Concessions,please

Capital markets: No STT

For the capital markets,the biggest bugbears are the Securities Transaction Tax (STT) and high stamp duty charges that make share market transactions in India one of the most expensive in the world. Currently the statutory cost of trading in India is 1.3-1.8 basis points for derivatives,whereas in the US,Europe and most Asian markets it ranges from 0.2-0.4 basis points. Stamp duty charges differ from state to state. Brokers are also subjected to double taxation. “The government must reduce the STT and the stamp duty. The issue of double taxation also needs to be addressed. Moreover,the government should clarify the ambiguity created by a circular from the Central Board of Direct Taxes (CBDT) that sets vague criteria for classifying short-term capital gains,” says Gajendra Nagpal,chief executive officer,Unicon Financial Intermediaries.

MFs: Treat fund of funds at par with equity funds

The mutual fund industry would like to see the tax treatment of fund of funds and global equity funds (i.e.,mutual funds based in India that invest in foreign equities) changed. Says Lakshmi Iyer,head (fixed income),Kotak AMC: “The tax treatment of Indian fund of funds (FoF) and global equity funds,which are at present treated at par with debt funds,needs to change. They should be treated as equity funds,where the long-term capital gains tax is zero after a year.”

Personal taxes: Raise the basic exemption limit

The basic exemption limit on your income currently is Rs 1.5 lakh. Further,a surcharge of 10 per cent of the total tax liability is charged from taxpayers whose income exceeds Rs 10 lakh. An education cess of 3 per cent is also charged. According to Kanu Doshi,a Mumbai-based chartered accountant,“The surcharge should be abolished. A surcharge is levied for a specific purpose such as a calamity that needs to be funded. As no such catastrophe has occurred in the last one year,there is no point in continuing with it. The surcharge also complicates the tax calculation. The education cess should also go. Further,the government should raise the basic exemption limit from Rs 1.5 lakh to at least Rs 3 lakh. In addition,if someone declares an extra income of Rs 1 crore over and above their normal income declaration of,say,Rs 2 crore,that extra income should be taxed under the marginal tax bracket of 20 per cent instead of 30 per cent. This will provide an incentive to taxpayers to declare additional income.” Doshi would also like to see the exemption limit under Section 80C go up from Rs one lakh to at least Rs 2 lakh.

A. Balasubramaniam,chief investment officer,Birla Sun Life Mutual Fund,would like to see the limit of Rs one lakh for rebates on investment in infrastructure-related bonds raised. “This will boost the availability of funds for infrastructure spending,” he says.

According to Saurabh Nanavati,chief executive officer,Religare AMC,“We expect to see incremental steps towards simplification of tax norms. Small changes to individual tax slabs could be made and Fringe Benefit Tax could be removed.”

Commodities: Hold CTT in abeyance

The foremost concern here pertains to Commodities Transaction Tax (CTT). Last year’s Budget had proposed to levy this tax,but it was not implemented. Says Ananda Kumar,chief of corporate services,NCDEX: “Defer the implementation of CTT. Since the commodities futures market is relatively new in this country,implementation of CTT will deal a big blow to it.”

According to Jayant Manglik,president,Religare Commodities,there is a need to rationalise the taxes that prevent free movement of commodities within the country. Elaborating on others reforms that need to be undertaken in the commodities market,he adds: “The system of arbitrary bans on futures trading of commodities should be stopped and replaced by a transparent,graded margining system in case the government feels inclined to modulate temporary market price volatility. All commodities futures currently banned should be re-listed with newly specified margins. Further,banks,mutual funds and foreign institutional investors (FIIs) should be allowed to invest in commodities trading in line with global practices.”

