Union Budget 2019: FM Nirmala Sitharaman expected to scrap securities transaction tax this year

Finance Minister Nirmala Sitharaman will present her maiden Union Budget on July 5 this year. Market expects Sitharaman to scrap Securities Transaction Tax (STT) to raise volumes on the bourses.  Dalal Street is of the opinion that STT which is levied at the time of purchase and sale of securities listed on stock exchanges in India leads to double taxation after former finance minister Arun Jaitley introduced Long term capital gains tax (LTCG) of 10% arising out of securities sold on recognized stock exchanges in Budget 2018.

STT was introduced in the 2004 Union Budget and came into effect from 1 October 2004. The rate of STT differs based on the type of security traded and whether the transaction is a purchase or a sale.

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Suresh Surana, Founder of RSM Astute said, "Securities Transaction Tax (STT) collection for Financial Year 2017-18 was Rs 11,881 crores as stated in annual financial statement of interim budget 2019 and the estimates for FY 2018-19 is Rs. 12,800.  Looking back, the introduction of STT in 2004 was from the perspective of simplifying the tax regime for securities transactions. The Finance Budget 2004 had inserted STT and had simultaneously provided exemption from tax for Long term capital gains arising out of securities sold on recognized stock exchanges. As such, with the re-introduction of long term capital gains tax in excess of Rs 1 lakh on listed securities (shares / equity oriented funds) by the Budget of 2018, there is a strong case for lowering of STT. Imposition of Long term capital gains tax while keeping STT intact has resulted in double taxation. In order to increase investment in securities, India needs to align its levies with that of international markets i.e. either levy capital gains tax or transaction tax (STT). The removal or reduction of STT rate is required so as to ensure more participation in Indian capital markets, by domestic as well as foreign investors."

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Amit Gupta, Co-Founder and CEO at TradingBells said, "Securities Transaction Tax has been high for a long time and the investors are waiting for this to be brought down. Lowering it will be very positive for the domestic stock markets. If Finance Ministry decides to raise the tax rates on long term capital gains (LTCG) once again this time, it could create a negative sentiment among the investor community and may impact the markets negatively."

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VK Vijayakumar, chief investment strategist at Geojit  said, "The government is facing serious fiscal constraints. Also, it is expected to revive growth in the economy through stimulus. Therefore, it would be unrealistic to expect major reliefs like favourable treatment of STT and LTCG. The markets will be relieved if there are no additional imposts. The FM is unlikely to introduce measures that will negatively impact the market since market buoyancy is absolutely necessary to reach the disinvestment targets which are likely to be very high."

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Edited by Aseem Thapliyal