Budget 2019: CII has also said that dividend distribution tax should be brought to 10 per cent.

Industry body Confederation of Indian Industry (CII) has called for a lower tax incidence on equity investments by the government in the upcoming Budget. Such a move, according to CII, will incentivize risk capital in the economy. Currently, a corporate tax of 35 per cent is applicable on large corporations. Another 20 per cent is levied from them as dividend distribution tax if they pay out dividend, and thirdly, investors receiving a dividend sum of more than Rs 10 lakh have to pay a 10 per cent tax, according to CII. Besides, when the investor sells his or her equity after 12 months for listed shares or 24 months for unlisted shares, a long-term capital gains tax (LTCG) of 10 per cent is applicable on the profit amount exceeding Rs 1 lakh. (Also Read:PM Narendra Modi's New Budget Key to Reviving India's Animal Spirits)

"The current taxation system favours debt funding over equity investments, thus encouraging greater debt in the economy. With lower taxation on equity, investors would bring in more risk capital which in turn will drive economic growth," CII director general Chandrajit Banerjee said.

Industry body CII said in a statement that the tax rate on all corporates should be reduced to 25 per cent unconditionally without any turnover criteria at the earliest. Further, this should be brought down to 18 per cent in a phased manner with simultaneous elimination of exemptions.

Delhi-based CII has also recommended that the dividend distribution tax should be brought down from 20 per cent to 10 per cent in the Budget 2019.

"Since the tax incidence on equity investments in India is high, companies are more comfortable with sourcing funds through debt. As a result there is a lack of risk capital within the country for building new businesses or expanding the existing businesses," CII said in a statement.

Increasing dependence on credit has also led to rising non-performing assets of banks, which doubled from 5.1 per cent of total bank advances in September 2015 to 10.8 per cent in a period of three years, according to CII.

In order to kick-start the economy, and to encourage investments, CII has recommended that the cost of equity should be reduced, so that investors are encouraged to take equity risks at a time when raising the growth rate is of utmost importance.