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The Securities Appellate Tribunal (SAT) has directed the Central Board of Direct Taxes (CBDT) to issue clarification on the collection of securities transaction tax (STT) for the newly-introduced physical settlement of equity derivative trades while disposing of the brokers’ appeal.
The direction from the Tribunal came after the Association of National Exchanges Members of India (ANMI) challenged the NSE’s July 17 circular on STT for physically-settled contracts in the F&O segment.
The NSE had shifted 46 F&O stocks (from July contracts) under the physical delivery group after SEBI’s decision to move to physical settlement in the derivatives segment in a phased manner.
The stocks include Adani Power, Andhra Bank, BEML, CG Power, CPCL, DCB Bank, Godrej Industries, IDBI Bank, IFCI, JP Associates, RCom, RPower, Reliance Naval and United Breweries.
STT @0.1%
The NSE had directed all its members in the equity derivative segment to collect STT on physical settlement of stock derivatives at the rate of 0.1 per cent, as applicable in the case of settlement by actual delivery in the cash segment. The tax should be on the settlement price to be paid by the purchaser on the futures contract which are settled by way of physical delivery with effect from Thursday.
The circular further stated that “without prejudice to the above, in the event of the CBDT issuing any clarification or amendment in this regard, in addition to or contrary to the above position, the exchange reserves the right to recover such additional STT from the members effective from the date as may be notified by the CBDT”.
However, ANMI said: “This is impractical because clients come and go and they need clarity regarding the rate of STT to be paid which would, in turn, enable the members to deposit the STT collected with the exchange. Similarly, it is mandatory on the part of the members/brokers to prepare documentation/contract notes based on the actual STT applicable to such contracts. Given these uncertainties there can be severe repercussions on the securities market, particularly in the derivatives segment.”
SAT on ambiguity
Though SAT has disposed of the petition, it concurs with the brokers on the ambiguity.
“However, given the ambiguity the circular has generated and the potential adverse effect it would have on the securities market it is in the interest of justice for CBDT to consider the matter on top priority and provide clarity in the matter as representations to that effect have been already made both by the NSE and SEBI to CBDT,” the order said. Further, the appellant is at liberty to approach the appropriate forum urgently for seeking remedy against the impugned circular at the earliest, SAT said.
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