With a view to increasing retail participation and deepen the corporate bond market, online bond platform providers (OBPPs) are pitching for the removal of tax deduction at source (TDS) on corporate bonds and integration of these platforms with the Reserve Bank of India’s (RBI) Retail Direct Platform in the upcoming Union Budget, founders and co-founders told Moneycontrol.
“TDS on corporate bonds is a deterrent for investors and an additional compliance for issuers. It will be more investor-friendly if TDS on corporate bonds is removed ,” said Vijay Kuppa, CEO at InCred Money.
Experts said that the integration of RBI Retail Direct Platform with these platforms will allow retail investors to directly invest in government bonds.
Abhijit Roy, co-founder of GoldenPi, an OBP (online bond platform), said retail investors should be allowed to apply for G Secs through these bond platforms as well as through RBI's Retail Direct platform.
OBPs are companies that sell bonds or non-convertible debentures (NCDs) to investors, especially retail investors, through their websites or mobile apps.
Around 16-18 members, or bond portals, are part of this association. They include IndiaBonds, GoldenPi, The Fixed Income, Wint Wealth, BondsKart, BondsIndia, Bond Bazar, Grip Invest, and Aspero.
Introduction of TDS
In the Finance Bill 2023, the government announced the omission of clause (ix) under Section 193 of the Income-Tax (I-T) Act, which exempts TDS on interest payments on listed bonds.
Clause (ix) of Section 193 of the I-T Act provides that no tax is to be deducted in case of any interest payable on any security issued by a company, where such security is in dematerialised form and is listed on a recognised stock exchange in India.
However, all bondholders were required to to pay TDS on returns.
Anshul Gupta, Co-Founder of Wint Wealth, explains what this means. "If a bond is paying interest every 12 months and I purchase the bond after 11 months, even though I will get interest for only one month, the TDS will be deducted for 12 months. This impacts secondary market trading of bonds," he said.
This has actually impacted the returns of investors in listed bonds .
Tirth Shah, Founder of The Fixed Income.Com, wants the government to announce additional tax deductions for investments in bonds under Section 80C to encourage greater retail participation.
Nikhil Aggarwal, Founder & CEO, Grip Invest, said there are several areas where tax parity would be very helpful to further develop the bond and fixed-income market in India.
Also read: Retail investor participation in online bond platform grow 30-40% in FY24, shows data
Recent development in OBPP industry
On May 29, the Online Bond Platform Provider Association of India said it has appointed Aditi Mittal from IndiaBonds as Chairperson of the association.
On November 28, Moneycontrol exclusively reported that the Ministry of Corporate Affairs has approved the application submitted by OBPPs for the formation of an industry body.
Earlier on November 2, Moneycontrol reported that the OBPP Association has submitted its application for incorporation to the Registrar of Companies (RoC), which falls under the Ministry of Corporate Affairs.
“We have submitted our application to the registrar, and it is likely to get completed in the next 15-20 days,” a source had said on condition of anonymity.
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