Securities Transaction tax was first introduced under the Finance Act, 2004. The tax as stated under Chapter VII of Finance Act, 2004 extends to the whole of India. It is a tax on taxable securities transaction. It is a very easy tax to calculate. No complexity is involved in the calculation of STT as one has to apply the prescribed percentage on the value of transactions. It was introduced to avoid tax evasion resulting from capital gains. During earlier times, many taxpayers didn’t declare their profits from the sale of securities and avoided paying capital gains tax. Due to the scenario specified, the government could tax only those profits that had been declared in the tax returns. This would result in a loss of revenue to the government. There is no way to avoid it now as brokers have to automatically add this tax to the transaction price.
Introduction of STT has led to the abolition of long-term capital gains on stock and equity mutual funds. However, in the current scenario, the rules for taxation of long-term capital gains have changed. Securities where the transactions of which are taxable under STT are defined under the Securities Contract (Regulation) Act, 1956.
It is a kind of turnover tax wherein one has to shell out a small amount on the amount received or payable in a share transaction. STT, applicable in case of intraday, shall be different from STT applicable in case of the delivery transaction. Such tax is levied either on sale or purchase transaction. It is similar to tax collected at source. Every transaction of purchase and sale of securities that are listed on recognized stock exchange attract the securities transaction tax. However, such transaction of purchase and sale shall be included in the definition of a taxable securities transaction.
The most important point about securities transaction tax is that it is applicable only on those share transactions that are made through a recognized stock exchange in the country. Share transactions which are done on an unrecognized stock exchange are not covered under STT. The tax rates for different types of securities vary. It is charged on the transaction value of:
| Taxable securities transaction | Revised rate from 01.06.2016 | Payable by |
|---|---|---|
| Sale of option | 0.05 per cent | Seller |
| Sale of an option, where option is exercised | 0.125 per cent | Purchaser |
| Sale of a futures | 0.01 per cent | Seller |
STT is a direct tax and is levied by Central Government. It is not a state-based tax. A transaction is taxed as soon as the process is completed. It helps to bring transparency in the system. The tax charged increases the cost of transactions.
Taxation on income gained from security transaction shall depend upon the intention or the purpose of the taxpayer. A person shall deal in shares either due to the business purpose or to create investments. STT shall be payable under both cases.
Under this case, the taxpayer shall be engaged in the business of trading in securities. That shall be his core business. If trading is for business purposes, the same shall be taxed under Income from the business. Losses suffered and gains made both shall be dealt under business income and income tax will be calculated accordingly. A rebate u/s 88E for the amount of STT paid was allowed until 31.03.2008. The same is not available anymore. Currently, the deduction of STT paid is available under section 36 of the Act.
In this scenario, as specified, the assessee is a salaried person or is trading in securities, not with the intention of carrying it out as the main business activity. If it is done with an intention to create wealth and short-term profits, then profits and losses shall be classified under Capital gains. Depending upon period of holding of securities, capital gains shall be classified as long term capital gain or short term capital gains. Tax rates under Income tax act vary for both cases. Short term capital gain tax shall be levied @ 10% u/s 111A and long-term capital gain tax shall be levied u/s 112 or 112A, depending upon the case.
Such tax is collected during any calendar month of the year. The tax so collected shall be paid to the credit of Central Government by the 7th day of the month immediately following the month in which it is collected.
Conclusion:
STT will stay and cannot be avoided whether it is the purchase and sale of shares or mutual fund units. At the end of the year, one can ask his broker to give you a certificate of the STT that you have paid through the year. You can use this amount to claim a deduction as your business expense.
Purchase or sale of
STT cannot be claimed as part of a purchase cost and it will not help to reduce the capital gain liability. However, the tax payer can claim it as business expense by persons trading in such securities.
Every recognized stock exchange and prescribed persons shall, after end of every financial year, prepare and deliver a return in such form and manner as stated to the Income tax authorities. Such form shall comprise of all taxable securities transactions entered into during such financial year in that stock exchange or, as the case may be.
Every person who fails to credit the securities transaction tax to the account of the Central Government within the period specified shall be liable to pay simple interest at the rate of one per cent of such tax for every month or part of a month by which such crediting of the tax or any part thereof is delayed.
Any person who fails to collect or deposit to the credit of Central Government shall be liable to pay penalty in addition to the amount of interest as stated above. Penalty shall be equal to one thousand rupees a day for the period in which default continues. However, it shall not exceed the amount of STT that it has failed to pay.
A sum of one hundred rupees for every day during which the default continues that is return has not been filed will be charged as penalty.
The amount of penalty chargeable shall be Rs. 1,000 per day * 20 days of default. Penalty amount shall not exceed tax payable. Therefore, penalty charged will be 20,000/-
A report is provided to the members at the end of each trading day. The report contains information on the following:
