Income coming to Core SFG exempted from tax: Govt

The government has decided to provide tax exemption for income coming to the core settlement guarantee fund, which are maintained by clearing corporations to ensure settlement of trades executed on stock exchanges.
The exemption -- to be applicable from April 1, 2016 -- would be on the lines of similar provisions that are already in place for income coming to Investor Protection Fund (IPF) set up by stock or commodity exchanges or depositories.
According to Budget 2015-16, income to Core Settlement Guarantee Fund (Core SGF) would be exempted from tax, starting April next year.
Clearing corporations are mandated to establish Core SGF for each segment of a recognised stock exchange to guarantee the settlement of trades executed.

"... It is proposed to exempt the income of the Core SGF arising from contribution received and investment made by the fund and from the penalties imposed by the clearing corporation, subject to similar conditions as provided in case of IPF set up by a recognised stock exchange or a commodity exchange or a depository," the Budget said.
"This amendment will take effect from April 1, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years," it added.

Any amount that is to be credited to Core SGF but not charged to previous year's income tax, then the same would be accounted as that year's income.

"... Where any amount standing to the credit of the fund and not charged to income-tax during any previous year is shared, either wholly or in part with the clearing corporation, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is shared," the Budget said.
The settlement guarantee fund deals with settlement defaults, mostly at times of freak trades and temporary outages on stock exchange platforms.
Clearing corporations maintain sufficient resources to cover losses due to major defaults in the market so as to avoid any systemic risk.

As per Sebi norms, at least 50 per cent of minimum required corpus for the new fund would be from clearing corporations and at least 25 per cent from stock exchange and up to 25 per cent from clearing member.
Penalties levied by clearing corporations are also credited to Core SGF.