Profit or loss government is always a gainer by collecting tax on transactions– Profit or loss government is always a gainer by collecting tax on transactions–

Profit or loss government is always a gainer by collecting tax on transactions–A case for abolishing Security Transaction tax (STT).

Proposal to increase Security Transaction Tax rates  (STT)  in case of future and options  will be an additional burden on majority of traders who are  losing money.Tax on transactions:

Tax on transactions is such that collecting government always collect tax irrespective of fact whether the traders gain out of it or not. Whether, it is a tax by way tax on manufacture, import , purchase or sale of goods and services.

Security Transaction Tax, popularly known as STT was introduced in the year 2004 and It was imposed in a manner that tax on income in security transactions was reduced by way of exempting Long-term gains, and giving concessional rate of tax on short-term capital gains, and in case of trading transactions STT was allowed as an expenditure, deductible from income.

Whether there be, a profit or loss tax on such transactions remained in force and is collected.

Proposed amendment, notes and speech of honorable Finance Minister are extracted below with highlights added.

Proposed amendment:

Amendment of Act 23 of 2004.

155. In the Finance (No.2) Act, 2004, in Chapter VII, in section 98, in the Table, in serial number 4, in column (3), with effect from the 1st day of October, 2024,––

        (i) against entry (a) relating to sale of an option in securities, for the figures and word “0.0625 per cent.”, the figures and word “0.1 per cent.” shall be substituted; and

(ii) against entry (c) relating to sale of a futures in securities, for the figures and word “0.0125 per cent.”, the figures and word “0.02 per cent.” shall be substituted.

Notes on clause no. 55 reads as follows:

Clause 155 of the Bill seeks to amend section 98 in Chapter VII of the Finance (No.2) Act, 2004 relating to charge of securities transaction tax. The said section, inter alia, provides that the securities transaction tax on sale of an option in securities is 0.0625 per cent. of the option premium. The section also provides that the securities transaction tax on sale of a futures in securities is 0.0125 per cent. of the price at which “futures” are traded.

It is proposed to amend entries (a) and (c) in column (3), in serial number (4) of the Table to the said section to increase the said rates of securities transaction tax on sale of an option in securities to 0.1 per cent. of the option premium, and on sale of a futures in securities to 0.02 per cent. of the price at which such “futures” are traded. This amendment will take effect from 1st October, 2024.

From budget speech of honorable FM

Deepening the tax base

157. I have a couple of proposals for deepening the tax base. First, Security Transactions Tax on futures and options of securities is proposed to be increased to 0.02 per cent and 0.1 per cent respectively.

Unquote:

This is just a case of increasing tax rate on some type of transactions in securities.

How deepening of the tax base will take place is nowhere explained and author could not understand it. If any learned reader , has any idea, as too  how this will deepen tax base, kindly share your views and expertise.

As per author, in fact, It is likely to reduce traders and their volume of business.

The traders  are mostly looser in future and options.

The extent of loss is so high that as advised by SEBI every share broker give a warning to his client , just at the time of login ,for first time on any day, and before any order is placed and irrespective of whether the client has ever entered into transactions in option segment or not.

The warning is on the following lines:

                         Risk disclosure on Derivatives

9 out of 10 individual traders in equity future and option segment, incurred net losses,

On an average , loss makers registered net trading loss close to Rs.50000

Over and above the net trading losses incurred loss makers expended an additional 28% of net losses as transaction costs.

Those making net trading profits, incurred between 15% to 50% of such profit as transaction cost.

- Source SEBI study.

Unquote:

The client has to accept the above risk factor by clicking in style like “ accept “  or” Ok, got it “then only he can start trades for any day.

Share brokers remain more interested in inducing clients to indulge into such transactions and many of traders have an instinct to speculate. That is reason that large number of traders indulge into F & O ( Future and option) trading. Apparently , therein investment is low but transaction cost is high. Transaction cost includes many type of charges levied by broker, stock exchange, SEBI on which GST is also levied, Stamp duty on contracts and STT are also levied.

The traders may  lose money but everyone else is gainer and the governments are  always  gainers from active people who do some work, whether make money or lose money.

In view of facts that long-term capital gains are now mostly taxable, tax rates on all type of capital gains are increased w.e.f. 13^th July, 2024 it is time to reconsider levy by way of STT and abolish it.

As per receipt budget, STT is included in head

2. Taxes on Income

Total-Taxes on Income was Rs.  833259.76 crore  for FY 2022-23 in which STT was to the tune of  Rs. 25085.37 crore that is 3.01 percent of total.

There  is now  one tax concession for long-term capital gains with STT remains and that exemption is increased from Rs. one lakh to Rs.1.25 lakh in case of some type of assesses.

All other concessions  related with STT are no longer effective from 13^th July, 2023 because short-term capital gains will be now taxed uniformly irrespective of levy of STT or not.

STT will be claimed by traders for that reason income-tax will be less.

Therefore, net effective collection or gain by way of STT will only be about 50% of STT

By abolishing STT,  tax base can be deepened  , stock exchange will get a major  boost, work will be very much simplified and disputes will be reduced.

Honorable FM madam is requested to consider and abolish STT.