Real estate: Higher deduction on interest payment

The need to provide a fillip to the housing and construction industry,which is the second-largest employment provider after agriculture and has linkages with a large number of other sectors,cannot be gainsaid. Providing higher tax incentives to homebuyers would be one way of stimulating demand in this sector. According to R R Nair,director and chief executive officer,LIC Housing Finance,“Considering the recent increases in property prices,the deduction on home loan interest payment,which is currently Rs 1.5 lakh,is not enough for the urban homebuyer. Increasing this deduction to Rs 2.5 lakh would act as a strong trigger for increasing demand. Moreover,the Section 80C benefit for principal repayment on housing loan also does not fully benefit homebuyers,since it is clubbed with other investments like Provident Fund (PF) contribution,Public Provident Fund (PPF),National Savings Certificate (NSC),and insurance premium. The overall limit of Rs 1 lakh is insufficient. Segregate the principal repayments from other investments and allow a separate deduction of Rs 1 lakh for this head.”

At present,only housing of up to Rs 20 lakh is treated as priority sector. This needs to be raised in view of the rise in property prices in most large cities. “Increasing the limit from Rs 20 to Rs 30 lakh will enable banks to provide cheaper funds to housing finance companies (HFCs). This will in turn enable HFCs to lend at a lower interest cost to homebuyers,” adds Nair.

Life and general insurance: Lower service tax

The life insurance industry has a three-point agenda for the Budget:

Separate deduction limit. At present,investments made in life insurance policies qualify for tax deduction under Section 80C. However,a host of other instruments are also included under this section (mentioned earlier). And the maximum you can save with all these instruments combined is Rs 1 lakh. The insurance industry is seeking a sub-limit within this section exclusively for investments made in long-term insurance products,or an increase in the overall limits for Sections 80C and 80D.

“Investments made in instruments that have more than five years’ tenure should be offered incentives,” says Kapil Mehta,chief executive officer,DLF Pramerica Life Insurance.

Exemption of tax on annuities. Currently annuities are treated as income and are taxable in the hands of investors. This deters people from using annuities to meet their post-retirement monthly income need. “Retirement planning is a must,so we seek exemption of tax on annuities,” says S B Mathur,secretary general,Life Insurance Council.

Lower service tax. “Service tax should be levied only on fund management charges; all other charges should be exempt from service tax,” says Rajesh Sud,chief executive officer,Max New York Life Insurance. A lower service tax would translate into lower premium.

Like life insurance,the general insurance industry too is seeking removal of service tax. “The growth of the insurance industry requires a waiver of the service tax,which currently stands at 10.3 per cent,including the education cess. Waiver of this charge will make micro-insurance products more affordable,” says N K Kedia,director marketing,Iffco Tokio General Insurance.

The industry is also looking at changes in limits that were prescribed years ago. “There is a need to increase the threshold for the levy of service tax on policies. The present notification exempts transactions involving premium of less than Rs 50 (except motor insurance) from service tax. This threshold limit,which was fixed in 1994,needs to be revised. Small transactions involving premium of up to Rs 1,000 should be exempt from service tax. This will benefit the under-privileged sections of our society,” says Ajay Bimbhet,managing director,Royal Sundaram Insurance. He further adds: “Moreover,the government’s Universal Health Insurance Scheme exempts PSU companies from service tax. This exemption on rural health insurance premiums should be made applicable to private players as well.”

According to the General Insurance Council,an income tax exemption for householders’ policies should be granted. “This will give a fillip to this sector and reduce the burden on the government in the event of catastrophes,” says SL Mohan,secretary general,GIC.

Pension: Parity for NPS,the new kid on the block

The interim regulator for the New Pension System,Pension Fund Regulatory and Development Authority (PFRDA),is seeking clarity on taxation issues. At present,contributions made to NPS by the self-employed do not qualify for tax concessions. The regulator is also seeking a level-playing field for NPS vis-à-vis other retirement products. “Long-term saving products by the government like the EPF,PPF and GPF are all exempt from tax at all stages — contribution,investment and disbursement. But NPS and other retirement policies by life insurance companies are taxed at withdrawal. I am only requesting for a level-playing field,” says D Swarup,chairman,PFRDA.

With so many demands jostling for his attention,the FM will have to weigh each on its merit. Often,a short-term loss of revenue to the exchequer is justified if it spurs a medium- or long-term growth of the sector (which translates into higher revenues for the government). Get ready for the drama and the excitement of B-Day and watch how many of these proposals pass muster. •

niti.kiran@expressindia.com,suneeti.ahuja@expressindia.com