Industry seeks major overhaul in capital market taxes in pre-budget meet

India’s capital market industry has put forward a strong case for a comprehensive tax overhaul as Finance Minister Nirmala Sitharaman met market representatives in New Delhi for pre-Budget discussions.

According to sources, the proposals reflect long-standing concerns about liquidity, investor efficiency, and tax parity.

A reduction in Securities Transaction Tax (STT)—especially on cash market trades—topped the agenda. Market participants reiterated that STT on equity cash trades must be kept meaningfully lower than derivatives to restore balance between the two segments and help revive market depth.

The industry also pushed for reforms to buyback taxation, calling for the levy to apply only on the profit component of a buyback instead of the entire amount. Several companies have pointed out that the current structure discourages efficient capital return and has made buybacks more expensive compared to dividends.

Another key demand was alignment of short-term dividend tax rates between domestic investors and NRIs. While non-resident investors pay a flat 20%, domestic investors can face tax rates as high as 42% in the short term.

Alongside tax reforms, there was broader discussion on boosting household participation in equities, with a proposal to raise retail ownership from the current 5% to around 8% over time. Industry representatives believe that rationalising transaction and dividend taxes would significantly support this transition.

With these recommendations now before the Finance Minister, attention shifts to how many of these proposals are incorporated into Budget 2026.