Finance Minister Nirmala Sitharaman on Thursday said the Centre has decided to Securities Transaction Tax (STT) as it helps the government trace big-ticket spending.
Speaking in the Raja Sabha on whether STT should be removed as capital gains tax has been restructured, FM Sitharaman said: “A member of the House spoke of STT rates and reminded of a promise given long, long ago that if capital gains is there then STT will be there only for sometime. So if capital gains is there, STT may not be there. But we have kept STT because it helps us trace those with big ticket spending and also helps in widening tax base.”
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She said STT helps bring those who spend bigger amounts into the tax net, which is why it continues to be imposed and is not primarily levied due to revenue considerations.
In this year’s full Budget, FM Sitharaman raised the STT rate from 0.01% to 0.02%, which means that equity and index traders will have to pay double the tax for their trade.
During her Budget speech, the finance minister said: “I have a couple of proposals for deepening the tax base. First, Security Transactions Tax (STT) on futures and options of securities is proposed to be increased to 0.02 percent and 0.1 percent, respectively. Second, for reasons of equity, I propose to tax income received on buyback of shares in the hands of the recipient.”
Securities Transaction Tax (STT) was implemented in the 2004 Budget by UPA Finance Minister P. Chidambaram. The primary objective behind introducing STT was to address evasion concerning capital gains. Simultaneously, the Finance Minister also announced the exemption of Long-term Capital Gains (LTCG) from taxation. This decision sparked speculations at the time that STT might eventually supplant LTCG. STT imposed on a range of financial instruments that are exchanged on different trading platforms. These instruments encompass stocks, futures, options, mutual funds, and exchange-traded funds (ETFs).
NDA Finance Minister Arun Jaitley reintroduced Long-Term Capital Gains (LTCG) tax of 10% in 2018. This tax is applicable if the gains from stocks or equity mutual funds exceed Rs 1 lakh, without the indexation benefit.
Since its reintroduction, there has been speculation every Budget season about the reduction or complete removal of STT. This anticipation stems from the reimplementation of LTCG tax.