Why Dalal Street is Seeking a Revamp in STT

As the countdown to the budget begins, the clamour for tax concessions from Finance Minister Arun Jaitley is rising. A revamp of securities transaction tax (STT) is among the wish-list of Dalal Street. Total abolition of the securities transaction tax would be a dream come true for the Dalal Street, but given the strained fiscal situation of the government, the expectations have boiled down to reduction in the tax or a rationalisation in its structure.

"For us if you cannot reduce the securities transaction tax overall, then you have to restructure it to basically reduce it for delivery transactions," BSE's Managing Director and Chief Executive Officer Ashishkumar Chauhan said at an event.

Introduced in 2004, securities transaction tax is a tax payable in India on the value of securities transacted through a recognised stock exchange. The purchase and sale of equity shares attract securities transaction tax @0.1 per cent from both the purchaser and seller.

Former finance minister P. Chidambaram's in the interim budget had said the government is looking to raise close to Rs 6,000 crore through securities transaction tax (STT) in FY14-15.

According to the current structure of securities transaction tax, trades in derivative segment mostly attract lower taxes as compared to delivery-based buying/selling. BSE's CEO Ashishkumar Chauhan said the tax should be reduced for delivery transactions as it would also help in attracting investments.

The tax is "lowest on options and highest on delivery transactions" so, effectively, the tax policy itself seems to promote the derivatives transactions, Mr Chauhan said.

"Currently it is Rs 20,000 a crore... Rs 10,000 a crore on the buy (side) and Rs 10,000 a crore on sell (side) if you deliver the shares. It is almost 20 times higher than intra-day trading or future trading or probably 1,000 times higher than the options trading," he said.

According to the current securities transaction tax structure, sellers of futures contract in stocks/index pay a securities transaction tax @0.010 per cent on the total contract value. The seller of option contact pays securities attracts levy @0.017 per cent on the option premium while the purchaser pays securities transaction tax @0.125 per cent if the option is exercised. (With Agency Inputs)