Transaction tax on debt rolled back

Rate slashed for day traders; Tax to yield Rs 1,000 crore.

Finance Minister P Chidambaram on Wednesday partially rolled back the transaction tax on securities. He proposed to slash the rates on day-traders and arbitrageurs to 0.015 per cent (1.5 basis points) and on derivative traders to 0.01 per cent, from 0.15 per cent announced in the Budget. The finance minister also proposed to exempt debt traders from the transaction tax.

Chidambaram, however, retained the 0.15 per cent transaction tax rate on delivery-based equity trades. The tax would be shared equally by the buyer and the seller, he said.

While unit holders in equity-linked mutual funds can now claim the benefit under the new capital gains tax regime, the sale and purchase of units will be treated on a par with equity transactions and attract the 0.15 per cent tax.

The review will result in a realisation of just Rs 1,000 crore from the tax, against the finance ministry's original estimate of Rs 7,000 crore.

The review of the transaction tax rates, Chidambaram said, was designed to treat the two sets of intermediaries, those subject to capital gains tax and those who pay income tax on business profits, differently.

The revised securities transaction tax regime has, however, resulted in four different tax rates: 0.15 per cent for delivery-based equity trades, 0.015 per cent for day traders and arbitrageurs, 0.01 per cent for futures and options traders and total exemption for debt traders.

Chidambaram also proposed to allow day traders, arbitrageurs, derivatives traders and delivery-based equity transactors to take the credit for the tax against their business tax on profits.

While the long-term capital gains tax would be zero for trades that attract the transaction tax, the short-term capital gains tax would be 10 per cent, he said.

Units of mutual funds, other than equity-linked mutual funds, will be exempt from the tax. Debt dealers, who are exempted, would have to pay tax as per the normal capital gains tax regime, the minister said.