The revenue department is opposed to abolition of Securities Transaction Tax (STT) as the levy helps keep a tab on investments in markets and track flow of unaccounted funds.
"STT helps in overall regulation and keep a check on cost involved. I don't see any benefit of foregoing Rs 5,000- Rs 7,000 crore revenue ... It may boost sentiments in stock market temporarily. But I don't see any benefit," said a senior revenue department official.
The stock exchanges have been asking the Finance Ministry to abolish STT arguing that such a step would help in boosting investments in stock markets and promote equity culture in the country.
STT, which was introduced in 2004, is levied on sale and purchase of equity. It ranges from 0.0125% to 0.025% on sale and purchase of equity. The government collects about Rs 7,500 crore per annum from STT.
According to estimates, STT accounts for 51% of the transaction cost in stock markets.
The market players have raised the issue of abolition of STT during a meeting with the officials of the capital market division of the Finance Minister earlier in the month.
During the meeting representatives of stock exchanges, brokers associations and Securities and Exchange Board of India (Sebi) had pointed out that the levy was hampering the growth of markets without yielding significant revenue to the exchequer.
The government plans to collect over Rs 7 lakh crore as direct and indirect taxes for this financial year, while the yield from STT was likely to be about Rs 5,000-7,000 crore.
