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seeking restoration of the rebate on securities transaction tax (STT) under Section 88E of Income Tax Act, which was withdrawn by the former Finance Minister P Chidambaram in 2008.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