Veteran investor Vijay Kedia has made a fresh appeal to the Finance Minister Nirmala Sitharaman for reforms aimed at strengthening India’s capital markets, this time calling for the removal of dividend taxation on listed equities.
This is the second request made by Kedia, with the first calling for the abolition of the long-term capital gains (LTCG) tax. His suggestions come at a time when the Indian stock market’s leading bourses, Sensex and Nifty 50, are languishing due to the persistent foreign investor selloff, rupee weakness and oil price shock, along with the threat of earnings slowdown, and investor sentiment is weak.
Nifty 50 has lost 8% so far this year, putting it on track for its first annual loss after a decade of gains.
Scrap double taxation on dividend
Making a case for rewarding patient, long-term capital market investors, Kedia in a social media post on X today, 28 May, said, “Dividend income on listed equities should not be subjected to double taxation.” In his post, Vijay Kedia argued that equity investors are being treated unfairly compared to debt investors despite taking significantly higher risks.
“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,” Kedia said as he sought removal of “double taxation” of dividends.
He explained that companies generally raise capital through either debt or equity. In the case of debt, interest paid to lenders is treated as a business expense and deducted before tax, while the lender pays tax on the interest income received.
However, when a company raises equity capital, dividends are paid out of profits that have already suffered corporate tax, and then the shareholder is taxed again on the same stream of income, Kedia highlighted.
Kedia also highlighted the difference in risk between debt and equity investors.
“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,” he said.
The investor argued that equity capital deserves more favourable tax treatment because it represents long-term risk capital that supports entrepreneurship, innovation, employment and economic growth.
He further stated that India should encourage long-term participation in equity markets and reward investors who provide “patient equity capital” to Indian businesses.
Kedia’s latest comments come amid a broader debate around capital market taxation in India. Market participants have often argued that frequent tax changes and higher levies reduce the attractiveness of equities for retail investors.
Earlier in the day, Kedia had suggested removing LTCG tax on equities, calling it one of three ideas for strengthening India’s capital markets.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
