The Hindu Business Line : Securities transaction tax regime to come into effect from Oct 1

THE Securities Transaction Tax (STT) regime for the capital market would come into effect from October 1, 2004. A notification to operationalise the new tax structure from this date is to be issued by the Ministry of Finance within the next couple of days.

The Finance Minister, Mr P. Chidambaram, has given his assent for the issuance of the notification, a senior Finance Ministry official said.

The Central Board of Direct Taxes (CBDT) has completed its part of the paperwork, leaving the final steps for notifying the date to the Union Government.

In the interim, the Government has asked the Securities and Exchange Board of India (SEBI) to alert market participants including brokers on the date from which the new tax regime would come into play so as to keep them ready. "We have asked SEBI to alert the brokers on the date for the changeover," a senior Finance Ministry official said.

Officials said that the CBDT would issue rules for STT soon after the notification on the new taxation regime is issued.

The rules would specify the method of determining the price of taxable securities both in the cash and the derivatives segment of the market.

The STT regime was initially announced by Mr Chidambaram, in his Budget speech on July 8, 2004.

After factoring in the views of some of the market participants, the Finance Minister had on July 21 announced changes to the same. He held that the 0.15 per cent STT would be confined to only delivery-based trade in equities.

Sale and purchase of bonds were totally exempt from the levy.

On delivery-based trade in equity, the Finance Minister made two significant modifications.

Firstly, the 0.15 per cent rate would be split equally between the buyer and the seller.

This is in contrast to Mr Chidambaram's original proposal, where the buyer was required to fork out the entire levy.

Secondly, intermediates who declare business profits on delivery-based transactions can also claim credit for STT against the tax paid by them on business profits.

Further, the STT rate for day-traders and arbitrageurs had been slashed to 0.015 per cent.

They have also been allowed to set-off their entire STT liability against the tax paid by them on business profits.

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