Govt mulls rebate on STT for stock traders

Professional traders in capital markets may get a rebate against the Securities Transaction Tax (STT) paid by them. The finance ministry is considering a proposal to provide a rebate to equity traders under Income-Tax section 88E, sources close to the development told DNA Money.

It has been a long-standing demand from the brokers' community during previous Budget sessions.

Professional traders are individuals or firms trading equities in their principal capacity. They are often called stock traders and are usually speculators who try to profit from short-term price volatility, with trades lasting anywhere from several seconds to several weeks.

Last year, government mopped up around Rs 7000 crore in STT. However, DNA Money could not ascertain how much of it is from professional traders.

At present, the government levies account for 55%, 68% and 53% of the total transaction cost in cash market delivery, cash market intra-day and futures trading respectively. Market officials say that no other global capital market has such high component of transaction taxes. Apart from brokerage cost, delivery trade in equity costs around Rs 12,000 on Rs 1 crore value trade, in which Rs 10,000 is purely STT.

STT was introduced in 2004, along with some benefits. The government fixed 0% as long-term capital gain tax and 10% as short-term capital gain tax for investors. And for professional traders, there was a rebate under section 88E for STT, which was withdrawn in 2008 due to misuse by some brokers in the form of change in client code.

The Section 88E means that if the total income of an assessee in a previous year includes any income, chargeable under the head 'profits and gains of business or profession', arising from taxable securities transactions, the assessee shall be entitled to a deduction, from the amount of income-tax on such income arising from such transactions, computed in the manner provided in sub-section (2), of an amount equal to the securities transaction tax paid by him in respect of the taxable securities transactions entered into in the course of his business during that previous year.

Recently, the stock market regulator Securities and Exchange Board of India (Sebi) sought a view on the I-T section from brokers' forum. After a span of eight years, this is the first time that the regulator has sought recommendation from brokers' forum on the section.

Sebi wrote to the broker's forum during second week of November and sought their view on reintroducing rebate under Section 88E. The regulator has also clearly asked for a comparison with other global markets and their taxation system.

The president of the Association of National Exchanges Members of India (Anmi) president S K Rustagi told DNA Money, "We have given a presentation to the finance ministry during the Budget and in this presentation, we had pitched for reintroduction of rebate under Section 88E. And we are hoping that in the coming Budget, the government might provide a rebate on STT paid in section 88E".

Kamlesh Shroff, spokesperson of BSE Brokers' Forum, told DNA Money, "We have requested the government to kindly re-introduce 88E benefits for the professional traders who do not claim capital gain. This measure will give boost to professional traders who create liquidity in the market. After 2008, most of professional traders shifted their trading to options segment due to cost differential."

A source said, "There is only one problem in introducing a rebate on STT that central board of direct taxes is not in favor of offering any exemption."

An e-mail sent to Sebi did not elicit any response.