Capital market participants have suggested the government establish a ‘National Development Mission’ by incentivising investments in public issues and mutual funds that could help the exchequer garner ₹1.75 lakh crore during the current financial year.

The funds can be used for national development activities.

The suggestion, which is part of the pre-budget proposals submitted by market participants, states that the government can provide certain tax benefits for such investments that could also, in turn, enhance the equity investment culture in the country.

“We propose that all individuals and HUFs should be eligible to invest in IPO/FPOs/mutual funds for... a sum of ₹50,000 per annum.

To incentivise this investment, 50% of the amount invested should be allowed as a deduction from the gross total income of the individual/HUF,” stated the memorandum submitted to the Finance Ministry.

The memorandum further states that the government would be able to garner at least ₹1.75 lakh crore in 2019-20 even if only 50% of the tax assesses use this avenue to invest.

‘No-obligation capital’

The advantage of this fund raising is that as it is in the form of equity so it is sunk capital with no obligation to either return the funds or to give regular return on the funds invested, added the note.

Interestingly, the amount mobilised could go up to as much as ₹2.45 lakh crore in the next five years as the number of assesses rise and more tax-payers use the incentives to invest in equity, as per the note.

Rationalising STT

On a different note, the market participants have reiterated their demand for rationalisation of the securities transaction tax (STT),especially with delivery-based derivatives contracts becoming mandatory so that investors and traders do not have to pay a higher quantum of tax.

Also on the wish list is the reintroduction of the rebate that was earlier available under Section 88E of the Income Tax Act, which allowed tax benefits in lieu of the STT paid on stock market transactions.

The capital market fraternity has also requested the government to do away with dividend distribution tax (DDT) and only the recipient be taxed at 10% for the dividend received.

“The DDT levied on the company, plus the dividend tax levied on the shareholder that receives more than ₹10 lakh as dividend, clearly result in double/triple taxation of income that has already been subject to tax, and goes against the very principle of fair taxation,” stated the memorandum.