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Budget provisions:
Securities Transaction Tax (STT) reduced on cash delivery transactions by 20 per cent from 0.125 per cent to 0.1 per cent on cash delivery transactions
Qualified Foreign Investors (QFIs) to access Indian Corporate Bond market
Simplifying the process of issuing Initial Public Offers (IPOs), lowering their costs and helping companies reach more retail investors in small towns. It is mandatory for companies to issue IPOs of 10 crore and above in electronic form through nationwide broker network of stock exchanges
Providing opportunities for wider shareholder participation in important decisions of the companies through electronic voting facilities, besides existing process for shareholder voting, which would be made mandatory initially for top listed companies
Permitting two-way fungibility in Indian Depository Receipts subject to a ceiling with the objective of encouraging greater foreign participation in Indian capital market
To encourage flow of savings in financial instruments and improve the depth of domestic capital market, it is proposed to introduce a new scheme called Rajiv Gandhi Equity Savings Scheme. The scheme would allow for income tax deduction of 50 per cent to new retail investors, who invest up to Rs 50,000 directly in equities and whose annual income is below Rs10 lakh. The scheme will have a lock-in period of 3 years
Restriction on Venture Capital Funds to invest only in nine specified sectors is proposed to be removed. It is further proposed to remove the cascading effect of Dividend Distribution Tax (DDT) in a multi-tier corporate structure
Industry Expectations- which remain unfulfilled:
Corporate tax rate of 30 per cent plus surcharge of 5 per cent plus cess of 3 per cent, results in effective tax rate of 32.45 per cent for domestic companies and tax rate of 40 per cent plus surcharge of 2 per cent plus cess of 3 per cent, results in effective tax rate of 42.024 for foreign companies which is significantly higher than in other developing / developed countries
To abolish surcharge and Cess on corporate tax and particularly the corporate tax is expected to reduce to 25 per cent. Tax rate applicable to foreign companies may also be relooked to provide level playing field and to facilitate better tax compliance and bring down cost of doing business in India
MAT to be brought down to 15 per cent from 18.5 per cent as the high rate adversely affects the MAT paying companies particularly the infrastructure companies
Need to pass the Forward Contracts (Regulation) Amendment (FCRA) Bill 2010 to provide autonomy to the Forward Markets Commission (FMC) with a view to recognise or derecognise bourses and collect funds from exchanges registered with it. Besides, once it comes into force, the FCRA bill will further enable overcoming current shortcomings in the commodity market
Budget Impact
Although reduction in STT is for delivery transaction only it is a welcome step. Rajiv Gandhi Equity scheme will help revive the retail investor interest in the equity markets and augurs well for the long-term health of the broking industry.
Outlook
Although the reduction of STT has been viewed as less than expected but still majority of the market seems to feel that Budget 2012 has made the market simple and accessible.
With the introduction of Rajiv Gandhi Equity Savings Scheme investors will get a 50 per cent deduction on short-term capital gains tax will be allowed for new investors in the equity market up to an annual investment limit of Rs 50,000 and whose annual income is below 10 lakh and this is expected to deepen stock market investors base and reduce volatility.
This coupled with the STT reduction is for sure would increase participation from retail investors and boost the market sentiment. Overall Union Budget 2012-13 was marginally positive for Broking Industry.
