(1) Security Transaction Tax (STT)
The reasons for making changes in this tax are contained in para 148 of the Budget Speech of the FM, which reads as under:-
“Securities Transaction Tax (STT) has a stabilizing effect on transactions, although it adds to the transaction cost. Taking note of the changes and shifts in the market, I propose to make the following reductions in the rates of tax:-
|Equity futures||: from 0.017 to 0.01%|
|MF/ETF redemptions at fund counters||: from 0.25 to 0.001%|
|MF/ETF purchase/sale on exchanges||: from 0.1 to 0.001% only on the seller”|
(2) Commodities Transaction Tax (CTT)
This is a new levy proposed in the Finance Bill, 2013 for augmenting financial resources. The reason for introducing this tax as stated in para 149 of the budget speech is as under:
“There is no distinction between derivative trading in the securities market and derivative trading in the commodities market, only the underlying asset is different. It is time to introduce Commodities Transaction Tax (CTT) in a limited way. Hence, I propose to levy CTT on non-agricultural commodities futures contracts at the same rate as on equity futures that is at 0.01% of the price of the trade”.
(a) Definition of taxable Commodities Transaction Tax
It is proposed to define ‘taxable commodities transaction’ to mean a transaction of sale of commodity derivatives in respect of commodities, other than agricultural commodities, traded in recognized associations.
(b) Rate of tax
The tax is proposed to be levied at the rate given in the Table below on taxable commodities transactions undertaken by the seller as indicated hereunder:-
|Taxable commodities transaction|
|Sale of commodity derivative|
(c) Other aspects concerning CTT
The provisions with regard to collection and recovery of CTT, furnishing of returns, assessment procedure, power of assessing officer, chargeability of interest, levy of penalty, institution of prosecution, filing of appeal, power to the Central Government, etc., have also been provided.
This tax is proposed to be levied from the date on which Chapter VII of the Finance Bill, 2013 comes into force by way of notification in the Official Gazette by the Central Government.
Further, it is proposed to amend Sec. 36 of the IT Act to provide that an amount equal to the commodities transaction tax paid by the assessee in respect of the taxable commodities transactions entered into in the course of his business during the previous year shall be allowable as deduction, if the income arising from such taxable commodities transactions is included in the income computed under the head “profits and gains of business or profession”.
It is also proposed to insert an Explanation to provide that for the purposes of this clause, the expressions ‘commodities transaction tax’ and ‘taxable commodities transaction’ shall have the meanings respectively assigned to them under Chapter VII of the Finance Act, 2013.
[E] Trading in commodities derivatives is not to be considered as speculative transaction.
[F] CTT will be allowed as a deduction if the income from such transactions form part of business income.
[G] Agricultural commodities will be exempt from such tax.
Date of application of CTT
This amendment in section 36 of the I.T. Act will take effect from 01.04.14 and will, accordingly, apply in relation to the A.Y. 2014-15 and subsequent A.Ys.
The revenue, consequent to changes made mentioned in the FM’s speech, is not going to be substantial in the background of total income-tax collections in the country. The extra revenue expected to be generated by CTT may be to a considerable extent got wiped off because of reduction in tax rates concerning STT. Further, there have been suggestions from various forums that CTT may not be levied. How this tax is welcomed needs to be seen.