Sebi favours tax breaks for municipal bond subscribers: Official

The Securities and Exchange Board of India (Sebi) has approached the government to allow tax breaks for subscribers of municipal bonds that are crucial for funding infrastructure development at the grass-root levels, a senior official said on Tuesday.

The capital markets watchdog will also root for a tax break for municipal bonds during its meeting with the Finance Commission, Sebi whole-time member Ashwani Bhatia said.

The regulator could soon take more steps to further bolster investor protection in the futures and options (F&O) segment, he added.

Bhatia was speaking at an event organised by the Institute of Chartered Accountants of India (ICAI) in the national capital.

Municipalities in India have raised only Rs 2,700 crore through bonds for infrastructure projects, which represents just 0.6% of the country’s overall bond market, Bhatia said.

This pales in comparison with the US municipal bond market of $4 trillion, representing 7% of the American bond market. Also, incomes from most municipal bonds in the US are exempt from tax.As for F&O, Bhatia said, “Sebi is very soon going to do something about F&O. Study has come (recently).”In a recent consultation paper, Sebi has proposed seven measures to tighten the rules for index derivatives. These include revision of the minimum contract size and requirement of upfront collection of option premiums.

These steps, experts have said, would improve risk management in the derivatives market.