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MUMBAI: Traders wanting to take delivery of shares against their derivative positions will have to pay the same rate of Securities Transactions Tax (STT) as they shell out for buying shares.
The Central Board of Direct Taxes (CBDT) on Tuesday clarified to the Bombay High Court that the STT — a tax that brokers collect from investors at the time of trades through stock exchanges — on physical delivery against futures and options would be 0.10 per cent per trade.
The STT rate of 0.10 per cent for physical delivery of stocks on derivatives trade would be 10 times higher than the 0.01 per cent levied on futures and options settled in cash.
Sebi in April had introduced the concept of physical settlement for those exercising their positions on expiry every month.
Trading positions that are squared off before expiry are settled in cash.
The NSE on July 17 issued an order to levy 0.10 per cent STT on physical delivery of stocks from July 26.
But, brokers opposed the move due to lack of clarity on the STT rate for physical delivery.
The NSE, however, said it was collecting dues only to stay prepared in case the tax department imposed STT with a retrospective effect.
Sebi and NSE put the onus on brokers to collect the STT on physical delivery of derivatives in case of any excess demand from the CBDT later, prompting the brokers’ lobby to move court against the decision.
Last week, the high court sought clarity from the CBDT on the STT rate.
The tax department in its clarification submitted to the court said that since derivatives contracts are being settled by physical delivery of shares, the transaction would not be any different from transaction in equity shares.
Hence, the same STT rates should be applicable to both deliverybased equity transactions and physical delivery of shares against derivatives derivative transaction.
“Thankfully, there is tax clarity now for exchanges, intermediaries and investors.
However, it is sad that one needed to go to Court for something basic which could have been issued as soon as the product was launched,” said Uttam Bagri, chairman of Bombay Stock Exchange Brokers Forum.
Brokers said the higher STT rate would hurt physical delivery of shares against derivatives.
“Majority of the traders squared off their positions on these selected stocks last month before the expiry,” said Nitin Kamath, founder, Zerodha.
“Those who trade in futures can easily square off their positions before the expiry and buy fresh next month contracts, but for those in options trades it’s a tricky situation”.
