Demand among several pre-Budget representation by BSE Brokers' forum
The stock broking community wants the official tag of ‘industry’. It feels the move will get it better access to bank funding and help its expansion plans.
“This will create more jobs and, in turn, develop the equity cult in the economy,” the BSE Brokers’ Forum said in a pre-budget memorandum to the finance minister.
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India's capital market infrastructure is one of the biggest in the world in terms of intermediaries, who form the backbone for any such development, according to the forum.
“There is a great amount of reluctance to lend to brokers,” Alok Churiwala, managing director of Mumbai-based Churiwala Securities, told this newspaper.
“There are other players who enter the broking business in the garb of capital market services. They have better access to finance. For example, banks have no bar to do broking. But, brokers don’t have any access to banking. This would change the moment we get the status of an industry.” He's also vice-chairman of the BSE Brokers Forum.
At present, institutional lending is limited to loans against shares by non-banking financial companies. Even this comes with several restrictions from the central bank.
The community comprises about 1,400 brokers registered with BSE and the National Stock Exchange, and about 50,000 registered sub-brokers, providing employment to a million people in the economy, the forum claimed. Industry status is one of several demands from the two-decade-old Forum, which has some 850 members.
Other demands pertain to various sections of the income tax law. These include restoration of a rebate under Section 88E, which will result in the government continuing to get securities transaction tax but reducing the burden on investors.
Under Section 73, securities transactions of corporate entities are treated as ‘speculation’, which creates complications. “Their participation in the market is as vital as of any other investor. Also, this proviso was introduced way back in 1977. Surveillance has improved significantly and those circumstances no more exist," the Forum says, suggesting this proviso "be removed or amended suitably”.
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Section 44AB, the Forum says, requires audit of accounts if annual turnover exceeds Rs 1 crore and income is lower than eight per cent of turnover. As the size, volumes and paying profile of this market is completely different from other traditional markets, the forum has suggested that securities transactions be exempted from this provision.
Section 14A, Rule 8(D), disallows disproportionate expenses on a presumptive basis against dividend income, which substantially reduces the benefit of the exemption given on this. Sometimes, the disallowance is higher than the dividend income itself. Therefore, the Forum has suggested dividend income be excluded from this provision.
It says exemption for commodities transaction brokerage from tax deducted at source is required on the lines of securities transaction brokerage already given.
The Forum has also sought a reduction in dividend distribution tax, a clear definition of business income and of capital gains, so that assessing officers do not take arbitrary views on these matters.
