India Reconsiders Securities Transaction Tax Cut

by Mary Swire, Tax-News.com, Hong Kong

03 October 2011

The Indian Finance Ministry is reportedly looking at reducing or even abolishing the securities transaction tax (STT). This should please investors who have to pay the tax on a share transaction whether they have made any profit or not.

STT was introduced in 2004 to stop avoidance of capital gains tax through non-declaration of gains. Normally it is payable both when shares are purchased and sold and is added to the price during the transaction.

Initially the levy was 0.15% and it is now 0.125% on both buyers and sellers for delivery-based trades. However on day trades the tax is 0.025% on the seller only.

Investors have demanded a change to the STT since it was first introduced because they say this tax combined with stamp duty, service tax and other charges, makes India one of the most expensive markets as far as transaction costs go.

There have been proposals in the past to remove the levy, including in the forthcoming Direct Taxes Code, but the government then decided against the idea.

It is thought that India is also looking at reducing stamp duty, and making the rate uniform. Stamp duty is currently levied by provincial governments and the rate is different from one state to the next. Because of the higher rate in the large cities such as Mumbai and Delhi, many brokers have moved operations elsewhere.

Any decision on changing STT or stamp duty will have to be taken by the Federal government and will then have to be accepted by the state governments as well.

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