meeting was also attended by minister of state for finance Pankaj Chaudhary, economic affairs secretary Anuradha Thakur, chief economic advisor V Anantha Nageswaran and other senior finance ministry officials.Liberalised regime for startupsRepresentatives from the startup and venture capital ecosystem sought liberalised rules to allow pension funds to invest higher capital in alternative investment funds (AIFs), and a simplified taxation regime for employee stock ownership plans (Esops).
At present, domestic pension funds are allowed to invest up to 5% of their surplus capital in AIFs.
Separately, manufacturing startups sought export subsidies and other incentives to improve the competitiveness of Indian brands globally.
“The simplification of Esop taxation has been on the top of demands by startups… particularly considering the wealth creation that’s happening for employees in the context of increasing number of companies going public,” a startup founder present at the pre-budget meeting said on condition of anonymity.
Currently, employees pay the income tax when they exercise their Esops, or convert them to shares. They again have to pay the capital gains tax at the time of selling the stocks.
“While exercising, employees have to either pledge their shares or take a loan to pay the tax… especially in cases where the company’s value has grown rapidly,” said the founder.
The startup industry has argued that removing the tax at the exercise stage would make Esops more attractive and allow companies to reward their employees better.
The representatives also reiterated demand for easier regulations to bolster domestic investment in Indian AIFs.
“Some of these rules for pension funds that hold large corpuses were written decades ago when AIFs did not exist,” said a venture capital executive, who did not wish to be identified. “We’re now asking the government to allow this pool of capital to back startups through mechanisms that avoid unnecessary risks. For deeptech startups, India needs a large quantum of patient capital and that can only come from domestic money.”