Respected @nsitharaman ji and @FinMinIndia, Suggestion 2 of 3 for strengthening India's capital markets: Dividend income on listed equities should not be subjected to double taxation. A business can raise capital in only two ways: debt or equity. When a company raises debt, the interest paid to lenders is treated as a business expense and deducted before tax. The lender may then pay tax on the interest received. However, when a company raises equity capital, dividends are paid out of profits that have already suffered corporate tax. The shareholder is then taxed again on the same stream of income. More importantly, equity capital bears far greater risk than debt capital. A lender has a contractual right to interest and principal repayment. A shareholder has no such guarantee. Dividends are discretionary, capital is fully at risk, and the shareholder stands last in line if a business fails. If debt providers receive tax-deductible compensation despite bearing lower risk, there is a strong case for more favourable treatment of equity providers who supply the permanent capital that fuels entrepreneurship, innovation, employment and economic growth. India needs to encourage long-term risk capital and greater participation in equity markets. Tax policy should reward those who provide patient equity capital to Indian enterprises rather than place them at a relative disadvantage compared to debt capital. Respectfully submitted.
