STT: Brokers seek restora­tion of re­bate un­der Sec­tion 88E of In­come Tax Act

Say move will boost eq­uity vol­umes and shore up rev­enue for the gov­ern­ment

The Hindu Business Line - - MARKET RADAR - PALAK SHAH

Eq­uity brokers are seeking restora­tion of the re­bate on se­cu­ri­ties trans­ac­tion tax (STT) un­der Sec­tion 88E of In­come Tax Act, which was with­drawn by for­mer Fi­nance Min­is­ter P Chi­dambaram in 2008.

Ahead of next month’s first Union Bud­get of Modi 2.0 gov­ern­ment, brokers as­so­ci­a­tion ANMI has urged the Fi­nance Min­istry to treat STT as ‘tax paid’ and not as ‘ex­pense’ only for those hav­ing busi­ness in­come in their books. They are not seeking abo­li­tion of STT, ANMI said in a note.

STT is a tax on share mar­ket trans­ac­tions and gets au­to­mat­i­cally de­ducted upfront based on a per­son’s turnover ir­re­spec­tive of profit or loss.

ST T was in­tro­duced in 2004 by the then Fi­nance Min­is­ter Chi­dambaram in lieu of lower tax on short-term cap­i­tal gains and ‘nil’ long-term cap­i­tal gains (LTGC) tax. Since those as­sessed un­der the head busi­ness in­come could not en­joy any lower tax, re­bate un­der Sec­tion 88E was given to them to avoid dou­ble tax­a­tion. The re­bate was mainly for pay­ing higher STT than ac­tual tax on busi­ness in­come.

In 2008, Chi­dambaram with­drew this ben­e­fit. In 2018, Fi­nance Min­is­ter Arun Jaitely de­cided to levy both STT and LTCG lead­ing to dou­ble tax­a­tion.

ANMI says only if Sec­tion 88E re­bate with re­gard to STT is re­stored in the Bud­get, it will boost gov­ern­ment rev­enues, re­duce trad­ing cost, and do away with dou­ble tax­a­tion to boost eq­uity vol­umes.

There is no way to mis­use STT re­bate as 100 per cent au­dit trail of mar­ket trad­ing is avail­able. Bla­tant client code changes where trades were mod­i­fied un­der guise of rec­ti­fy­ing er­rors are no more al­lowed and ex­changes col­lect STT upfront leav­ing noth­ing to chance.

“Un­der busi­ness in­come, profit from trad­ing is tax­able at 34.6 per cent. There is no ex­emp­tion, leak­age and cost of col­lec­tion too is zero. But with STT and busi­ness tax to­gether, the ef­fec­tive tax­a­tion comes to nearly 80 per cent un­der the busi­ness in­come. Please ap­ply STT to­wards nor­mal tax li­a­bil­ity and if that is higher than STT al­ready paid, we will pay the dif­fer­ence,” ANMI said.

A sep­a­rate rec­om­men­da­tion has also been made by an ex­change to bring down STT on de­liv­ery-based trades. STT on de­liv­ery trades is ₹20,000 on buy and sell per ₹1-crore worth turnover but the same on op­tions pre­mium is ₹5,000. If one does not con­sider STT on op­tions pre­mium, which is no­tional, and ac­tual value traded, it comes to less than ₹25. This dis­par­ity has caused cash vol­umes to dry up and made op­tions trad­ing soar, ex­perts say.

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