Budget STT-umps markets

BUDGET & BUSINESS

Securities Transaction Tax burden increases, short-term capital gains tax up.

The Budget proposals were a dampener for the stock market. The finance minister hiked the short term capital gains tax from 10 per cent to 15 per cent, in order to encourage investors to stay invested for a longer term, but market players termed it as a sentiment-spoiler.

"What it does is that it makes the perceived sentiment of investing in equity markets less attractive," Anoop Bhaskar, Chief Investment Officer, UTI Mutual Fund, said.

However, it was the other proposal of the finance minister "" STT to be set off as a business expense rather than against other taxes paid, which was the case earlier "" that hogged the limelight.

According to the proposal, the amount of STT paid by the broker will be allowed as deduction under Section 36 of the Income Tax Act only if the income from these transactions is included under the head "profits and gains of business or profession".

The amendment will take effect from April 1, 2008 and will apply in relation to assessment year 2009-10 and subsequent assessment years. The rebate will not be allowed in or after assessment year beginning April 1, 2009.

Brokerage houses which trade in proprietary accounts, jobbing and arbitrage would be hit since the tax set-off is now likely to be only a third of that (since the tax rate is about 34 per cent).

"We did not expect this at all," said Nirmal Agarwal, President, Association of National Stock Exchange Markets of India (ANMI). ANMI is planning to make a representation to the finance minister over this issue on March 6 at a convention of brokers.

The finance minister has also proposed to bring the stock, commodity exchanges and clearing houses under the service tax net.

As per the proposal, the service tax would be charged by stock exchanges on the exchange transaction fees, listing fees, data discrimination charges (data provided to brokers by exchanges for fees) and on property rent if any being received by the stock exchanges. The service tax would be passed on to the stock brokers, which they would set off with the service tax on brokerage.

A long-standing demand of brokers has been met with the proposal to charge STT only on the premium of the options trades and this will be collected from the seller.

In case of exercised options, it will be charged from the buyer. The amendment comes into effect from June 1, 2008.

SUM & SUBSTANCE

STT set-off is likely to hit brokerage houses hard

Comexes, clearing houses to be brought under service tax net

Service tax will be charged by the stock exchanges