The tax was introduced in the 2004-05 Union Budget and is applicable at different rates on the value of the taxable securities transaction, defined to mean a transaction of purchase and sale of securities entered into in a recognised stock exchange in India.

Rajesh Abraham

Mumbai, Feb. 28

The Union Finance Bill 2006-07 has proposed to hike the securities transaction tax (STT) by 25 per cent from 0.1 per cent to 0.125 per cent.

STT rates were fixed when prices of securities were much lower, and the proposed increase was on expected lines, said dealers.

Mr Jaydeep Mehta, Director, Techno Shares & Stocks Ltd, said, "The stock markets have gone up by over 100 per cent since the earlier rates were fixed. The hike in STT was may be higher by five per cent than expected. But, it is no cause for worry."

Securities that come under STT include equity-oriented mutual funds (not debt-oriented mutual funds), shares, debentures and derivatives.

The Finance Minister Mr P. Chidambaram, said, "The rates for STT were fixed when prices of securities were much lower. Reflecting the increase in implicit capital gains in securities transactions, I propose an increase of 25 per cent, across the board, on all rates of STT."

Mr Gaurang Shah of Geojit Financial Services said there was some "misunderstanding" about the Budget proposal among dealers, but this was cleared after reading the fine print. (The stock market reacted negatively immediately after the STT hike proposal.) "The STT hike is very nominal and is on expected lines," he said.

STT will be applicable for all securities transactions, as proposed in the Budget, said Mr Pankaj Namdharani, Head (Equities), SPA Securities.

The tax was introduced in the 2004-05 Union Budget and is applicable at different rates on the value of the taxable securities transaction, defined to mean a transaction of purchase and sale of securities entered into in a recognised stock exchange in India.

Mr Dinesh Thakkar, Managing Director, Angel Broking, said the 25-per cent hike in STT was "not damaging" to the stock markets. "The Budget contains no negatives and most of the proposals were as per expectations," Mr Thakkar said.

(This article was published in the Business Line print edition dated March 1, 2006)
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