The Securities and Exchange Board of India (Sebi) has requested the government to introduce tax breaks for subscribers of municipal bonds. These bonds are considered essential for financing infrastructure development at local levels, a senior official reported on Tuesday.
The capital markets regulator is also planning to advocate for tax incentives for municipal bonds during a forthcoming meeting with the Finance Commission, according to Sebi whole-time member Ashwani Bhatia.
Moreover, Sebi may soon implement additional measures to enhance investor protection in the futures and options (F&O) segment, Bhatia added. His comments were made at an event hosted by the Institute of Chartered Accountants of India (ICAI) in the national capital.
So far, municipalities in India have raised only Rs 2,700 crore through bonds for infrastructure projects, which accounts for just 0.6% of the country’s total bond market, Bhatia noted. This is significantly lower compared to the US municipal bond market, which stands at $4 trillion, representing 7% of the American bond market. In the US, most municipal bond incomes are exempt from tax.
Regarding the F&O segment, Bhatia mentioned, “Sebi is very soon going to do something about F&O. A recently completed study has indicated this need.” In a recent consultation paper, Sebi proposed seven measures to tighten regulations for index derivatives. These include revising the minimum contract size and requiring upfront collection of option premiums. Experts believe these steps will improve risk management within the derivatives market.
