Will government lower STT ratesafter all?

India Infoline News Service | Mumbai |

Reports state that SEBI has urged finance ministry to lower Securities Transaction Tax.

The market is on a roll and expectations are running high that the cost of transactions could reduce as far as the stock market is concerned. The Securities & Exchange Board of India has reportedly suggested that Securities Transaction tax should not be levied on investors when they buy stocks in the cash market.  In case of futures and options, only the seller pays STT and this perhaps explains why a lot of retail investors have jumped into this segment without really understanding the risks involved.  STT was earlier touted as a clean and efficient way of collecting taxes from financial markets.
 
According to a report, Sebi has also said that STT rates for different kinds of transactions on stock exchanges should be reduced. The proposal was discussed on Saturday at the meeting of the Financial Stability and Development Council (FSDC).
 
Meanwhile, the Bombay Stock Exchange, in a letter to the finance ministry has reportedly stated that STT on equities, which is basically for investment, needs to be brought down (while that on) futures should be higher and (the rate on option) should be even higher. (It should be) applicable across asset classes stocks, non-agricultural commodities, currency, interest rate, etc to ensure there is no tax arbitrage," the exchange has said in a letter to the ministry.
 
The securities transaction tax (STT) was introduced in India a few years ago, to stop tax avoidance of capital gains tax. Earlier, many people usually didnt declare their profits on the sale of stocks and avoided paying capital gains tax. The government could tax only those profits, which have been declared by people. 
 
To stop this situation, the then Finance Minister P Chidambaram in the Union Budget 2004-05introduced STT. Transactions in stock, index options and futures would also be subject to transaction tax. This tax is payable whether you buy or sell a share and gets added to the price of the stock at the time the transaction is made. Since brokers have to automatically add this tax to the transaction price, there is no way to avoid it. 
 
STT is levied on every purchase or sale of securities that are listed on the Indian stock exchanges. This would include shares, derivatives or equity-oriented mutual funds units. The rate of tax that is deducted is determined by the central government, and it varies with different types of transactions and securities. STT is deducted at source by the broker or AMC, at the time of the transaction itself, the net result is that it pushes up the cost of the transaction done.
 
What the Finance Minister decides to do will be known only when the budget is announced next month. Till then, nobody is really complaining much because market is on a high.
 


 

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